881.00/11–1051: Despatch
The Counselor for Economic Affairs of the Embassy in Greece (Turkel) to the Department of State
No. 662
Subject: Statement on Greek Government Economic Policy in Relation to Military Defense Effort by George Kartalis, Minister of Coordination.
On October 30, 1951 the Chief of the ECA Mission to Greece sent a letter to the Greek Prime Minister advocating that a number of specific matters be dealt with promptly. A copy of this letter is attached as Enclosure No. 1.1
Mr. Kartalis, who was Minister of Finance in the short-lived EPEK Government during the spring of 1950 and who has recently been named Minister of Coordination, replied at a meeting of the Steering Committee on November 3rd. Five copies of a transcript of Mr. Kartalis’ statement are attached as Enclosure No. 2.1
Briefly, he indicates that the Government will try vigorously to enforce price control and wage stabilization policies. At the same time efforts will be made to increase tax revenues while cutting budgetary expenses; it may be feasible to reduce the deficit by a couple of hundred billion from the previously estimated 1,200 billion drachmas. Mr. Kartalis indicates that it will be almost impossible to make further savings with military expenses accounting for 43% of the budget and almost 10% of the national income, including aid. Under these circumstances the problem of maintaining financial stability and a minimum level of investment would have been difficult even at the assumed aid level of $250 million. The Government is taking steps to restrict credit but crop concentration for rationing is expected to increase the currency circulation. The Government believes that essential reconstruction projects must be continued, as these are the only permanent solution to Greece’s economic problems, and also because of the shattering effect upon the morale of the Greek people if they are faced with the fact that no improvement of their present low standard of living is likely.
[Page 519]Mr. Kartalis suggests that the ordinary budgetary expenses should be provided from Greek resources. Extraordinary and non-recurrent expenses, including basic investment and the cost of maintaining an army strength in excess of 80,000 men should be covered by aid. Therefore the present Government endorses the representations against an aid cut which were made by previous Governments.
Mr. Kartalis’ statement that it will be very difficult to make a sizeable budget reduction is probably correct. With one-third of the fiscal year past it will not be feasible to make the savings which might have been possible by an earlier and rigorous survey of the Mavros budget with its estimated 1,200 deficit.
Mr. Kartalis correctly anticipates that the poor state of the Greek civil service will limit some governmental plans. He does not mention the equally weak condition of the present Government, which may not be able to institute strong measures without bringing about its own downfall. For example, even if it should be considered desirable to set maximum as well as minimum wages, it is most improbable that this or any other non-dictatorial Greek Government could enforce such a measure. This limitation may also apply to the badly needed anti-inflationary program which Mr. Kartalis proposes to put into effect.
Mr. Kartalis states that 43% of the budget (presumably the Mavros budget) and 10% of the national income will be spent for defense during the present fiscal year and that this is beyond the ability of the economy. These percentages would be more nearly 36% and 8% if the public security expenditures were not lumped with national defense; public security forces include 23,400 gendarmerie in paramilitary formations but also include large numbers of town police with a tenuous relationship to the national defense establishment.
The most important theme developed in the statement was summed up as follows: “Military expenditure designed to serve wider international defense requirements and objectives should be treated separately and covered by contributions out of the wider resources of the community of nations which it serves.” Local newspapers are already hammering this point and it is an argument which will probably commend itself to all Greek political figures during the immediate future.