Foreign Relations of the United States, 1955–1957, Western Europe and Canada, Volume XXVII

125. Report Prepared by the Operations Coordinating Board¹

Washington, February 13, 1957.

PROGRESS REPORT ON “UNITED STATES POLICY TOWARD ITALY” (NSC 5411/2)²

(Policy Approved by the President April 15, 1954)

(Period covered: August 8, 1956 through February 13, 1957)

A. Summary of Operating Progress in Relation to MajorNSC Objectives³

1. OCB Recommendation Regarding Policy Review. U.S. policy toward Italy as set forth in NSC 5411/2 has been reviewed from the standpoint of operating considerations and in the light of operating experience to date and of anticipated future developments. No review of policy is recommended.

2. Summary Evaluations. The U.S. continues to progress toward its major objectives in Italy. During the period under review, Italy was profoundly affected by external events in Central Europe and the Middle East. The Hungarian Revolt stirred Italy deeply. The Anglo-French intervention in Egypt and the closure of the Suez Canal caused preoccupation over the future of NATO and the increase of Soviet influence in the Eastern Mediterranean. The resulting oil and shipping shortages may temporarily slacken Italy’s economic expansion. Despite continued rank and file enthusiasm in the two Socialist parties for reunification, the trend toward merger had been slowed down for some months prior to the Nenni Socialist Congress early in February 1957. Since the results of the Congress and the elections to the directing bodies are confused and contradictory, it is too early to judge what effect these developments will have on the prospects for unification.

a. The Situation with Respect to U.S. Policy Objectives.

(1) “To reduce the strength and effectiveness of the Italian Communist Party”. The Italian Communist Party is experiencing its greatest difficulties since fascist times as a result of a switch in international communist tactics early in 1956, the mass murder of Hungarian patriots by Soviet troops, and increasing disagreement with the Nenni Socialists. Faithful adherence by Italian Communist leaders to Soviet policy in Hungary and Soviet defiance of the UN have reduced popular support for the Italian Communist Party and increased Italian distrust of the Soviet Union. On the whole, the Italian Communist Party is somewhat weaker as evidenced by significant reductions in party membership and more divided than it was six months ago, and the strength of the organizations like the CGIL labor union which it dominates has declined; however, its basic strength and potential remain considerable. The party leadership, through deception, discipline and control of the party congress, and through appealing to the self-interest of each party member and official and to the real or imaginary need for domestic reform, has thus far managed to keep the party a strong cohesive political force. The Communist organizational machine and commercial enterprises remain strong and well financed, though probably less so than previously.

(2) “An Italy … having constitutional, democratic government”.⁴ Although the Segni Government is under no immediate pressure, it would probably be replaced by another government formation in the event of national elections (the legal term of Parliament expires in June 1958) or if Socialist reunification should become imminent.

At their party Congress early in February 1957 the Nenni Socialists (P.S.I.) approved almost unanimously a motion declaring their independence from, but not opposition to, the Communists and their desire to reunite with the Social Democrats. However, they did not specify the terms of reunification except to endorse neutralism and continued cooperation with the Communists in the labor and cooperative fields. The result of the elections to the directing bodies of the P.S.I, demonstrated deep-seated divisions which make it doubtful whether Nenni has sufficient control of his party to negotiate effectively toward the achievement of the goals set forth in the motion approved by the Congress.

(3) “… a healthy self-sustaining economy”. Shortages resulting from the closure of the Suez canal will cause some slackening of the previously high rate of growth of Italian economy (6% average yearly real GNP gain since 1951) and adversely affect Italy’s otherwise favorable balance of payments outlook. There will be adverse repercussions in particular sectors of the economy, such as the petroleum and shipping industries.

(4) “Support of the free world coalition”. Wholehearted Italian cooperation with the free world continues, both in multilateral organizations (UN, NATO, CSC,WEU, OEEC, etc.) and bilaterally with the democratic countries. The Italian Government maintains its staunch support of U.S. international policies, including the U.S. course of action in the Middle East. Distrusting the effect of “détente” on its internal situation and on the firmness of its Western Allies, Italy maintains its relations with the Soviet Union on a cold war basis. While Italy accepts its NATO force goals, most of them are not being met because of insufficiencies of budget and trained manpower as well as failure to institute streamlined procedures and economies in the military establishment. Over-all Italian military effectiveness remains low and military capability has been further reduced by fuel shortages. U.S. forces are welcome in Italy and their public relations position continues excellent. U.S. influence and prestige remain high.

3. Progress in Meeting Program Schedules

a. Military aid and offshore procurement (OSP).

(1) A total of $1,709.7 million is included in the revised FY 1950–1956 MDA Program for Italy. Of this amount $1,507.2 million or 88% had been delivered as of November 30, 1956. Combat aircraft constitute a large part of the undelivered portion of the program. The current FY 1959 military program for Italy amounts to $40.5 million (excluding modern weapons). This compares with $35.9 million which was funded for Italy in 1956. In addition, a modern weapons program is under study.

(2) No MAPOSP (offshore procurement) contracts have been placed during FY 1957. As of November 30, 1956, actual contract placements amounted to $459.1 million and expenditures were $359.9 million or about 78% of contracts. The U.S. has obligated approximately $6.7 million in past mutual weapons development programs and is contemplating $1.4 million for FY 1957.

b. Defense Support and Other Aid Program Activities. No new defense support funds have been authorized since FY 1955. Technical assistance in the field of labor leadership is being carried out as a continuation of the FY 1956 bilateral Technical Exchange Program. Obligation of U.S.-owned local currency for procurement in Italy for the development of third countries is progressing.

B. Major Operating Problems or Difficulties Facing the United States

4. Effects of Suez Canal Closure. Early reopening of the Canal is of prime importance to Italy. A prolonged closure of the Canal would halt the steady forward momentum of Italy’s economic expansion, would seriously impair its dollar position, and may threaten its political stability. In this event, the United States may expect to be confronted with Italian requests for aid.

5. Socialist Reunification. There is a considerable possibility that Socialist reunification will occur within the next few years because of rank and file enthusiasm for union in both parties. The effect of Socialist unification, if achieved, on the implementation of U.S. policy toward Italy is unclear and would depend largely on the terms and circumstances. It very probably would cause a general political realignment within Italy and national elections.

6. Combating the Communist Apparatus and Weakening its Base. Due to the recent decline in U.S. procurement in Italy, the U.S. now has little opportunity to use its policy of screening the Italian beneficiaries of U.S. orders so as to aid the free trade unions. However, the success of U.S. screening policy has helped persuade some private Italian industrialists and Government-owned plants to adopt a similar policy of supporting the free trade unions. It is unlikely that any significant official action aimed at weakening the Communist apparatus will be taken in the near future, because the Italian Government deems this would be counterproductive since it would tend to unify conflicting elements within the Communist Party, and alienate the non-Communist left. While an official and proclaimed anti-Communist program such as enunciated by Scelba on December 4, 1954 would probably be counterproductive at this time, the U.S. still believes that effective measures could be taken by the Italian Government through the use of normal legal and administrative procedures.

7. Strengthening Italy’s Collaboration with the U.S. and the West.

a. Political. Italy requests, in return for following general U.S. leadership, increased consultation by the U.S. and support for specific Italian objectives. Italy desires forceful U.S. leadership of the free world, particularly in the Middle East. Increased Soviet prestige in the Middle East or an unsatisfactory Suez settlement will reduce Italian confidence in the U.S. and in Italian democratic leaders who are committed to the policy of relying on U.S. leadership.

b. Military–Economic. The Suez crisis makes it less likely that Italy will in the near future reduce the gap between the financial requirements of her force goals and of the Italian defense expenditure. As one example, it has been estimated that for spare parts and maintenance alone the Italian Armed Forces will fail to meet requirements by about $80 million in FY 1957. It is present U.S. policy to program equipment to meet approved NATO force goals only if Italy can support such forces. Unless additional U.S. support is forthcoming, Italy may in the near future exert pressure to secure a reduction of its NATO force goals to a level more realistically within its willingness and/or capability to support.

The Italian defense picture is further complicated by Italy’s desires, military and political, to shift from conventional to advanced weapons and to obtain U.S. technical plans and contracts for the manufacture of missiles. Italy is also pressing for an Atomic Energy Power bilateral agreement and further OSP contracts. The wind-up of OSP emphasizes the problem of maintaining the production base, mainly for aircraft and ammunition, built in Italy by the offshore procurement program.

8. East-West Trade. Italy generally cooperates with East-West trade controls except with respect to mercury, a highly strategic commodity, which Italy was shipping in substantial quantities to the Bloc before it became an embargoed item in 1954 and since that time has continued to do so within that pattern, probably as bait to obtain more advantageous trade agreements than otherwise. Italy’s mercury shipments are the major International List I item now moving from the free world to the Soviet Bloc totaling in excess of $1.5 million for CY 1955 through the first quarter of CY 1956. The Italian mercury shipments represented the largest individual Battle Act exception item of those submitted to and approved by the President. The U.S. has been strongly pressing Italy to reduce these shipments, but thus far without positive result. However, Italy’s trade with the Bloc (including Red China) is only 3% of total Italian trade.

9. Foreign Investment in Italy. The petroleum law enacted in December will not greatly improve foreign investment prospects in Italy unless further legislation covers such matters as depletion allowances.

10. Immigration. With the expiration of the Refugee Relief Act (under which 64,087 visas were issued between 1954 and 1956 to Italians), Italian emigration to the U.S. is limited to the nominal regular quota of 5,645. Because of Italy’s serious population problem, she will continue to press for relief through U.S. legislation. If the President’s immigration proposals of January 31, 1957 are enacted into law, Italy will probably benefit to a limited extent.

Currently, the more than 3,000 Hungarian refugees to whom Italy has given temporary asylum constitute a particular problem, especially since many of them are quite vocal in their demands to get to the U.S. About 4,600 of the older escapees from Eastern Europe also remain in Italy.

C. Additional Major Developments During the Period

11. On October 5, Nenni and Togliatti signed a “consultation pact” superseding their previous “unity of action” pact. While this proclaimed the continuation of cooperation between the Communist and Nenni Socialist parties, it gave the impression of diluting this cooperation. On January 1 Nenni renounced the Stalin Peace Prize of 1952 and turned over the $25,000 proceeds to Italian charity.

12. PL 480 Agreement. On October 30, 1956, a Title I PL 480 agreement with Italy for the sale of $60.8 million of surplus agricultural commodities was signed. A further sale of $1.6 million in tobacco has been negotiated.

13. IBRD Loan. On September 20, 1956 the International Bank lent Italy $74.6 million for Southern Italian development.

14. Aerial Inspection Exercise. At the suggestion of USIS, Rome, the Italian Government conducted during October a demonstration of aerial inspection to show the feasibility of President Eisenhower’s Open Skies Proposal.

15. Regional and Local Elections of November 1956. Elections in the Upper Adige Region and a few isolated provinces in November 1956 showed relatively stable support for the Center coalition parties, and moderate reductions in the vote for the Communist and extreme right-wing parties.

1. Source: Department of State, OCB Files: Lot 62 D 430, Italy. Secret. A Financial Annex detailing the amount of U.S. military aid to Italy from 1949 to February 1957 is not printed. According to an attached memorandum by Charles E. Johnson, the OCB concurred in this report for transmittal to the NSC at its meeting on February 13. The NSC noted the report at its meeting on March 14. (NSC Action No. 1684; ibid., S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)
2. For text, see Foreign Relations, 1952–1954, vol. VI, Part 2, p. 1677.
3. Latest National Intelligence Estimate (NIE 24–56) is dated 2/7/56. [Footnote in the source text. NIE 24–56 is printed as Document 97.]
4. All ellipses are in the source text.