255. Memorandum of Conversation0
SUBJECT
- McGhee Meeting with Greek Prime Minister1
PARTICIPANTS
- The Prime Minister
- The Honorable George McGhee
- Mr. S. D. Berger, Chargé d’Affaires a.i.
- Mr. Kenneth Iverson, McGhee Committee
- Mr. Stephen Calligas, American Embassy (Interpreter)
1. Mr. McGhee called on the Prime Minister on Thursday, January 29, 1959, at 10:00 a.m. He was accompanied by the Chargé d’Affaires a.i. and by Mr. Iverson of his party. The Prime Minister, who prefers speaking in Greek, on this occasion spoke English and spoke it quite well, only now and then turning to the Embassy interpreter for a phrase or to elucidate a point he wanted to make sure was understood.
Economic Development
2. Mr. McGhee, after saying how happy he was to see the Prime Minister again, expressed his great satisfaction at the astonishing progress which had been accomplished in Greece since he worked on Greek problems ten years ago.2 Mr. McGhee mentioned the strong position of [Page 653] the drachma, expanding production and trade, and the extensive construction that he had seen in Athens.
3. The Prime Minister agreed that rapid progress had been made during the last five years but there still remained much to be done. The goal he had set during the last three years was to restore confidence in the drachma and bring about a stabilization in prices. This had been achieved as a result of which the people were now depositing their savings in the banks. Greece has a balanced budget, the Prime Minister said, and the great need now is more and more funds for investment purposes. Much had been done for the people in the cities and industrial areas for they represented the basic economic strength of the country and had to be given priority. Very little had been done for the rural population, and nothing for the mountain people. These represent 60% of the population, were intensely nationalist and anti-communist, and the backbone of political stability. The villagers have tiny plots of land which barely suffice to keep them alive and the mountain people live on air and rocks. Something had soon to be done for them, or the communist virus would begin to affect them. Industrial investment, the rural and mountain peoples, and unemployment and underemployment represented Greece’s main problems to which he must address himself.
4. His main hope rested in a rapid expansion of the industrial sector. He referred to the need for a steel industry, and the processing of the extensive mineral wealth of the country which is now mostly exported as ore when it could be advantageously processed locally. Tourism offers great possibilities. More hotels and roads are essential. For all these reasons Greece is still an underdeveloped country.
5. The Prime Minister said the Government had plans and programs but the great need was for capital. The Government had been greatly facilitated by the increase in domestic savings deposits and had managed to find $28 million for investment in the national budget. Outside help was essential. To accomplish anything he had to put together capital from all these sources to get some of the big projects through. He referred to the $12 million DLF loan for the nitrogenous fertilizer plant which Greece had recently been granted which had been supplemented by German capital and some domestic capital.
6. The Prime Minister said that the U.S. had spent some three billion dollars in Greece which had enabled the country to preserve its independence and to reach its present level of stability. By far the greater part of this enormous sum had been spent on the military to defeat the communists. The economic help from the U.S. had been important in putting the Greek economy on its feet but there had been a sharp decline in the volume of aid. The present stage is a critical one because Greece’s economy is by no means out of the woods. It would be catastrophic if the people’s confidence in the national economy were to be shaken at this [Page 654] point. He made an earnest appeal that the U.S. does not for the sake of an additional $10 or $20 million of aid during the next two or three years, endanger its enormous investment in Greece which had produced the stability that Mr. McGhee had noted. An additional $10 or $20 million would make all the difference.
7. Mr. Karamanlis said that although the people had been subjected to many sacrifices—for example he had to say “No” to almost every demand for wage or salary increases—he would ask for still more sacrifices for a few more years. He was working at present on the promotion of tourism which had a high priority and on a five-year industrial development plan which had already been drawn up in a draft form. At the request of Mr. McGhee, he promised to let him have a copy.
Military Expenditures
8. Mr. McGhee asked the Prime Minister if the people felt that the military expenditures were too heavy a burden on the Greek budget. The Prime Minister replied that $110 million of the Greek budget was spent on defense, whereas he could only allocate $28 million of the budget to investment. This contrast was a constant source of trouble for him and was the favorite argument of the communists as well as of the centre opposition. Indeed he did not dare tell the people that the expenditure was $110 million, and only admitted to $100 million. The rest was buried in various sectors of the budget.
9. Mr. McGhee asked if the military expenditures were kept at their present level because the Prime Minister felt it was necessary to maintain the present level, or because NATO had asked that it be at this level. To this, the Prime Minister unhesitatingly replied that it was absolutely necessary for Greece to maintain her present level of armed forces, whether NATO asked for it or not, because of the pressure of her communist neighbors to the north and because of her delicate geographic position. He remarked that Bulgaria alone had an army twice the size of the Greek army, and was undertaking a vast industrial development program as well. This was giving rise to invidious comparisons in Greece, and EDA and the communists were making much of this in their propaganda. In a dictatorship it was easy to resolve many problems by forcing sacrifices on the people—it was not so easy in a democratic society, and Greece was a democracy.
10. When asked by Mr. McGhee if he anticipated a possible increase in military expenditures, he replied that because of new military equipment, new airplanes and ships which the U.S. is supplying Greece, it would be necessary to increase these expenses for the next two or three years by about 10% to 15% per year, which Greece could not afford. Greece welcomed these additions to their military strength, but the U.S. would need to pay for them. The Prime Minister then remarked [Page 655] that aside from the guarantee which strong armed forces offer for the security of the nation, they were equally important so that Greece can be “correct” in her obligations toward NATO.
Cyprus
11. When Mr. McGhee remarked that he hoped there would be a revival of the tripartite pact with Turkey and Yugoslavia, this opened the question of Cyprus and the Prime Minister said there had of late been an improvement in Greco-Turkish relations. The Turks had shown good will. There were still several points on which Turkey insisted which it was quite impossible for Greece to agree—equality between the Greek and Turkish communities and Turkish military bases. It is also unpredictable what the British will do. Only this morning he had had the unfavorable news that the British would circulate electoral lists in Cyprus within a day or two.3 The Prime Minister then asked Mr. McGhee to give some advice to the Turks. They must remember that 82% of the Cypriots are Greeks and Orthodox and that union with Greece is a dream which has been cherished for several centuries. He could have gone down in the history of his country as a great man had he supported the desire of all Greeks for Enosis; but he had given up Enosis and was now called a traitor. He had agreed to give the Turkish Cypriots one-third representation although they were only entitled to 18%. He had made concession after concession and would concede no more. It was now time for the Turks to make concessions.
12. He thinks the Greek people have reacted magnificently to the humiliation and the slaps they have received from America, Turkey and their other allies. Notwithstanding this, the Prime Minister had, for the sake of restoring Greco-Turkish friendship, for the sake of Greece’s other allies, renounced Enosis in favor of an independent Cyprus. He wants, however, Cyprus to be a member of NATO. He thinks that because of the geographic position of the island this would be a desirable situation for all concerned.
13. Mr. McGhee thanked the Prime Minister for the information he had given him which he would faithfully submit to the Draper Committee which would in turn submit its report to the President.
14. The interview was terminated at 11:00 a.m.
- Source: Department of State, Greek Desk Files: Lot 61 D 131, Economic Aid. Secret. Drafted by Berger. The meeting was held in the Prime Minister’s office.↩
- McGhee headed a three-man subcommittee of the President’s Committee To Study the U.S. Military Assistance Program (the Draper Committee), which visited Athens January 28–30 to study Greek utilization of U.S. military aid.↩
- McGhee served as Coordinator for Truman Doctrine Aid for Greece and Turkey, 1947–1949.↩
- Reference is to the Surridge Commission’s report, which recommended that the British Government establish separate municipal councils for Greek and Turkish Cypriots and hold prompt elections to fill them.↩