310. Telegram From the Embassy in Greece to the Department of State1
799. Reference: Embassy despatch No. 82.2 In view of a discernible change in the climate of Greek Government, press and public opinion in recent months, stemming largely from a growing resentment over western and, particularly, US failure to support the Greek position on Cyprus and from the almost unanimous feeling here that US and western policy is inimical to Greece’s real or fancied position, prestige and economic interests in the Middle East, I am impelled to urge caution in estimating Greek capacity and willingness to assume a greatly increased proportion of her defense expenditures. I am especially concerned at the possibility that Greece might be forced for financial reasons to reduce her military effectiveness at a time when other nations in this area friendly to the US are building up. In such an eventuality, Greece would certainly feel the loss of its prestige to be great. We would be held largely responsible and the opposition would be give a ready-made opportunity to point out once again that GOG foreign policies are ineffective. I wish to stress that the minimum practical level of US support funds which any Greek Government can live with has at least as much of a psychological and political basis as an economic one. My staff and I have repeatedly warned GOG that US economic and defense support assistance will be smaller this fiscal year and GOG is cognizant of [Page 595] lower illustrative defense support figure $15 million and illustrative PL 480 figure $27.5 million. Recent conversations with Minister Coordination and Minister Commerce indicate GOG also believes unlikely will receive immediate and large credits under development loan fund, and thus anticipates time will be required even partially to substitute latter for present public investment program.
During each of last two Greek fiscal years, total US releases of local currency, for budget and extra-budgetary projects, were equivalent of $48 million. If $15 million defense support used for global PA’s and if PL 480 finances Greek agricultural needs (estimated range $20–30 million), then 1958 Greek budget would realize maximum $28 million drachmae equivalent, after taking into account amounts withheld for US use and private enterprise financing. Failure provide defense support, or even decision to program under section 402,3 would result in even further sharp reduction budgetary aid. Significant deterioration in Greek balance of payments this year further supports case for global PA’s to finance non-agricultural imports which recently 18 percent above 1956 level.
I urge most emphatically that we prod TA $15 million of defense support in global procurement authorizations and finance Greece’s agricultural commodity requirements under PL 480, having in mind that GOG is already cognizant illustrative figures of this order of magnitude. Because of this knowledge, I believe GOG will be forced recognize that such a program represents demonstrably our maximum effort in so far as providing local currency to the Greek budget is concerned, even though the result is a 30 percent cut in US budget support from present levels.
Any further cuts, such as would flow inevitably from an absence of defense support allocations to Greece or requirement to use defense support money for agricultural commodity imports, would so magnify GOG problem of choosing between reduced military expenditures, reduced public investment, or reduced private consumption as to eliminate almost any possibility of finding a solution which would be politically and psychologically acceptable and economically sound.
Furthermore, GOG and the Greek people will find it difficult enough to understand and accept a 30 percent cut in US budget support, and almost any Greek Government would find it almost impossible to explain publicly “aid” reductions of a greater magnitude. I believe it is critically important that we take all the above factors into consideration in developing a 1957-58 budget support program which, together with our military end item and military [Page 596] consumables program, will minimize tendency to attribute ulterior political motivations to almost any economic policy.
- Source: Department of State, Central Files, 781.5–MSP/9–1357. Confidential.↩
- Despatch 82, July 31, transmitted the Embassy’s evaluation of Military Assistance Program development. (Ibid., 781.5–MSP/8–2357)↩
- Section 402 of the Mutual Defense Assistance Act of 1954 concerned the earmarking of funds. For full text of the act, see 68 Stat. 833.↩