881.00/7–2852: Telegram

No. 431
The Secretary of State to the Embassy in Greece 1

top secret
priority niact

355. Reference Embtels 327, July 262 and 337, July 28.3 After careful consideration ur recent estimates outlook for success proposed currency reform and in consultation with Treas and MSA/W, Dept agrees that Kartalis and Mantzavinos shld be encouraged to proceed with implementation reform program.

Approach already made to King and his suggestion that problem be discussed with you open way for frank and thorough exposition US attitude. You are authorized to indicate to King that currency reform scheme advanced by Kartalis and Mantzavinos has, in opinion US officials who have given it thorough study, good chance of success if instituted and carried out by a govt sincerely committed to its implementation and strong enough to see it through to its conclusion.

You shld make clear at all times, of course, that we are not committed to any one particular polit solution. Our interest is that, shld Greece decide to embark on a program which has the possibility of restoring a considerable measure of econ health but which must steer a delicate course among dangerous polit shoals, the composition of the Grk Govt responsible for this program shld have the genuine backing of the Palace and the major polit parties.

No matter what our protestations, we must expect program may be widely labeled as “made in USA”. Every effort shld be made to pt up Grk initiative in undertaking program, including formation of special govt to carry it out. We shld, however, go as far as we can, short of intervention in Grk internal affairs, to give advice and lend helping hand to any Cabinet which has courage and will [Page 802] to attempt drastic solution which might, if not successful, result in untold harm to whole Grk econ structure.

Dept fully aware of polit difficulties and perhaps even impossibility achieving govt able put through proposed reform to successful conclusion. It is recognized that you shld have considerable latitude to play situation by ear in Athens. In any approaches which you decide to make to King or other Grk officials sufficient freedom of action shld be maintained to permit opportunity for “further consideration” or “reappraisal” by Wash if, in ur opinion, events shld take a turn that wld jeopardize success of project.

Both Emb and MSA/G shld, in our view, give urgent consideration to alternative measures which might have to be taken on short notice if implementation of currency reform shld in its early stages give evidence of not producing anticipated results. Dept and MSA/W will also undertake studies along same lines.

  1. Drafted by Baxter and cleared with Richards, Kenney, Byroade, and Overby (Treasury); repeated for information to Paris eyes only for Draper.
  2. Telegram 327 transmitted Embassy comments on political points made in telegram 314 to Athens, July 25, regarding the political requirements for currency reform. (881.10/7–2152) If the program for currency reform by a three-party coalition or a service government were abandoned, the present government would carry out a simple currency devaluation and the currency stabilization program would be substantially relaxed unless the United States intervened as much as and for longer than necessary to get currency reform. (881.10/7–2652)
  3. Telegram 337 reported that the King had asked Mantzavinos to discuss the problem of establishing a three-party coalition with Peurifoy, which enabled the Ambassador to commend rather than initiate the proposal. The critical question was whether the Rally would give a vote of confidence to a three-party coalition in exchange for the King’s assurances of elections after six months. (881.00/7–2852)