611.81/4–1053: Despatch

No. 438
The Ambassador in Greece (Peurifoy) to the Department of State 1

No. 1147


  • Markezinis Visit to Washington

The visit of Minister of Coordination Markezinis to Washington will mark a very important stage in the development of Greek-American relations. Papagos and Markezinis are sincere friends of the United States and firm adherents to the global policy of resistance to Communism in which we are engaged. It is their desire closely to coordinate Greek with American policy and to follow our wishes to the fullest extent this may be feasible. Markezinis looks upon his visit to Washington as the concrete expression of this intention and of his desire that Greece should serve as a model for other countries in the loyalty and effectiveness with which it carries out our common policies.

On the other hand, as the Department is aware, both Papagos and Markezinis are sensitive and emotional personalities with a highly developed sense of their own dignity and of the historical and strategic importance of Greece. If they should get the impression that the US is taking them for granted, that it is using their determination in the military field and their success in the economic field as an excuse to reduce our aid and support to niggardly proportions, if they should feel that we are treating them less favorably than their predecessors who were unable to provide a stable government or a successful economic program and who have attempted and continue to attempt to blackmail the US in regard to the maintenance of Greek Armed Forces at present levels, if they should gain the impression that relatively well-to-do Western European powers are more successful in obtaining aid from the United States through a failure to stabilize their economies than is poverty-stricken Greece through stabilizing its economy, or that [Page 818] the United States is inclined to be more helpful to Communist Yugoslavia than to democratic Greece, it is altogether possible that they might overnight alter, not their basic orientation, but their tactics. We might well find that they would revert to inflationary devices in the economic field, that they would drag their feet on the many demands of NATO and the United States in the military field, that they would insist on a much more drastic reduction of US personnel in Greece than we would consider desirable and that the preponderant influence of the US in Greece would be weakened. It is for this reason that we would strongly urge the Department, on political, military and economic grounds, to do all in its power to make Markezinis’ visit to Washington a success.

The accomplishments of the Rally Government are already substantial and the prospects for further achievement are excellent. For the first time since the war we have a stable government in Greece and, if we assist that government in retaining its position, there is every reason to believe that it will be able to remain in power for four years. In the military field, in spite of the public insistence of the Opposition that military forces must be cut in half, the Government has staunchly maintained that these forces must be maintained intact and even if necessary increased. New proposals for NATO and US military activities in Greece are under consideration and, if the present atmosphere is maintained, will almost certainly be approved by the Papagos Grovernment. The tripartite pact with Turkey and Yugoslavia has been concluded with our encouragement and is being implemented in close association with NATO and US commanders. Papagos has confidentially informed us of his intention to offer additional Greek forces for service in Korea.

In the political field, the question of stability, on which progress in Greece in all other fields depends, has already been discussed. We have disagreed with the current tactics of the Rally Government toward the Communist front party in Greece, whereby the Government tends to tolerate this party as a means of weakening the Center Opposition and hence strengthening its own position. However there is no question that the Marshal and Markezinis are firmly and vigorously opposed to Communism, that they will take whatever measures are necessary to keep it under control and that their present tactics stem merely from the fact that they do not consider it a serious internal menace at this time. We believe that we shall be able to persuade them to modify their present tactics if our present friendly relationship is maintained.

In the economic field the Government has continued with even greater vigor than the previous government to carry out our stabilization program. They have accepted practically all our recommendations [Page 819] in this respect by taking radical measures to balance the budget, by restricting credit in spite of heavy pressure to relax, and by a series of necessary but unpopular measures.

The requests of the Rally Government for future US aid are not large or unreasonable. They feel assured of full utilization of the 80 million dollar economic aid for Fiscal ’53. They are not disposed to quarrel seriously with the prospect that aid for next year will amount to 35 million dollars in new money plus a drawdown of 20–30 million from the pipeline. The sum and substance of their current request, on the outcome of which will depend Markezinis’ judgment as to the success or failure of his Washington visit, is the assurance that US aid will be available to complete the Government’s investment program. This program has recently been reduced, insofar as its foreign component is concerned, from 115 to 77 million dollars, of which perhaps 25 million might be obtained from the defense support grant already envisaged for Fiscal ’54.

It is argued, with some cogency, that, particularly considering the beneficial effects on the balance of payments anticipated from devaluation, Greece will not need any further aid after 1954 to maintain the present standard of living of its population and to support its military effort at the current level. It is also pointed out that the proposed investment projects have not yet been formulated in sufficient detail to determine whether or not they are economically sound and wise and that there is serious question whether many of them are in fact sound and wise.

These caveats are well taken. However the following considerations must be kept in mind. First, the Rally Government, while politically strong, is by no means “monolithic.” It would be subject to rather rapid disintegration if it is not able to convince the Greek people that the drastic economic measures which it is taking will in fact lead to the betterment of their standard of living. The investment program has in the Greek mind become a symbol of hope for the future. If the Rally Government must take the responsibility for blasting this hope, its political fortunes will suffer heavily. It is for this reason that Markezinis will judge the success or failure of his Washington visit by whether or not he obtains some satisfaction in regard to the investment program.

Second, it would appear that the US policy of assisting in the development of under-developed areas would apply to Greece under any circumstances and is particularly applicable in view of Greece’s strategic position. The Greek Government is taking steps to encourage the investment of foreign private capital and we hope that some such investments will be made. It is doubtful however whether private investments will be large in the immediate future. While the proposed projects have not yet been formulated in every [Page 820] detail nor provision for adequate Greek participation therein yet made, there is good reason to believe that at least some of these projects would be beneficial in increasing economic stability and ensuring that Greece will be self-supporting in the future in the absence of a serious world economic crisis.

Third, it should be noted that the military demands upon Greece from NATO and the United States have by no means reached their highest point. Many of these demands will require substantial drachmae expenditures by the Greek Government. Examples which may be cited are NATO’s request for an expansion of personnel in the Greek Air Force, NATO’s request for an accelerated training program for reserves, NATO’s proposal for the rehabilitation of certain war vessels of British origin in Greek hands which are currently laid up, the proposal that Greece assume the full cost of common use items for the Greek Armed Forces, the upkeep of facilities which will be constructed under the infrastructure program, and finally the Greek share in the construction of certain additional facilities in which the United States military authorities are interested. If these additional expenditures are to be met over a period of years wholly or in part from Greek resources, rather than from the counterpart equivalent of continuing American aid, the best means might be by the development of the Greek economy through the carrying out of some of the proposed investment projects.

The Embassy understands that, in view of the desire of the Administration and the Congress to reduce expenditures for foreign economic aid next year, it may well be impossible to obtain for Greece a larger amount of grant aid than that already contemplated. On the other hand, the political, military and economic considerations outlined above will not be met by mere assurances that further aid for Fiscal ’55 will be considered a year from now. Markezinis feels, and we believe rightly, that he must have some assurances at this time that he can go forward with at least a substantial proportion of his investment program, for the political reasons already set forth and in order to carry out successfully a very substantial internal loan which he expects to launch in September.

The Embassy would like to propose, therefore, that the Department explore urgently with the other interested agencies the possibility that the Export-Import Bank might be persuaded to extend, during Markezinis’ visit but subject to certain conditions, a credit to Greece of about 25 million dollars. It could be stipulated that funds would be expended from this credit only as and if the Bank, after careful study of the proposed projects, should determine that they were of such a nature as to justify the expenditure of the Bank’s funds under its charter. It might well prove therefore in practice [Page 821] that only a part of the 25 million offered would ever be used. The burden would be placed on the Greek Government to demonstrate that the projects were sound and to arrange for the necessary Greek participation. At the same time, insofar as the balance of the foreign exchange required for the Greek Government’s investment program is concerned, the US Government might offer its good offices with the IBRD and recommend to that Bank that it send a mission to Greece in the immediate future with a view to determining whether additional funds for the program might be lent from its resources. At the same time the Greek Government could be encouraged to continue its efforts to seek private capital in the United States.

This may not be the only means of meeting the problem and the Department or other US agencies may have other suggestions which are more feasible. The solution suggested above, however, does have the advantage of providing a tangible achievement in this field which Markezinis could publicly announce upon his return to Greece, and yet of refraining from making any commitment of US funds for projects which have not been thoroughly explored and which may prove unsound. We believe that Papagos and Markezinis would be reasonably satisfied with such an outcome of the visit and that the political hazards of the failure of the visit would thereby be avoided. We do not feel, however, that the Greek Government would be satisfied nor that these political hazards could be escaped merely by a vague statement on the part of the US Government that it would “study” the Greek investment program with a view to determining in the future whether or not it could assist.

In conclusion, I should like to repeat most earnestly the very great importance which I attach to a successful solution to this problem. I believe that the manner in which it is resolved will very materially affect, and may even determine, our relations with Greece over a period of years. If those relations should deteriorate, the bill which the United States would have to pay in order to maintain its interests in this strategic country would be very considerably larger than the small amount now needed to maintain the present happy situation. I am convinced that this is very clearly a case where an ounce of prevention is worth a pound of cure.

John E. Peurifoy
  1. Drafted by Yost.