The private discussions which Ambassadors Harrison, Thompson, and Velebit began in late February increasingly centered on specific territorial, economic, and political aspects of a possible package settlement. Regarding the territorial aspect, the initial Yugoslav position was that Yugoslavia should receive a strip of land from the coast to Bassovizza in Zone A, but that no territorial adjustments should be made in favor of Italy in Zone B.
In a lengthy meeting on March 17, however, Velebit accepted a United Kingdom–United States counterproposal on the territorial question, which would be part of the following package proposal the three Ambassadors were to submit to their respective governments for their approval:
- Yugoslavia to receive the Bassovizza strip in Zone A, Italy to benefit from a rectification of the zonal boundary in her favor in the Muggia peninsula,
- Italy and Yugoslavia to conclude a minority statute on the basis of reciprocity,
- The United Kingdom and the United States, and perhaps France, to issue a declaration of non-support of further territorial claims,
- The United Kingdom and the United States to attempt to obtain from Italy agreement to conclude within several months a lump-sum settlement of outstanding financial and economic questions,
- The United Kingdom and the United States to attempt to obtain Italian acquiescence in having the Allied Military Government approve the establishment of a Slovene credit institution and one or more cooperatives,
- The United States and the United Kingdom to provide economic assistance for port and railroad construction (Thompson had told Velebit at this meeting that it would pose a problem if the United States appeared to be buying the settlement; he therefore suggested that United States aid be confined to an amount which could merely be added to United States economic aid without being conspicuous. Harrison had later told Thompson that he had raised this issue Eden, who said it would be difficult for Great Britain to provide economic assistance, but that the British Government hoped to be able to furnish an additional one million pounds in economic assistance. Thompson told the Department of State that he guessed $20 million of United States additional economic assistance would satisfy Yugoslavia, “particularly if we could hold out hope of some further assistance in future years.”)
- The United Kingdom and the United States to explore with Italy the possibility of autonomy in Zone A, by which the Yugoslav Government meant a large measure of local government which would make it possible for the Trieste administration to work out [Page 383] an arrangement which would insure full use of the city and the port.
Velebit also pressed for the establishment of a port authority for the free port and said he would present a more precise idea of this in the near future. After discussing all the conditions, Velebit said that the Yugoslav Government wished to go to its maximum position before the United Kingdom and the United States presented the package to Italy on the understanding that the two countries would press the solution on Italy. Thompson replied that he felt that the two countries could go quite far in pressing the territorial solution on Italy, but he pointed out that he could not undertake to insist upon many of the Yugoslav conditions or even reach a firm decision about some of them until the Italians had been consulted.
Thompson informed the Department of State that he was optimistic Yugoslavia would agree to the Muggia peninsula rectification and that he expected a reply by March 19. If Yugoslavia accepted, Thompson asked whether the Department considered it worthwhile to explore with Velebit which conditions Yugoslavia would drop if Italy agreed to the Bassovizza proposal. He also expressed his belief that the matter could not be brought to a head until the United States could give at least a rough indication of the magnitude of the economic aid. (Telegram 3990 from London, March 17; 750G.00/3–1754)
In telegram 4848 to London, March 18, the Department of State reported it was most gratified at the encouraging progress reports from Thompson. It expressed its approval of the proposal for a settlement as Thompson had outlined it and indicated that it would support the proposal with the Italians. The rest of the telegram was devoted to specific comments on the various points in the proposal. (750G.00/3–1854)