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

95. Report Prepared by the Operations Coordinating Board¹

Washington, January 4, 1956.

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

(Policy Approved by the President April 15, 1954)

(Period Covered—November 1, 1954–January 4, 1956)

A. Listing of Major Developments During Period

1. Changes in Italian Political Leadership.Gronchi, a Left-wing Christian Democrat, was elected to a seven-year term as President of Italy on April 29, 1955. After a prolonged crisis within and among the parties behind his Center coalition, Premier Scelba resigned on June 22, 1955. A new Center coalition government was formed by another Christian Democrat, Segni.

2. Italian Foreign Policy Developments. Italy continued its close collaboration with the U.S. and the Western Alliance but had considerable difficulty in adapting its foreign policy to Austrian neutrality, the change in Yugoslav-Russian relations and the general international détente. Italy increasingly emphasized its claim for a greater role in international affairs as manifested by its drives:UN entry, which it achieved,³ participation in UN disarmament discussions prior to gaining UN admittance, greater Western consultation with Italy, and a more important voice in Near Eastern affairs.

3. Internal Politics.

a. Internal Stalemate. The instability of the Italian Government continued, due to the narrow parliamentary margin of the Center parties and extensive differences on internal policy within and among these parties. Divisions within the Christian Democratic party are aggravated by the favorable responses of some Christian Democrats to Nenni Socialist overtures for cooperation offered on the basis of enactment of social and economic reforms but probably involving a neutralist foreign policy as well. Public debate is centered on the question of whether the axis of the Government should be shifted Leftward to secure the support of the Nenni Socialists. The prevailing public mood is one of political cynicism.

b. Softening of Anti-Communist Policy. The Italian Government, though remaining dedicated to the “defense of democracy”, has ceased to make a public issue of Communism. Scelba’s anti-Communist program of December 4, 1954 has been quietly dropped.

c. Fortunes of Political Forces. Although the Communists have lost some ground their basic strength remains unimpaired. Their faithful allies, the Nenni Socialists, benefiting at least temporarily by the new Soviet tactics, have made gains. The organizationally-improved Christian Democrats have gained ground at the expense of their lay democratic allies and the Right-wing parties. Communist domination of Italian labor has been weakened by free union gains. The Christian Democratic organization of independent farm proprietors increased its already overwhelming predominance over its Communist competitor.

4. Military. The Southern European Task Forces (SETAF) was established on October 25, 1955 in response to the Italian Government’s request that the U.S. redeploy a portion of its former occupation forces in Austria to North Italy in order to strengthen NATO defenses in that area. [1 line of source text not declassified] Parliamentary action on the NATOSOF agreement was completed on November 11, 1955 but it will not become fully effective until about January 1, 1956. The total military aid (matériel and services) for FY 1955 amounted to $200.3 million bringing the total deliveries of MDAP to 72% completion of the total MDAP program. During FY 1955 $50.3 million in OSP, Special Facilities and Mutual Weapons Development contracts were let, making a total of about $450 million since 1951.

5. Economic Sphere

a. Economic Stability and Improvement. During the past year the Italian GNP increased 6% in real terms, a rate of growth exceeding that projected in the long range Vanoni Plan. Employment increased more than the increment to the labor force, although approximately two million are still registered unemployed (9.5% of the labor force) and about one and one-half million are underemployed. The overall balance of payments has improved without a commensurate improvement in EPU.

b. U.S. Funds. In addition to FY 1955 defense support ($15.5 million discharging U.S. obligation under Trieste settlement plus $1.2 million obligated for TE and ICA Coal Program $3.4 million), PL–480 will provide resources for supplemental feeding of school children, voluntary agency food programs and (under Title I when the sales agreement is fulfilled) local currency proceeds for economic development of the South. Major emphases in TE were development of an institutional base to spur free enterprise and an expanding economy to strengthen the National Productivity Committee, to improve public and private management, and to improve organization and operations of free labor unions.

c. Loan Agreements. An Ex-Im Bank loan to finance purchase of U.S. machinery and an IBRD loan to finance South Italian development were negotiated.

d. Further Steps Toward Economic Development. The Segni Government is publicly committed to the objectives of the long-range expansion studies called the Vanoni Plan. OEEC encouraged the Italians and requested more detailed plans. The Italian Government made unsuccessful efforts to obtain an official US commitment to assist in financing further economic expansion.

6. Information Activities—USIA.USIA assisted an Italian Government information program to initiate operations in South Italy and Sicily, aimed at winning just credit for the accomplishments of the Democratic coalition. An indigenous national committee was formed which sponsored six training seminars for young Democratic party and union leaders.USIA helped explain U.S. policy on OSP, collaborated with the free labor unions in organizing information training seminars, and provided materials to democratic organizations for use in their own anti-Communist programs. It assisted in establishing courses on American subjects at several Italian universities, promoted publication of American books, cooperated with State in a leader exchange program, supported cultural events under the President’s Fund Program and cooperated with Defense in maintaining a satisfactory public relations climate for U.S. forces.

7. Refugee Relief Program. Of a 60,000 quota which should be filled before the final deadline of December 31, 1956, 32,499 Refugee Relief Program visas were issued to Italians up to October 14, 1955 (refugees 2,428; orphans, escapees and expellees 635; and relatives 29,436). RRP announced it would not process any applications for refugees or relative visas after December 31, 1955.

B. Summary Statement of Operating Progress in Relation to MajorNSC Objectives⁴

The basic policy paper is adequate and no revision is recommended at this time.

Despite U.S. initiatives and vigorous and successful actions by the U.S. Ambassador during the past year, U.S. ability to decisively influence Italian developments continues to decline from the high point reached during the period of large U.S. economic aid. However, U.S. influence is still considerable and U.S. prestige remains high. (See paras. 10 and 14)

8. In Strengthening and Stabilizing the Center Coalition. The changes in top Italian leadership were unfavorable. Although Premier Segni has maintained the Center coalition he is indecisive and his outlook is provincial. His weakness increases the range of maneuver of President Gronchi [3 lines of source text not declassified]. In response to this situation, the President has invited Gronchi for a state visit beginning February 28. Despite constant U.S. encouragement [less than 1 line of source text not declassified] the Center coalition is probably weaker than a year ago and is so divided on internal issues that a government crisis could occur at any time. Unity of the Christian Democratic Party is hampered by personal rivalries as well as policy differences. The inability to secure passage of social and economic reform legislation limits the Coalition’s possibilities of improving its public backing at the expense of the Left. The composition of the present Parliament makes it unlikely that a stable government can emerge in Italy until after the next national elections which must take place before June 1958. If elections were held now the Christian Democrats and Nenni Socialists would probably gain as compared with 1953, the Communists would very nearly hold their ground, and the Right-wing and small Democratic parties would suffer losses. Although the organization of the Christian Democratic Party is improving, it is doubtful that this party is yet capable of winning by itself the absolute Parliamentary majority that could form the basis of increased political stability in Italy.

9. In Strengthening Italian Collaboration with the Free World.

a. Italian foreign policy. The new international conditions have caused the Italian Government considerable anxiety regarding Italy’s defense posture and the adjustments required in her foreign and internal policies. It has had to defend stoutly its collaboration with the Western Alliance against a powerful Socialcommunist campaign in favor of a neutralist foreign policy, the establishment of more extensive relations with the East including Communist China, and a widening of the governmental majority to include at least the Nenni Socialists. The Italian Government and the parties supporting it were greatly relieved by the failure of the Geneva Conference. Influenced by uncertainty over the implications of the “Geneva spirit”, the constant pressure of the Left, the need to compromise with the Right (at the price of developing a certain degree of Italian independence from its allies) in order to assure a substantial majority on foreign policy questions, the desire for increased international prestige, and the influence of President Gronchi and his Foreign Office supporters, Italian diplomacy during the past year undertook a number of initiatives, risky ones with the East and ill-advised ones with the West, [less than 1 line of source text not declassified]. However, with establishment of SETAF, partly as a result of Italian initiative, passage of SOF and exchanges of visits (Scelba and Martino in Washington, Secretary of State in Rome)⁵ Italy’s ties with the West were cemented more tightly. Admission of Italy to consultation with the U.S., U.K., and France on the Middle Eastern arms question represented an achievement for Italy. Although the Italian public has not yet learned of this, it was pleased by Italy’s admission to UN, but hopes for much more.

b. Military. The Southern European Task Force (SETAF) of 5,500 troops, now two-thirds deployed to North Italy, has strengthened the Southern flank of NATO and has furnished an added element of stability in Italy. Ratification of the NATO Status of Forces Agreement (SOF) removes the final obstacle to initiation of the military construction program and resumption of planning for additional deployment. MDAP generally met its objective in counteracting military deficiencies in the past year. Italy still accepts NATO force goals but its military budget is insufficient to permit attainment of these goals. There will be shortfalls in all three services in relation to 1954 annual review of force goals. The most serious weaknesses are in the air control and warning system, anti-submarine warfare, and deficiencies in the whole field of logistics. Although the effectiveness of the Italian defense forces has increased, deficiencies remain outstanding among all three services.

10. In Combatting the Communists. [1 line of source text not declassified] The greatest success against the Left occurred in the trade union sphere where the OSP program, political screening for individual Italian plants benefiting from U.S. direct aid and procurement programs, U.S. encouragement of the free unions, and the increased organizational efficiency of the free unions, were decisive factors. These U.S. policies, which were effectively carried out by the U.S. Ambassador, have caused a more favorable attitude toward free labor in some sectors of Italian management and have helped the free unions to reduce the extent of Communist predominance in the labor field. Firms affected by OSP screening criteria showed greater free union gains at the expense of the Communists than were made in other Italian plants. There is no assurance that Communist labor losses will be translated into Communist electoral losses. Technical Assistance programs, which the Communists oppose, are also favorably affecting labor-managment views and relationships, [less than 1 line of source text not declassified] U.S. companies with businesses in Italy are now beginning to follow labor policies consistent with OSP criteria. The press carried an increasing amount of anti-Communist material. The Communist Party was put on the defensive partially as a result of the Scelba Government’s official attitude of hostility against it, expressed in specific actions and the un-implemented December 4, 1954 anti-Communist program. However, official action against the Communist apparatus has virtually disappeared under the Segni Government. The beginnings of more determined anti-Communist governmental actions and public attitudes (under Scelba) were blunted by the new “soft line” of the Communists.

11. In Strengthening Italy’s Economy. The continued financial stability and increasing productive ability of the Italian economy reflects in part the effectiveness of past U.S. aid programs. Economic aid funds, counterpart and local currency resources and TE efforts are being concentrated as much as possible in problem areas, combining political and economic actions with the effects noted above.

C. Major Problems or Areas of Difficulty

12. Maintaining the Center Parties in Power—Preventing a Shift to the Left. Notwithstanding the Geneva results, the main internal issue in Italy for at least some time to come will be whether the majority behind the Italian Government should be broadened to include the Nenni Socialists. Resistance to the shift Leftward may be seriously weakened by further disunity within the Center coalition (especially within the Christian Democratic Party) and by pressure for passage of internal reform measures.

[Numbered paragraph 13 (4½ lines of source text) not declassified]

14. Western Collaboration.

a. Political. It is probable that the U.S. will still be confronted with [1½ lines of source text not declassified] the need to find appropriate means to satisfy legitimate Italian aspirations for greater consultation and a more prominent international role. However, with entry to the UN on 14 December, Italy will realize a new and measured prominence in international affairs.

b. Military-Economic. The question of continued MDAP support remains. Though Italy’s rate of economic expansion indicates a capacity to increase defense expenditures and thus reduce, but not eliminate, the gap between requirements and current expenditures, political difficulties limit possibilities of increasing defense expenditures.

15. East-West Trade. Tendencies on the part of Italian leaders and increasing public pressures indicate the possibility that Italy may develop trade with the Eastern bloc including Red China.

16. OSP. The decline in volume of OSP and its possible early disappearance threatens the modest industrial base for armaments now existing in Italy and could result in significant reversals of the extensive recent gains of the free unions in OSP-recipient plants, gains which were largely achieved through OSP leverage. This in turn could create an adverse public reaction with attendant possibilities for propaganda detrimental to the U.S.

17. Economic Problems:

a. Economic Expansion. The Italian Government is publicly committed to the further elaboration of long-range development plans and it can be expected to continue pressing the U.S. to contribute to their financing. As these plans are further elaborated, the U.S. may have to consider whether and how to render marginal assistance.

b. Foreign Investment. Though Italian legislation may soon be enacted to improve the climate for general foreign investment in Italy, the petroleum bill now under consideration does not provide attractive terms for foreign companies to participate in Italian petroleum development. Any attempt to modify the petroleum bill in a way less favorable to Italian nationalist sentiment will encounter great political difficulties.

c. PL–480. Though Italy wishes to negotiate a new agricultural surplus agreement ($50–$100 million), problems are presented by her probable inability to realize these commodity imports at the quoted prices (as in the current program), and by her desire to obtain a greater percentum of the lira proceeds for Italian uses.

d. Technical Exchange. A decision to eliminate bilateral U.S. Technical Exchange aid to Italy, now being considered, may raise problems of (1) obtaining adequate Italian budget and foreign exchange support to maintain the pace of the productivity program and (2) increasing the coverage of multilaterally-supported programs and private financing to meet the needs of special problem areas.

18. Immigration. Since the termination of the Refugee Relief Program expected at the end of 1956 will leave Italy with nothing more than its regular annual quota of 5,645, the Italian Government has started to exert pressure for an upward revision of this quota, transfer of unused Western European quotas to Italy, and the establishment of further special U.S. immigration programs.

1. Source: Department of State, OCB Files: Lot 62 D 430, Italy. Top Secret. A Financial Annex is not printed. A covering memorandum from the OCB Secretariat Staff, February 14, notes that the OCB concurred in this report for transmittal to the National Security Council on January 4, 1956, and that the NSC noted the report on February 9. See Document 98.
2. Foreign Relations, 1952–1954, vol. VI, Part 2, p. 1677.
3. Italy was one of 16 nations admitted to the United Nations on December 14, 1955.
4. Latest NIE dated November 16, 1954. A revision of short-term political outlook now being prepared, with scheduled publication about the end of January, 1956. [Footnote in the source text.]
5. Scelba visited the United States, March 27–30, 1955; see Documents 69–75. Dulles visited Rome, October 22–23, 1955; see Documents 88 and 89.