881.00/8–2752: Telegram

No. 433
The Ambassador in Greece (Peurifoy) to the Department of State 1

top secret

700. Dept pass MSA for Kenney. US policy in Greece during past few months has been primarily directed toward bringing about economic stabilization with view (1) ensuring effective use of American aid, (2) preparing country for drastic reduction in aid and cessation gold sovereign sales and (3) checking threat of runaway inflation. In June conclusion was reached that, while govt’s policy in this field was so far satisfactory, stabilization program as it then existed was insufficient and, in light of growing political pressures, cld not long be maintained without additional steps. Those steps were devaluation or currency reform, preferably latter. We initiated conversations with Kartalis and Mantzavinos to determine whether these steps cld be effectively carried out by present govt. Their firm opinion was that they cld not and their recommendation was that efforts be made to form interim govt supported by three parties.

Fol this recommendation, with which we concurred because it seemed to offer best prospect of improvement in both economic and security fields, we explored proposals with King and Marshal Papagos. Latter agreed on condition he cld get firm written guarantee of elections within 5 or 6 months. King, who has repeatedly advocated this solution in past, seemed to agree but failed to fol up and, [Page 805] moreover, revealed plan to Papandreou2 in spite of explicit warning not to do so. Vendiris insists this blunder was unintentional but, coupled with refusal to postpone Parl session, effect was to torpedo negotiations.

In meantime govt was informed of drastic cut in aid and in counterpart investment program and responded by publicly blaming its economic shortcomings on Americans and threatening cut in armed forces if more aid not forthcoming. At same time strong indications appeared that govt, in spite of public statement to contrary by Venizelos, hoped to remain in office even if it obtained only slimmest vote of confidence. Our judgment is that, if present govt remains in office, not only are prospectus of currency reform or effective devaluation practically nil but present stabilization program may rapidly disintegrate. We therefore felt that prompt elections are only means by which our objectives can be attained and that, in light overriding importance these objectives as repeatedly expressed by NAC,3 we shld make our views explicitly known at this critical juncture before King and Govt took firm public position in contrary sense.

My remarks have, as Dept is aware, produced hysterical howl with Commie overtones from very newspapers which welcomed enthusiastically my pro-govt statement upon my return from Paris. While naturally somewhat disheartened by this demagogic press campaign in country for which we have done so much, I realize that it must be expected as our aid and leverage taper away and Grks feel themselves less dependent on us. Newspaper attacks, though affording satis similar to that of small boys throwing snowballs at school teachers, do not represent views of Grk people and will soon blow over. King, Venizelos and Vendiris have expressed to me their strong reprobation and Plastiras has issued public statement condemning newspaper attack.4

More serious problem is how political crisis can be solved in such way as to foster political stability without jettisoning economic stabilization. Both Venizelos and Vendiris now assure us that (1) Govt [Page 806] will not remain in power but will resign after adoption electoral law and (2) rigged majority system sponsored by Rendis will not be adopted by Parl. We hope these forecasts are accurate but can feel no certainty. Venizelos states he plans to suggest secretly to Rally maintenance re enforced proportional system amended to permit parties obtaining 15 percent of vote to participate in second distribution of seats. We feel he may be argued out of this proposal by own supporters since it is questionable whether Libs wld obtain even 15 percent.

Vendiris has made strong plea to us for return to simple proportional system. He argues that Libs already so weakened that either majority or reenforced proportional system will oblige them to coalesce with EPEK and that their support plus that of many Commies might well lead to sweeping EPEK victory and govt dominated by Papapolitis5 and his ilk. On other hand simple proportional system wld permit Libs to run independently in elections and thereafter to fol natural inclination by making alliance with right rather than left. While Commies wld obtain more seats in Parl they wld be isolated rather than blanketed under EPEK cover where they can do more damage. Vendiris stated frankly secondary reason for favoring this system is that it wld maintain stabilizing influence of Palace in political life whereas sweeping victory of Plastiras (and presumably Papagos) wld render Palace impotent. Vendiris also declared continued willingness to accept transitory govt but we expressed opinion favorable moment for this solution has passed.

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  1. Transmitted in two sections; repeated for information to Paris for Draper.
  2. George Papandreou, Leader of the Democratic Socialist Party, in collaboration with the Greek Rally, May 1952–April 1953.
  3. Reference is possibly to NAC Action 330, June 3, 1949, on Sale of Gold Sovereigns by the Greek Government; and NAC Action 505, Nov. 13, 1951, on Gold Sales and the Restoration of Economic Stability in Greece. (NAC documents 88 and 186 in NAC files, lot 60 D 137, “NAC Actions 301–400 and 501–600”)
  4. Plastiras’ statement of Aug. 26 disapproved of personal attacks by the Greek press against Peurifoy. On Aug. 27, Politis expressed to Jernegan his personal regrets for these attacks and asked that a Greek Embassy press release of that date setting forth Plastiras’ statement be given the widest distribution. (Memorandum, Aug. 27, by Jernegan, with Greek Embassy press release attached thereto; 123 Peurifoy)
  5. Savvas Papapolitis, Minister of Commerce.