Memorandum by the Deputy Director of the
Office of European Regional Affairs (Knight) to the
Special Assistant to the Secretary of State for Mutual Security
- Defense Support Aid to WE Countries for FY 1953.
(1) I understand that MSA is recommending the following tentative figures for defense support aid to WE countries for FY 1953:
|The Netherlands—||$33 million|
I understand also that MSA is not planning any amount of economic aid for Spain out of the 1953 appropriation, on the tentative assumption that the $25 million available for Spain will probably be used for military assistance.
(2) The MSA recommendations and assumptions for France, Belgium, the Netherlands and Spain seem to be reasonable. The French situation is obviously specially important and delicate for numerous reasons, but it has received and is continuing to receive so much detailed attention that it need not be discussed in this paper.
(3) There are attached two separate memoranda with specific recommendations to increase the tentative figures proposed for Austria and Italy. Although I realize that increases over the MSA proposals may make it necessary to transfer funds from military to defense support aid, I believe that in the case of these two countries they are imperative because of what I consider to be two very delicate situations.
I don’t think we can ever afford to forget that in dealing with countries with existing characteristics based on centuries of history and of traditions it is quite unrealistic to assume that over night these countries will acquire all the virtues which we would like to transfuse into their bodies politic (virtues which we do not always have ourselves in excessive quantities). Therefore, while in theory I am perfectly willing to admit that Austria should be able to get along on $60 million, I am convinced that the Austrians will not in practice be able to bring their house into sufficient order to permit them to get through Fiscal 1953 on this modest amount of aid without serious economic and resulting political repercussions. In this regard I understand that MSA’s assumption in proposing originally $86 million in 1953 was that Austria would achieve the entire [Page 488] reform program then under consideration. The Department did not agree with the assumption at that time and has now even less reason to believe that the Austrians will make all the progress on which the $86 million estimate was predicated.
For some time we have been considering in WE the problem of estimating at what reduced figure of aid there might be a sharp increase in the temptation for the Austrians to turn to trade with the Soviet bloc (we should remember that about ⅓ of Austria’s foreign trade before the war was with countries now behind the iron curtain, and that this figure has now been reduced to approximately 11 percent). As a matter of general interest, I might mention that this theoretical question was put to Ben Thibodeaux since his return and without any consultation with us he said that a figure of $60 million would be so low as to perhaps make trade with the east more attractive than U.S. aid tied to east-west controls.
Finally, it may be appropriate to remember that, like Berlin, Austria is a showcase of the west. The Austrians, ever since the war, have been in a dangerously exposed strategic and political situation, and it would seem most injudicious to take the risk which would be involved in reducing the Austrian aid figure to $60 million. I strongly urge that we exert every effort to increase this figure to our original proposal of $86 million.
We are convinced that a reduction of defense support assistance to Italy to $80 million would result in a decrease in the over all Italian war effort regardless of what undertakings they might be led to assume in the course of the Annual Review of NATO.1 Once again we would like, and all of us are seeking in whatever ways are open to us, to influence the Italian Government toward a liberalization of Mr. Pella’s financial policies. Not only have our efforts to date been unsuccessful, but we are entering into active electoral period. National elections are less than a year off, and in this period it would be futile to press for any liberalization of the present financial policies which might raise the specter of inflation in order to achieve greater defense expenditures. Furthermore, in such a period the real risk we have to avoid is that the Italian Government might cut military expenditures in favor of social and therefore of politically more attractive programs. I hardly need to stress that the elections will imprint on Italy her political complexion for the following five years. Moreover, while of course the U.S. [Page 489] can not allow itself to be over-influenced by such considerations, it can not be denied that the Italian, be he a cabinet officer or a man in the street, is ever tempted to make comparisons with France, which with a smaller population has more abundant natural resources and a national income almost twice as large. As you know, the proposed figure for France is $330 million.
As a matter of fact, I am coming to the conclusion that a serious reconsideration of the Italian military objectives may be the principal thing which we should attempt at this time. While I can not prove it, experience over the past two years gives me the impression that there is no comparable and logical relationship between the French and Italian Forces and military aid programs, even after taking into full consideration France’s Indochina commitments. If on top of this we further reduce Italy’s defense support allocation (and we must remember also that Italy, to a larger over all extent than any other WE country, depends on imports for her raw materials) it seems that in effect we may be writing off Italy as a military asset to the collective defense. Perhaps this might be the wise thing to do on the basis of European and global strategic considerations, but I am not aware that this is either our present policy or interest.
Perhaps this is not the appropriate occasion to raise this point but unless we are to wake up in a year or two with nothing but the aftermath of an Italian Armed Forces illusion, we should get together with the Pentagon and do some serious thinking in connection with the Italian force program as it now appears in MRC 12.2
In the meantime we think it essential for political reasons that the Department exert every effort to increase the aid figures to $140 million.[Page 490]