248. Memorandum of a Telephone Conversation Between the Secretary of State in Washington and John J. McCloy in New York, March 25, 1957, 10 a.m.1
TELEPHONE CALL FROM MR. MCCLOY
The Sec returned the call and M said he just got a call from Hammarskjold to go over because the negotiations are critical. M has only been involved in the technical and salvage work. M offered to go over 1½ months ago, but H said it was premature. Menon is causing trouble. M is going ostensibly to look at the Canal but fundamentally to talk to Nasser. Before he goes he thinks he ought to know what is transpiring and what are the See’s attitudes. He will be brought up to date on the UN position and is leaving at 4 this p.m. via Beirut. M asked what are we prepared to do and what are the British prepared to do and what would the Sec like to have done. M has talked to Nasser before. M wondered if anything were accomplished in Bermuda. The Sec said in Bermuda we agreed either there would be a Suez Canal settlement we could go wholeheartedly along with or Egypt might insist on a position we could not go along with—in the latter event it was pretty much agreed we would not make any pretense of being satisfied with anything unsatisfactory. We would accept under protest because the British have come to the conclusion that they cannot afford to boycott the Canal and will have to take the terms Nasser chooses to impose but they will not pretend they will like them. We will use these Egyptian funds which are blocked in this country for a while to debit them etc. Practically this does not mean much—it is a double-block and does create anew obstacle to their release. Then the Sec went on to discuss ways we might relieve dependence on the Canal—also moral pressures on Egypt. The Sec said there is quite a lot that M should know. He will have Messrs. Phleger and Dillon get in touch.2
M asked what would you like to get? The Sec said we have indicated we would like an immediate designation of the World Bank as Egypt’s nominee—that is consistent with the Egyptian proposal— with the understanding 50% would be released for Egyptian general use to cover the maintenance of the Canal—20% development fund and only released upon proper certification and the remaining 30% to be held for reimbursement of the shareholders of the old Company. Then as quickly as possible we would like a permanent arrangement along the lines of the six principles and implementation agreed to between Egypt, Britain and France and set forth in Hammarskjold’s [Page 468] letter of October 24 (?).3 The Sec said they came close to complete agreement and we believe a final agreement along those lines could be arrived at. Re Israeli boats—the Sec said he thinks you could probably agree if you had a situation where the Israeli ships or ships bound for Elath could pass through the Gulf of Aqaba and that would prevail pending a World Court decision to the contrary. You could go there but not through the Suez Canal unless there is an affirmative decision. The Sec thinks the Israelis would accept that. The British would not be disposed to let an otherwise satisfactory settlement of the Suez Canal be held up on account of the issue of Israeli ships because they are dependent on it economically. They can’t live with a boycott—we said we would go along with it.
M said if we can get this agreement, what do we offer them? Talk about economic aid? They agreed that is a hot question. The Sec said he talked with Hammarskjold and he thinks we are not going to talk in terms of great projects like the Aswan Dam, but the Sec thinks they could anticipate there would be a resumption of normal relations. There would be included in this wheat, CARE packages, tourists if it would not be dangerous. H is trying to get them to renounce belligerent rights against Egypt and if so then the Sec thinks we can compose the Gaza problem and then the tourists might be let in. It cost a lot to get Americans out of there and we don’t want to send them in and have to bring them out again. M said it is not a strong bargaining position but you have something. The Sec said not from the short-term point of view but no doubt it is in the long-range view of Egyptian interests. The Egyptian position could be one of folly for them.
M. said he will expect a call around noon with further elaboration.