865.00R/9–1051
Memorandum of Conversation, by George A. Tesoro of the Office of Western European Affairs
Subject: Meeting at ECA on Italy’s Economic Problems1
| Participants: | Signor Pella, Italian Minister of the Budget |
| Giovanni Malagodi, Italian Representative in FEB | |
| Dott. Massimo Magistrati, Italian liaison with ECA Mission, Rome | |
| Mr. Egidio Ortona, Counselor, Italian Embassy | |
| Mr. Paul Rogers, Italian Technical Delegation | |
| Mr. Richard Bissell, ECA | |
| Mr. H. Van Cleveland, ECA | |
| Mr. Wm. M. Blaisdell, ECA | |
| Mr. George A. Tesoro, State, WE | |
| Mr. Weir Brown, Treasury | |
| Mr. Phillip Shafner, Treasury | |
| Mr. T. Shelling, Executive Office |
Mr. Bissell explained that it is not possible at this moment, because of the Congressional situation, to make any commitments on the U.S. aid.2 Negotiations on the U.S. aid in its various forms, as well as on the size of the military effort expected from each country, would probably be possible only by the middle of October, either in FEB or, more probably because of the time element, bilaterally in the various capitals. He stated that we are in full agreement with Mr. Pella’s exposition of objectives and goals, and that we recognize that civilian investment in Italy should be continued, probably at a rate higher than in other countries, especially for the [Page 655] development of the South and to increase industrial capacity directly related to the defense effort. He stated also that we recognize the necessity of maintaining financial stability, but that also because of domestic political considerations, we must limit our economic aid to the amount indispensable to finance essential import requirements, avoiding granting funds which would result in increase reserves (even though they would be useful from a psychological point of view, for a safer monetary expansion in promoting defense production).
Mr. Bissell said that U.S. aid should be considered as a whole, including economic aid, off-shore procurement of end-items for the benefit of the producing country, and off-shore procurement for other NATO countries, although the last technique would relieve the foreign exchange situation, but not the internal budget. He stated that it is absolutely impossible now, and probably it will not be possible for some time to give even a rough estimate of the offshore procurement. Unofficially Mr. Bissell expressed his hope, however, that economic aid plus off-shore procurement would be sufficient to meet the essential dollar requirements of the Italian balance-of-payment; he said also that he hoped personally that some arrangements could be made for advance payments and progress payments on off-shore contracts by the Department of Defense, to avoid excessive financial strain in the countries concerned. He said that only if a major crisis develops, would we consider the possibility of requesting of Congress an additional appropriation at the beginning of next year.
Mr. Bissell finally said that our presentation to Congress implied a level of extraordinary defense expenditures higher than 250 billion a year, and that we hoped that the Italian Government will be able to take action in that direction.
Mr. Pella expressed thanks for the frankness and warmth of the conversations and stated that he understood both the substantive and procedural difficulties of the situation we are facing. With reference to Premier De Gasperi’s visit to Washington, he stressed that public opinion, and parliamentary situation required that economic problems should not be completely excluded from the conversations. Obviously, he said, it is not necessary to mention figures, but ideas, principles, and general political assurances that U.S. support will come, in a form or another, to the limits which are essential to meet the common defense goals.
After stressing the inter-relationship of balance-of-payment and government budget, as well as of unemployment and migration, Mr. Pella stated that as far as the size of the rearmament program was concerned, he wanted to be over-cautious in order to avoid raising false hopes. He prefers to have an announced goal somewhat [Page 656] smaller than the probable actual performance, rather than vice-versa. After pointing out the paramount importance of the moral aspects of the support given to the Italian Government by the U.S., Mr. Pella suggested that some specific problems be given consideration with a view toward some decision before De Gasperi’s visit, namely: (1) freight rates (which are so important for the costing of imported goods, and therefore affect inflationary pressure, cost of living, etc.); (2) U.S. wheat requirements (if not met, would create a 41-billion lire cost differential, which would have to be covered either by subsidies increasing the budgetary deficit, or by raising the cost of living); (3) coal; (4) ECA suspension of both dollar allotment and counterpart releases.
Mr. Bissell said that he had some hope on #1, and that ECA would give consideration to the other points, although #3 appeared to be the most difficult of the problem mentioned by Mr. Pella.
(In answering a question by Mr. Cleveland, Mr. Pella explained that the extraordinary appropriation of 250 billion lire includes 43 billion lire for miscellaneous, personnel etc. which does not imply any gap between commitments and cash outlays. The balance of 207 billion should be all contracted for by December 31, and cash outlays would take place as follows: twenty percent after the signature of the contract, sixty percent as progress payments, the balance after delivery. The average lead is 8 months but it is expected that by June 30, 1952 practically the total amount will be actually spent. The only category including long-lead items is an item of about 40 billion for ship repairs and construction, but even these for precautionary measure are budgeted for fiscal 1952.)
- Giuseppe Pella and his advisers were in Washington to attend the Sixth Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development and the International Monetary Fund, September 10–14.↩
- In a memorandum of September 10, Stanley B. Wolff noted that the ECA was considering an allocation of $178,218,000 to Italy for fiscal year 1952 whereas the Italians were anticipating $275 million. Wolff conjectured that the principal effect of the proposed reduction would be “to kill any possibility of persuading the Italians to make supplementary appropriations for defense production in FY ’52.” (Italian Desk files, lot 54D328, 340–ECA)↩