No. 320

Italian Desk files, lot 54D328, 340–ECA

Memorandum by Stanley B. Wolff of the Office of Western European Affairs to the Deputy Director of That Office (Williamson)


Subject: U.S. Aid to Italy for Fiscal Year 1952.

Here are my initial reactions to the ECA presentation:

1. $275 million (model II figure) represents the minimum amount of U.S. aid required to secure a “maximum” Italian defense effort.

2. $1005 million, the ECA target figure for a “maximum” Italian defense effort in FY 1952, is higher than can realistically be anticipated.

3. A more feasible target figure would be $925 million.

4. This figure could be achieved without the necessity of a politically unpopular supplementary defense appropriation.


The Italians have consistently refused to commit themselves to increase their military expenditures in FY 1952. All available information indicates that an aid figure of $275 million (plus $58 million in offshore procurement) is not going to persuade them to make such an increase, since this is the amount of US aid that they anticipated getting in support of their present program, and which they considered inadequate to support even that effort. (Note—$275 million aid figure was made known to them at the time of the bilateral discussions in the spring of this year.)

The Italian Government’s attitude is based upon its knowledge of Italy’s internal political and economic situation, and on its estimate of the dollar balance of payments deficit.

Increased military appropriations would enable the Communists and their Socialist Allies to propagandize that the Government was putting the wishes of American war mongers above the needs of Italy’s poor and unemployed. The additional aid the Italians would secure (i.e. $112 million in economic aid plus $40 in additional offshore procurement) for increasing their program by $205 million, would seem to make it well worth their while to agree. However, this is based on the assumption that the Italians would have maintained their present program at a level of $800 million per year despite [Page 722] US aid of only $163 million plus $18 million in offshore procurement. There is no evidence to support such an assumption.

The Italians estimate their FY 1952 balance of payments deficit at $332 million. ECA/Rome considers this a fairly realistic estimate (see Toeca 994, Sept. 10 and Toeca 1045, Sept. 281). If they were to receive only $181 million from the US (16318) they would anticipate a dollar deficit of over $150 million in FY 1952, almost one-third of their total gold and dollar reserves. Given the present Italian Government’s concern for financial stability and its fear of the inflationary forces that would be set loose if public confidence in the lira were to be impaired, it is unrealistic to anticipate that defense expenditures would be maintained at present levels, if the total US aid were substantially less than $275 million.

As to the chances of securing a supplementary appropriation in FY 1952, ECA/Rome states (see Toeca 1069, Oct. 22) it is practically certain that the Government will not request any additional defense appropriations for this fiscal year.

In my opinion, the most that can be anticipated from the Italians in FY 1952 would be an increase from the present $800 million level of defense expenditure to a total of $925 million. The $925 million would consist of $525 million regular military budget plus $400 million (i.e. 250 billion lire) extraordinary defense expenditures.

This could be accomplished without a supplementary appropriation by the use of the Italian Government’s present authority to let contracts against a proposed budget prior to legislative approval of the budget. (See Toeca 1069.) Thus, contracts to the value of $125 million could be let in the last half of the current fiscal year against FY 1953 appropriations. To maintain the $925 million rate in FY 1953, the Italians would have to again resort to this device in the last half of FY 1953 or vote a higher total appropriation for FY 1953. The last alternative would be preferable and we should use our leverage to persuade the Italian Government to increase its FY 1953 budget request, to be submitted in January 1952, rather than spending our efforts in attempting to secure a supplemental appropriation for FY 1952, which is already close to one-third spent.

The reason I consider that $925 million is a rate of expenditure considered possible of realization derives from the negotiating history. When the Italian Government announced its extraordinary defense program of 250 billion lire ($400 million) in December 1950, certain statements were made by Italian spokesmen to the effect [Page 723] that this was a one-year program. Later these statements were interpreted by the Italians to mean that the funds were to be “spent or committed” in one year. However, by insisting that we considered the 250 billion lire a one year rather than an 18 month program, we could require that, to secure the $275 aid, the Italians carry out this program at “the same rate” through FY 1952, resulting in an extraordinary defense expenditure of 250 billion lire ($400 million) plus a regular military budget of $525 million, or a total of $925 million for FY 1952.

  1. Neither printed.
  2. Telegram Toeca 1069 was a six-page appraisal of the current situation in Italy regarding defense appropriations. (765.5–MAP/10–251)