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

135. Report Prepared by the Operations Coordinating Board¹

Washington, September 3, 1957.

PROGRESS REPORT ON ITALY (NSC 5411/2, April 15, 1954)²

(Period Covered: From February 13, 1957 through September 3, 1957)

A. Summary of Operating Progress in Relation to MajorNSC Objectives

1. Summary Evaluations. U.S. progress toward its objectives in Italy is presently proceeding at a slower pace than previously, except in the field of the military where progress is more marked. The generally slower pace is primarily due to the recent prolonged government crisis, the increase in the influence of President Gronchi (who has tended to favor Center collaboration with Leftist elements) over the Italian Government, and the gradual recovery of the Italian Communist Party from the initial shock of the Khrushchev Report and the Soviet repression in Hungary. Momentum toward further Italian economic expansion continues. Italian cooperation with the Western Alliance remains the cardinal principle of Italian foreign policy. [1½ lines of source text not declassified] A review of policy is not recommended.

2. “To reduce the strength and effectiveness of the Italian Communist Party.” [2 line of source text not declassified] the Soviet repression in Hungary continued to have disruptive effects on the Communist Party in Italy. The Communist-dominated CGIL labor union continues gradually to decline in strength though it controls approximately half of organized labor.

3. “An Italy …³ having constitutional, democratic government.” Italian political stability was weakened by the government crisis in May and June 1957. Though the immediate cause of the crisis was the withdrawal of Social Democratic support from the Segni coalition, the basic cause was the inability of the Center parties to agree among themselves on domestic legislation in a pre-electoral period, factionalism within each of these parties and the increasingly apparent aim of the Christian Democrats to achieve an absolute majority in the next elections at the expense of the lay Center parties.

4. “A healthy self-sustaining economy.” The Italian economy was not gravely affected by the Suez crisis although there was a temporary deterioration in the balance of payments and a $71 million loss in gold and dollar reserves between the end of October 1956 and the end of January 1957. In February 1957, however, the upward trend in Italian reserves was restored, and in May 1957 Italy’s gold and dollars totaled $1,287 million or about $100 million more than a year earlier. Industrial expansion continues at the rate of about 8% a year, and there is still a very high demand for long-term investment funds. The major regional economic problem continues to be in the South where, however, Italian Government and private development efforts have made encouraging progress. Although economic expansion has been largely absorbing the annual increment to the labor force, it, together with emigration, has not succeeded in reducing significantly the “hard core” of about 1 and 1/2 million unemployed.

5. “Support of the free world coalition.” Italian cooperation with the free world continues, both in multilateral organizations and bilaterally with the democratic countries. The Italian Government to date has maintained its staunch support of U.S. international policies, including the U.S. courses in the Middle East. U.S. forces are welcome in Italy and their public relations position continues excellent.

B. Major Operating Problems or Difficulties Facing the United States

6. Communism in Italy. The basic strength and potential of the Communist Party remains substantial; hard core cadres appear to be intact; and the Communist organizational machine and commercial enterprises remain powerful and well financed. While there is still a good deal of confusion among rank and file Communists as a result of a switch in international Communist tactics early in 1956, the Soviet repression in Hungary and differences with its old ally, the Nenni Socialists, the Italian Communist Party appears to be regaining some of the ground it lost during the past year. Although the electoral position of the Left as a whole remains static, the Communists have consistently registered small gains in local by-elections this Spring except in the Sardinian regional elections of June 16. These gains have been mostly at the expense of the Nenni Socialists whose immediate prospects seem to have declined because of their indecisiveness with respect to their relations with the Communists and the Social Democrats. Communist Party membership remains at 1 and 1/2 million (down about 25% from 1954). 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 to be counterproductive since it would tend to unify conflicting elements within the Left. However, the U.S. still believes that long range measures could be taken by the Italian Government after the elections through the use of normal legal and administrative procedures. [4 lines of source text not declassified]

7. East-West Trade. The U.S. has not been able to hold the line with respect to restrictions on trade in strategic items with the Communist bloc, and as a result, following the British move, Italy eliminated the “China differential” as of June 18, 1957, after endeavoring to avoid as long as possible a position in CHINCOM opposed to the United States. Italy may be expected to continue its cooperation in strategic controls in principle, but will probably press for as large quotas as possible for certain List II items. The United States continues strongly to urge the Italian Government to reduce mercury shipments to the East, this being the main specific commodity problem with Italy in the strategic trade controls field. Italian trade with the Soviet bloc in 1956 was 3% of its total foreign trade, approximately the same as for 1955.

8. Italian Defenses. While Italy accepts its NATO force goals, budgetary and manpower difficulties exist in meeting these goals. In addition, the attendant costs of modern weapons will increase these difficulties. The U.S. is exerting constant pressure on the Italian Government to increase efficiency and to improve its logistic organization. Overall Italian military effectiveness remains relatively low when compared to U.S. combat effectiveness standards.

[3 paragraphs (1½ pages of source text) not declassified]

Note: The latest National Intelligence Estimate (NIE 24–56) is dated February 7, 1956.⁴

Annex A

ADDITIONAL MAJOR DEVELOPMENTS NOT COVERED IN THE REPORT

1. Disarmament. The Italian Government and Italian opinion were shaken by the early phases of the current disarmament negotiations in London because it feared that the U.S. might make a deal with the Soviets without consulting its Allies. The Italian Government was anxious that the early stages of any disarmament agreement would impair present Italian and Western defenses and that the West would insist on classifying tactical atomic weapons as conventional armament. The Italian Government is under considerable pressure from Italian public opinion to support moves in the direction of banning nuclear bomb production and tests and in general reducing armaments. Italian public opinion also expects that its Government will be fully consulted by Italy’s Western allies with regard to present and future disarmament negotiations with the Soviet Union.

2. The New Italian Government. While the Zoli Government, which has recently assumed power, will undoubtedly continue close collaboration with the Western Alliance, and particularly the U.S., it will probably endeavor to achieve a greater voice in Western affairs and aim at greater autonomy within the alliance. Such an endeavor may spring in part from Zoli’s need in view of the coming Italian elections (which must be held by June 1958) to compensate for the weak parliamentary position and dismal prospects for his government’s domestic legislation program. While the Common Market,EURATOM and the government budget will probably be approved in early fall, it is likely that the period between now and the elections will be one of considerable confusion and little legislative progress.

3. Dollar Liberalization. In June 1957, the Italian Government increased the level of liberalization of dollar trade from 39% to 71% (based on 1953 imports). On the basis of this action, Italy is urging the U.S. to take specific actions in support of more liberal U.S. trade policies.

4. Security Agreement. The Italian Government has agreed to install security measures as specified and requested by the U.S. to safeguard missile research and production information.

5. Socialist Reunification. The trend toward unification of the Nenni Socialist and Social Democratic parties gradually stalemated when it became clear after the former’s Venice Congress in February 1957 that the terms of the Nenni Socialists did not meet Social Democratic demands and that the leadership of the two parties would not make substantial concessions to each other. While Socialist reunification may occur within the next few years a merger before the national elections next year appears extremely unlikely.

6. Mattei’s Oil Agreement with Iran. [less than 1 line of source text not declassified]concerning Enrico Mattel’s oil agreement with the Iranian Government, the Iranian Parliament has approved the agreement and it is expected that the Shah, who negotiated it, will shortly sign it. As far as is known, this agreement (the final text of which has not yet become available to the United States Government), gives in effect to the Iranian Government 75% of the profits (50% directly to the Iranian Government and 25% indirectly through NIOC, the Iranian Government oil company). This may turn out to be a significant breach of the 50–50 principle of division of profits. It is reported that the Iranian Government will provide some aid to ENI through a reduction of rents (normally charged to the foreign company), which would reduce ENI’s total outlay.⁵

7. Progress in Carrying Out Commitments for Funds, Goods and Services. U.S. commitments to Italy are being met on schedule. See Financial Annex attached.

8. New Commitments for Funds, Goods or Services.

(1) PL 480. A Title I supplemental agreement amounting to $7.5 million was signed on March 26, 1957.

(2) Atomic Energy Agreement Bilateral. On July 3, 1957, the U.S. and Italy signed an agreement whereby the U.S. will sell to Italy 7,000 kilograms of enriched uranium.

(3) Sample Weapons and Technical Information. In response to the statement of Secretary of Defense Wilson in the North Atlantic Council in December 1956, the Italian Government has indicated an intense interest in obtaining sample missiles and technical information for the development and production of missiles. The Italian Government has agreed to adopt a security system to meet U.S. requirements for security as outlined by the State–Defense Military Information Control Committee.

In addition, Mr. Wilson stated that as a prior condition to turning over samples, an industrial capability study would also be required. This study is presently underway.

The financial commitment of the U.S. Government, in regard to this project, will not be known until after the industrial study has been accomplished. At that time we will know the type of missile to make available to the Italian Government for development and production and the amount of technical aid we will furnish.

1. Source: Department of State, OCB Files: Lot 62 D 430, Italy. Secret. A Financial Annex is not printed.
2. Foreign Relations, 1952–1954, vol. VI, Part 2, p. 1677. According to an attached memorandum by Johnson, the OCB concurred in this report for transmittal to the NSC on September 4. The NSC noted the report at its meeting of September 23. (Department of State, S/S–NSC (Miscellaneous) Files: Lot 66 D 95, Records of Action by the National Security Council)
3. Ellipsis in the source text.
4. Document 97.

5. The memorandum of discussion at the 337th meeting of the National Security Council, September 23, concerning this Progress Report on Italy reads as follows:

   “Mr. Cutler presented a brief analysis of the OCB Progress Report on Italy, paying special attention to the head of the Italian Government oil monopoly, Signor Mattei, and the latter’s maneuvers with the Iranians. These maneuvers endangered the prevailing 50–50 profit-sharing principle, and our own oil companies have expressed concern over the new formula of 25–75%.

   “Secretary Dulles commented that he was not alarmed; there was nothing sacred about the 50-50 formula, and it was certainly not government policy.

   “The President likewise did not appear concerned, and asked the question whether or not this country did not believe in competion.

   “The National Security Council:

   “Noted the reference Progress Report on the subject by the Operations Coordinating Board.” (Eisenhower Library, Whitman File, NSC Records)