781.00/9–1251: Telegram

The Ambassador in Greece (Peurifoy) to the Department of State

1219. Altho electoral campaign has wholly preoccupied govt and polit parties, Grk press and articulate elements of public are increasingly concerned by anticipated drastic cut in Amer aid. As soon as new govt constituted, formal and urgent representations to US may be expected.

Emb, mission and JUSMAG are also deeply concerned at probable repercussions of cut if it shld prove to be as extensive as feared. Obviously some few items cld be stricken from import program without grave loss. Most rigid austerity in use of some essentials such as petroleum products cld effect further savings. Some elements of reconstruction program cld be dropped without too much injury to economy. Sum total of these reductions cld not however approach overall percentage cut reflected in Congressional authorization without doing what might prove irreparable damage to Grk recovery so far achieved at such heavy expense and directly undermining mil effort.

Any further reductions over and above those suggested in preceding para wld have to come either from (1) food and other strictly essential consumer goods required for maintenance health and morale of population, (2) raw materials, fuels, fertilizers and equipment required to maintain Grk production employment and transport even at present inadequate level; or (3) very modest reconstruction program designed to permit gradual development in direction of self supporting economy. As to first, it is clear health and morale of population must be maintained in Greece, which lies at such strategic spot and whose standard of living is already so marginal. As to second necessity for even greater import level can be avoided only by keeping Grk production for both civilian and mil needs up at least to current levels. As to one and two, greater scarcity of consumer goods will contribute heavily to inflationary pressures which are already very serious problem. As to third, reconstruction program offers chief hope of lifting [Page 507] Greece ultimately off back of Amer taxpayer. Moreover as Dept is aware, reconstruction in Greece, having got fully under way only at end of civil war, is three to four years behind reconstruction in other ECA countries and for this and other reasons its abandonment or drastic curtailment wld have most grave effect on Grk morale.

In view small size and potentialities her industry Greece cannot be expected to make substantial contribution to mil production though all possibilities are of course being thoroughly explored. Principal Grk contribution to West mil strength lies in army of eleven divs with large readily mobilizable reserve of trained men, with excellent spirit and with constantly improving equipment. Greece is spending approx 45 percent of her budget for maintenance these disproportionately large force and US is spending more than 150 mil annually for their equipment. It will however be absolutely impossible for Grk Govt to continue to spend this proportion of its budget for mil if US econ aid is substantially cut. Moreover important elements of econ program such as transport communications, maintenance of food and fuel reserves, etc., make direct contribution to mil. Finally it wld be rash to expect morale and effectiveness of armed forces to remain at present pitch if there shld be drastic decline in gen econ welfare affecting, among others, families of soldiers. In short mil contribution of Greece to West def is to unusual degree, because of marginal standard of living and retarded postwar recovery, dependent on maintenance and at least some improvement in econ sitn. To neglect Grk economy while attempting to develop its mil strength wld be self defeating and wld jeopardize gravely US mil objectives in this part of world.

We know Dept is aware of all these factors but believed it might find useful up to minute report by reps all US agencies here. ECA/G is making careful review of entire import program to determine what reductions cld be made without grave econ, polit and mil repercussions but our tentative view is that total reduction cld not safely be over 15 percent. Even such reduction might well require some compensatory assistance to Grks on mil side to relieve large and growing burden on their budget resulting from contd maintenance under arms of 160,000 men. Lapham and Gen Frederick concur.1

  1. In telegram 1338 to Athens of September 17, Acting Secretary of State Webb informed Peurifoy that the Department of State shared his concern at the repercussions of an aid cut as foreshadowed by recent Congressional action. “Importance adequate aid will be stressed connection House Senate conference and with appropriations bill. Dept hopes enough aid will finally be allocated to Greece for pursuit objectives but expects reduction. Doubly important Greeks make best use of aid and own resources.” (781.00/9–1251)