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

244. Telegram From the Embassy in Turkey to the Department of State⁰

Ankara, September 28, 1958, 8 a.m.

1061. From Dillon.¹ Pass Defense for Sprague. While Greek economy moving forward rapidly with internal stability, this situation seriously threatened by drain on foreign exchange reserves. My best guess is that calendar year 1959 might see loss of Greek foreign exchange amounting to as much as $45 million before American aid. Strict control of defense requests might reduce this to order of $35 million. Unless this eliminated, or very substantially reduced, we can expect loss of confidence in Greek currency with resulting internal dislocations. Figure would have been considerably larger except for import and credit restrictions recently taken by Greek Government which should improve Greek foreign exchange position by about $20 million next year and by maybe a further $10 million in 1960, thus reducing 1960 deficit to about $35 million. Greek Government has asked for $53 million in American aid in calendar year 1959 as they estimate balance of payments deficit somewhat higher than we do. Without political complication of Cyprus situation, I would feel that $20 million for Fiscal Year 1959 defense support plus about $12–13 million from military assistance funds for purchase of “common support items” making effective total of $32–33 million would have been adequate. If Cyprus turns for worse, Greeks may well feel that this is a punitive reduction from their own estimated requirement of $53 million and intensive effort may be necessary to increase our help. In any event, Department should use every effort with Defense to ensure figure of $12–13 million for common support items in Fiscal Year 1959. Defense support figure of $30 million recommended for Fiscal Year 1960 in order enable reduction military assistance funds for common support items to $5 million or less. Estimate total of $35 million these two categories will be required in Fiscal Year 1960.

Greece’s economic planning for long term seems well oriented and gives promise of favorable development. Import costs will be reduced by creation of fertilizer plants, and foreign exchange earnings will be increased by continued growth in diversified agricultural exports as well as by foreseeable substantial increase in tourist receipts once hotel accommodations, presently under construction, are completed.

However, magnitude of Greek defense effort poses major problem. I do not feel it is consistent with desirability continued economic development for Greece to spend much over 4-1/2 percent of GNP for military purposes. Military expenditures under present plans will rise rather than fall with introduction of new weapons. This will mean increased requirements for US aid, the need for which could well reach as much as $50 to $60 million a year. The alternatives are two-fold: First, a serious effort to reduce cost of Greek defense effort. Holcombe informs me that Greek use of equipment and ammunition for training purposes considerably higher than comparable MAP supported countries. If such reduction is to take place it will require high level decision by Defense and new instructions for JUSMAGG.

I am afraid, however, that even with whatever reductions in maintenance costs may be possible, defense expenditures will still remain too large to allow adequate economic development without very substantial and continuing US aid. Therefore, unless US prepared to face up to such an aid requirement of which I doubt feasibility in view recent Congressional reactions to military assistance, substantial reduction must be made in Greece’s defense effort, even though this might involve failure to meet some MC 70² goals. It will also involve difficult problem with Greeks who feel present forces necessary for defense against ancient Bulgarian enemy. Nevertheless, Greece is clearly one country where scope of defense effort requires prompt and serious review. In this connection see Riddleberger’s views on military assistance in Athens despatch number 93.³

Hall

0. Source: Department of State, Central Files, 781.5–MSP/9–2858. Secret. Repeated to Athens.
1. Dillon visited Athens September 25–27, together with DLF Director Dempster Mcintosh, and held talks with Greek officials. He flew to Ankara on the evening of September 27.
2. The MC–70 Program, approved by NATO in May 1958, established a Minimum Essential Force Requirements plan for the period 1958–1963 for each member state. Documentation on the implementation of MC–70 is in volume VII, Part 1.
3. Despatch 93, August 4, reviewed U.S. aid programs for Greece for fiscal year 1960. (Department of State, Central Files, 781.5–MSP/8–458)