S/SNSC files, lot 63 D 351, NSC 5411 Series

No. 181
Memorandum by the Assistant Secretary of State for European Affairs (Merchant) to the Under Secretary of State (Smith) 1
top secret


  • Trieste Negotiations—Ambassador Thompson’s Recommendation for Economic Aid to Italy.

As you know, the London negotiations with the Yugoslavs have taken an encouraging turn, and if there is no backsliding we may be able in a few days to go to the Italians with a tolerable basis for agreement.

The Yugoslavs have put great emphasis on an unpaid balance on reparations which the Italians allegedly owe, and which the Italians vigorously deny. It looks now as if we can get the Yugoslavs not to make the whole agreement contingent on the settlement of the reparations dispute. But Thompson argues in the attached telegram,2 and I think correctly, that if we leave the reparations settlement for later negotiation it is likely to poison the relations between the two countries and prevent the main benefits we want out of a Trieste agreement. Conversely, he argues that in spite of the bitterness on both sides, the Turkish-Greek example shows what “tremendous advantage to the unity and security of the West” can accrue if disputes can be cleared up. He believes that with U.S. aid to Italy of approximately $20 million, beginning in FY 55, “we could quickly remove outstanding difficulties in Trieste settlement”. (This has no connection with the extra $20 million of aid in the form of wheat, which we plan to give the Yugoslavs in FY 54.) He thinks that “deliveries (from Italy) under financial settlement spread over several years should be a restraining influence on Yugoslav actions and should develop contacts and basis for continued economic cooperation—considering billions we have put in the two countries believe this relatively small amount could pay tremendous dividends in protecting our investment even at the expense of cutting down further military aid—Am aware of difficulties but believe stakes are great.”

I think our negotiations are now approaching the point where their success and the incalculable benefit to our interests of a Trieste [Page 403] agreement may turn on Thompson’s ability to speak with authority on this point. While I realize we can make no formal commitments, I believe that if Thompson could be told that the Secretary of State and the Director of the FOA have agreed that they will find a way to make the above sum available to Italy if it is needed to secure a Trieste agreement, it may make the difference between success and failure in our negotiations.


If you agree, I recommend that with the Secretary’s approval you arrange to meet with Mr. Stassen, show him Thompson’s wire, and if possible get his agreement to give Thompson this assurance.3

  1. Drafted by Hooker and Bonbright and cleared in draft with Jones, Barbour, and Nolting. The source text bears the handwritten notation: “Sec approved.”
  2. No telegram was found attached to the source text, but the reference is presumably to telegram 4418 from London, Apr. 7, in which Thompson presented the arguments described here. (750G.00/4–754)
  3. A handwritten note by Barbour at the end of the source text reads: “Acting Secty called Mr. Rand FOA who agreed to provide the funds. Gen. Smith also called Mr. Kyes and informed him of the action.” In telegram 5375 to London, Apr. 13, Smith informed Thompson that, in Stassen’s absence, he had talked with Rand and Kyes, who had agreed to find a way to make $20 million in economic aid available to Italy, preferably over more than one year beginning FY 55, if it were needed to secure a Trieste settlement. Thompson was authorized to use this information at his discretion, if needed, in negotiating with the Italians. He was told to avoid making a formal commitment. (750G.00/4–754) Smith also raised Thompson’s suggestion regarding the $20 million in economic aid to Italy at the 193d meeting of the National Security Council, Apr. 13. President Eisenhower voiced his hearty agreement with the proposal, and in reply to Rand’s comment that FOA might not have such funds, said that the money must be found somewhere, since settlement of the Trieste issue might change the whole situation in Europe. The NSC authorized FOA and the Department of State to make this additional economic aid available to Italy if it were needed to secure agreement on the Trieste dispute. For a memorandum of that part of the discussion at this meeting which dealt with Italy and Trieste, see vol. vi, Part 2, p. 1675.