Foreign Relations of the United States, 1958–1960, Eastern Europe; Finland; Greece; Turkey, Volume X, Part 2

233. Memorandum of Conversation⁰

Athens, February 3, 1958.

PARTICIPANTS

• H.E. Averoff-Tosizza, Minister of Foreign Affairs
• H.E. Demetrios Helmis, Minister of Coordination
• H.E. Panayiotis Papaligouras, Minister of Commerce and Industry
• H.E. Aristides Protopapadakis, Minister of Defense
• H.E. Gregory Kassimatis, Minister without Portfolio
• General Dovas, Chief of Staff, Greek Armed Forces
• Mr. C. Goustis, Special Assistant to Minister of Coordination
• Hon. William M. Rountree, Assistant Secretary of State¹
• Mr. James K. Penfield, Chargé d’Affaires ad interim
• Mr. Owen Jones, Director, Greek, Turkish and Iranian Affairs, N.E.A.
• Mr. L. Wade Lathram, Director, Regional Affairs, N.E.A.
• Mr. Clarence E. Birgfeld, Counselor of Embassy for Economic Affairs

SUBJECT

• Military and Economic Requirements of Greece

Background: The economic portion of this conversation is briefer than it otherwise might have been owing to the fact that on the preceding day Messrs. Helmis and Goustis had given Messrs. Jones and Birgfeld a lengthy and exhaustive analysis of Greek economic trends and developments and their relationship to defense expenditures and the balance of payments.² The main substantive point of difference between the two conversations was the fact that on the preceding day the Greek Government had requested $15 million of additional defense support for this fiscal year (as it also does in the Economic Aide-Mémoire),³ whereas the result of the conversation reported in this memorandum shifted this request for additional defense support to fiscal year 1958–59.

Mr. Protopapadakis opened with a brief statement of military requirements, which he merely highlighted to avoid repetition of material in the Military Aide-Mémoire³ which he proffered. The Minister said that with respect to the Army it was a question of speeding up the program of deliveries. However, he felt that the United States assistance for the Navy and the Air Force was inadequate, and the Minister mentioned specifically new DD’s and the need for all-weather aircraft. He said that the Government of Greece attaches great importance to new weapons and also to the need for a military consumables program.

Mr. Rountree said that we are naturally greatly interested in the Greek defense establishment and that he would discuss the points made orally and in the Aide-Mémoire with his colleagues. Mr. Rountree also pointed out that congressional action is required on more ships and that, furthermore, it is the Defense Department which is primarily responsible for military end-items.

Mr. Papaligouras presented the economic case, at the request of Mr. Helmis, since the former speaks English better. The Minister admitted that the economic situation is improved but he said that organic weaknesses exist especially in the balance of payments. Stable prices have caused foreign exchange reserves to fall. Greece is going through a transitory period in which she is also experiencing budget difficulties. Defense expenditures are high compared with gross national product, the relationship being 6.8 percent. On the other hand, Greece’s per capita income is only $230 per year (the Embassy believes more correct and more current figures to be 5.3 percent and $270 per capita, but did not mention these statistical differences). Mr. Papaligouras said that a high level of investment characterizes the current transitory period, and that this investment must cause either inflation or higher levels of consumption. He said that it is in recognition of this general principle that the World Bank seldom if ever extends developmental loans without simultaneously extending grants for consumer goods. The Minister questioned whether the present rate of growth and of investment is high enough from a political point of view. Greece’s nearness to her communist neighbors makes it important for comparative purposes that she do better than they are doing. Mr. Papaligouras then related these developments to the proposed European Free Trade Area,⁴ to the tariff and other problems thereby created, and to the competition which will exist under these future conditions between investment and consumption. The basic economic problem, said the Minister, is related to the balance of payments, but an equally significant social problem affects the budget and causes high central administration spending. The maintenance and development of social order is dependent on a high rate of investment.

Mr. Papaligouras then spoke directly to the economic assistance desired. He claimed that loan assistance for defense or consumption is uneconomic, and that the grant assistance is extended in such a way as to make it difficult to absorb. This latter point applies to the Section 402 requirement⁵ of $5 million out of the defense support total of $15 million. The Minister urged that the present Section 402 requirement be converted either to global procurement or to triangular deals. Mr. Papaligouras then spoke of Greece’s needs from the Development Loan Fund, and especially the importance of early favorable action on the nitrogen fertilizer plant, on which the Greek Government is being pressed for political reasons to take an early decision. He emphasized the importance of the favorable reaction which would be obtained from farmers as a result of United States financing. Consequently, an early answer is needed on political as well as on economic grounds.

Mr. Papaligouras closed by stating that the Greek problem is peculiar to this area, first because Greece is a democracy and second because her standard of living is higher than other countries in the area. Greece needs a few years to build certain key industries, and her own resources are inadequate for this purpose. The Minister pointed out that Greece’s foreign exchange reserves fell for the first time last year and that a continuation of this trend would bring about psychological repercussions in Greece. Greece, he said, is the only underdeveloped country following liberal economic policies.

Mr. Rountree replied that he would study these matters with great care. He said that he was impressed with the stability of prices and with recent budgetary performance, but recognized that not all of Greece’s problems have been solved. He realized the need for further development and for an improvement in social welfare, and was cognizant of the fact that the progress made to date must be continued. This progress reflects credit on the present government. The Assistant Secretary said that it would be hazardous to try to guess what the congressional developments might be, but that he personally would assume that there would be some continuation of United States economic assistance programs and that the needs of Greece would be given appropriate consideration. Mr. Rountree said that funds for this current year are tight and that he did not know whether there would be any possibility of making any shifts in funds such as would be required to convert the Section 402 requirement to global or triangular procurement. Mr. Rountree concluded by saying that if there should be anything which we could do, we would take this matter under consideration.

Mr. Papaligouras responded by saying that Greece exported inflation to the amount of $10 million in 1957, and that this cannot go on forever (the actual figure exceeds $20 million and it appears that erroneous statistics caused the Minister to understate Greece’s balance of payments needs). Mr. Papaligouras said that Greece is not asking for more aid this year but is merely asking for a shift of the Section 402 $5 million. He then referred to losses of revenue which will be sustained as a result of the current shipping crisis.

Mr. Jones then asked what had been the rate of increase in consumption during recent periods and what would be the minimum required rate of increase in consumption during immediate future periods, in the Minister’s opinion. Mr. Papaligouras side-stepped this question by saying that higher rates of investment could be used politically to induce the people to accept lower rates of increase in consumption. He said that Greece’s national income rose 9 percent in 1957. The Minister then described the present Greek situation as being typical of that of underdeveloped countries which have followed a liberal economic policy, and he compared the current situation with that of the British Dominions in the early part of this century, when the London market financed consumption, according to him.

Mr. Averoff-Tosizza then referred in turn to the transitory period through which Greece is moving. He said that the population is increasing by from 80 to 100 thousand persons a year. Social problems are real and the Government of Greece wishes to avoid a near crisis. The Minister also pointed to the immigration which is taking place from the Near East and creating additional pressure.

Mr. Rountree replied to the effect that the future emphasis of United States economic assistance programs probably would be on developmental assistance, rather than on short-term budget or balance of payments support. He said that study is being given to the nitrogen fertilizer plant, and then referred to policy difficulties which had been encountered in another country in trying to finance a Government-owned plant.

Mr. Papaligouras responded by pointing to the lack of entrepreneurs and of private capital in Greece.

Mr. Rountree said that he wished merely to identify a possible problem and that he would take the matter up in Washington.

Mr. Helmis pointed out that increased military end-item assistance means increased defense expenditure. Defense support assistance helps not only to hold to acceptable limits the relationship of defense spending to national income but also helps the balance of payments.

Mr. Rountree said that he did not wish to appear to give a quick answer, but that it was difficult to know where to find more money for this fiscal year (Mr. Helmis interrupted to say that it was not this year but next fiscal year when they wanted more money). The Assistant Secretary went on to say that the general tendency in the United States is not to increase defense support programs, but rather to put the emphasis on development. However, he appreciated the local problems and would consider them, even though he must say again that we are not thinking in terms of increased defense support programs.

Mr. Papaligouras concluded the meeting by saying that the Greek Government wishes to prevent a crisis and a crash approach to a crisis situation like in Turkey. Greece’s economy is good, he said, but it is not static. It will continue to move. A $10 million foreign exchange reserve loss in 1957 could grow to $15 million in 1958 etc. etc. In one way or another, the Minister said, Greece needs United States economic assistance for investment, for her balance of payments, and for her budget.⁶

0. Source: Department of State, Central Files, 110.10–RO/2–758. Confidential. Drafted by Birgfeld. Sent to the Department of State as an attachment to despatch 578 from Athens, February 7.
1. Rountree visited Athens February 1–3. Regarding his talks with Karamanlis and Averoff on the Cyprus issue, see Part 1, Document 182.
2. No record of this discussion has been found.
3. Dated February 3; it was sent as an attachment to despatch 578.
3. Dated February 3; it was sent as an attachment to despatch 578.
4. On February 7, 1957, the British Government proposed the establishment of a European Free Trade Area. This British proposal followed publication of an OEEC report on the feasibility of a free trade area in Europe (February 5).
5. For text of Section 402 of the Mutual Security Act of 1954 (P.L. 83–665), enacted August 26, 1954, see 68 Stat 832. Section 402 was amended by the Mutual Security Act of 1955 (P.L. 84–138), July 8, 1955. For text of the amendment, see 69 Stat 283.
6. In telegram 2167 from Athens, February 5, Penfield reported: “Rountree on departure told me he was impressed with desirability helping Greeks.” (Department of State, Central Files, 781.5–MSP/2–558)