781.5 MSP/8–752: Telegram

No. 432
The Ambassador in Greece (Peurifoy) to the Department of State 1

top secret

480. Dept pass MSA for FitzGerald.2 Ref Repto 67 (Repto 390 to Wash).3 Since my return to Athens and release my statement re stabilization,4 fol developments have occurred.

When informed privately of level of aid figure for current year, Kartalis stated that, if figure were announced, he wld recommend to govt its immed resignation. He argued that figure must have been fixed on assumption currency reform wld go through, that reform is most uncertain since polit prerequisites do not yet exist, that in any case assumption on which aid figure fixed can not be explained to Grk people and that they wld believe govt had carried out stabilization program at behest of Amers merely in order to justify aid cut. This popular reaction reflected thru deputies wld make position of govt untenable and it wld be preferable to resign over clear cut issues rather than as result further defection of deputies. He strongly urged (1) that larger aid figure be announced, [Page 803] subject to reduction if currency reform goes through or (2) no announcement whatsoever be made and, in view Venizelos well known indiscretion, govt not be informed of aid figure at this time.

Lapham and I subsequently decided it wld be unwise and impracticable to conceal from govt aid figure on which all planning must be based. Lapham therefore informed Venizelos this morning that $40 million allotted for first six months. Venizelos replied that it was doubtful whether govt could continue under these circumstances, that he wld consult with Plastiras upon latter’s return next Sunday and wld communicate with us Monday.5 He added it wld be difficult maintain current level of mil expenditures in light of aid cut. It was agreed at Venizelos request that no announcement of aid figure wld be made at this time.

I met with Papagos and Markezinis yesterday to explore further possibilities of interim three-party govt. I described our economic objectives in Greece, warned of severe cut in aid without mentioning specific figure and, having obtained promise of secrecy, explained proposed currency reform in general terms. Papagos expressed full agreement without economic program and assured me he wld not shrink before necessary measures no matter how drastic nor whom they affected.

On polit side he urged I insist King immed dissolve Parl and call for elections to be held in 30–60 days. Altho at first excluding any form of interim govt based on present Parl, it soon became apparent Rally leaders not so optimistic as previously and fear govt will, when Parl reconvenes, obtain vote of confidence which will confirm it in power for several months. They allege my statement re stabilization was interpreted as support of govt and discouraged defectors. They urged convocation Parl be delayed on pretext visit Yugo Parl delegation. (Venizelos has since informed us Parl will not meet before Aug 25.) Upshot of conversation was that, if King will not agree to immed elections, Rally will at least consider alternative plan which wld involve some form of interim technical govt for five or six months in exchange for public guarantee by King and all parties that elections will be held at fixed date. I hope to see King in day or two and will meet again with Papagos thereafter.

Alternative possible developments during next fortnight are fol:

Resignation of govt ostensibly because of cut in aid but in fact because King and leaders consider majority in any case about to evaporate due to stabilization program and other factors;
Agreement of Rally to service govt supported by all parties (King, Plastiras and Venizelos wld presumably also accept);
Failure of govt to obtain vote of confidence when Parl reconvenes;
Govt obtains vote of confidence and continues in power.

Alternative (1) undesirable since downfall of govt wld be attributed directly to US action. Alternative (3) unlikely since, if EDA abstains as expected, govt could probably obtain majority of those participating in vote. Alternative (4) undesirable since all US reps here agree with Kartalis and Mantzavinos that currency reform could not be carried out by present govt. We therefore believe alternative (2) preferable from US point of view. Whether it can be worked out remains very doubtful but if present mood of Rally persists it is not impossible.

  1. Repeated for information to Paris for Draper.
  2. Dennis A. FitzGerald, Associate Deputy Director of the Mutual Security Agency.
  3. Not found in Department of State or MSA files.
  4. Peurifoy met with MSA officials in Paris on Greek economic problems, Aug. 3, and resumed charge of the Embassy in Athens, Aug. 6. No copy of Peurifoy’s statement on stabilization has been found in Department of State files.
  5. The communication by Venizelos with Embassy Athens on Aug. 11 has not been further identified.