740b.5 MSP/3–1052

No. 688
Memorandum of Conversation, by the Director of the Office of British Commonwealth and Northern European Affairs (Raynor)

top secret
  • Subject: Additional Aid for Iceland


  • MSA

    • Mr. Hopkinson
    • Mr. Gordon
    • Mr. Woodbridge
  • BNA

    • Mr. Raynor
    • Mr. Ronhovde
    • Mr. Byrns
  • USAF

    • Mr. Newmark

At a meeting on March 10, representatives from State, Air Force, and MSA discussed the advisability of giving additional indirect aid to Iceland through EPU during the FY 1952.

The representatives from MSA stated that Iceland desires additional MSA funds during the present fiscal year but, on economic grounds, Iceland’s case is not strong. MSA has suggested that the foreign exchange required could be obtained by Iceland’s drawing on its EPU quota or deliberalizing, steps which Iceland claims are not possible without a political crisis.

I pointed out that there were rather serious political implications involved, which have been confirmed by telegrams from our Minister in Reykjavik, Mr. Lawson.1 I said that, because of the coming negotiations for additional military facilities, we believed it would be most unfortunate if a cabinet crisis and elections led to a chaotic state during which no negotiations could be carried on. Furthermore, the political parties might put the blame on us, holding that the U.S. was not carrying out its commitments made under the Marshall Plan. It would be most unfortunate if a cabinet reshuffle led to the dropping of the present Foreign Minister, Bjarni Benediktsson, who was ahead of the Government and people in meeting our defense needs.

Mr. Newmark declared that the Air Force considered Iceland in the top priority category. He pointed out that Mr. Finletter had considered the country to be of such strategic importance that he had made a particular effort to discuss our requirements there with Minister Lawson personally. Mr. Newmark believed that additional funds should be made available to the Icelanders in order to [Page 1515] sweeten the atmosphere for the coming negotiations and to soften some of the discontent which has resulted from the slowness of our defense program in Iceland. He said that if MSA funds could be given Iceland this fiscal year it would help tide them over until our construction program got more fully under way. MSA accepted Mr. Newmark’s offer to furnish a memorandum from Air Force or Defense to support the desirability, from the military point of view, of giving these funds to Iceland.2

Mr. Hopkinson said (with Mr. Gordon and Mr. Woodbridge in agreement) that although meeting Iceland’s request could not be justified solely on economic grounds, MSA was aware that there were politico-military reasons which could so justify it. MSA was willing to approach Harriman’s office for approval of this additional aid, which it was thought should be approximately 2 ½ million dollars.

Mr. Byrns said that the 2 ½ million dollars would not guarantee the success of the negotiations, which would be most difficult, but that everything possible must be tried that would help to move them forward. Mr. Ronhovde pointed out that we had also to remain on friendly terms with the Iceland Government in order to continue to live under the present defense agreement.

I said that I believed that it was clearly in the national interest to make this grant to Iceland, and that it could be justified before Congress if necessary. I agreed to send a memo to MSA giving State’s views on the political implications.3

  1. Telegrams 130 and 132, Mar. 8 and 9, from Reykjavik; each offered the opinion of the Minister in Iceland that failure to provide aid to Iceland under the Mutual Security Act would result in political instability within the government. (740b.5 MSP/3–852 and 3–952)
  2. In fulfillment of Newmark’s offer, Secretary Lovett sent to Harriman on Apr. 5 a letter in which the argument was made that the appropriations for military construction in Iceland, amounting to $29.5 million for fiscal year 1952 and approximately $23 million for fiscal year 1953, would not substantially alleviate the economic difficulties which Iceland was then experiencing. Lovett therefore recommended that additional economic aid be extended to Iceland through the Mutual Security Program. (711.56340B/4–552)
  3. It is not clear whether a memorandum of the sort mentioned here was sent to the Mutual Security Agency, since none has been found in Department of State files. In any case, according to telegram 153 from Reykjavik, Apr. 10, the Mutual Security Agency agreed on Apr. 8 to grant to Iceland an additional $2 million economic aid for fiscal year 1952. (740b.5 MSP/4–1052)