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

269. Telegram From the Embassy in Greece to the Department of State⁰

Athens, August 9, 1959, 9 p.m.

372. Re Deptel 278.¹

1. Action on reference telegram deferred because of Zolotas development in paragraphs 2 and 3 below. We also had several questions as indicated in paragraph 5 below.

2. In brief conversation with economic counsellor shortly before reference telegram received, Zolotas indicated readiness present personal ideas on bond settlement. In follow-up talks at his office, Zolotas said he still convinced Yugo-French settlement terms make it politically impossible for Greek Government proceed on basis last discussed with American bondholders council. Conviction reinforced by favorable settlements obtained or in prospect for Poland, Bulgaria, and now reportedly Roumania. All this, Zolotas stressed, does not mean Greek settlement impossible but does mean settlement possible only if politically saleable here.

3. As probably saleable approach, he outlined following (which is throw-back to earlier Gazis proposal): (A) cancel accrued interest, to and perhaps through 1960; (B) preserve unpaid principal amount; (C) service latter at $3.2 million per year; (D) apply portion of service to interest (at 1 percent, for example), with balance going to sinking fund for bond retirement. Zolotas thinks bonds could probably be retired at about 30–35, which would approximately triple sinking fund’s “buying power.” Would also enable Greek Government describe deal here as involving 65–70 percent indirect scaling down of principal. Zolotas stressed he was putting this forth as personal idea, and without any government authorization. Because of this and related considerations, he said, he felt unable take any initiative with bondholders. In latest talk Saturday, he strongly urged Embassy actively support early settlement along above lines, in recognition of alleged political impossibility do better and of desirability getting matter settled. He added initiative should come from US side.

4. I am not unduly impressed by Zolotas claim of “political impossibility” and am prepared make reference telegram statement if, in light this message, Department considers it appropriate and helpful do so at this stage. However, since primary purpose of statement is to induce resumption negotiations and since Zolotas has already indicated readiness for resumption (albeit on narrow basis), reference telegram statement seems to have lost some relevance and timeliness, at least for moment. In view Zolotas initiative, and assuming US should not become involved in negotiations or details, it occurs to us that following is appropriate procedure now: (A) Department relay Zolotas idea to bondholders council for consideration. Department may wish consider encouraging council to follow-up opening Zolotas has offered. Even if $3.2 million plan continues unacceptable as permanent settlement, bondholders might consider it as possible basis to explore with Greeks for temporary settlement. (B) Should bondholders decide follow-up Zolotas opening, then no need for reference telegram statement. However, course of negotiations might be aided by pointed observation by Embassy to Greek Government, expressing US satisfaction negotiations resumed and strong hope for satisfactory outcome. (C) On other hand, should bondholders be unwilling follow-up Zolotas opening, and Department wishes, stronger observation could then be made to Greek Government along reference telegram lines (subject to comments below).

5. If reference telegram statement is to be used, we have following comments as to content and procedure. First, I query desirability implying threat withhold DLF loans unless we are, in fact, prepared back it up. Second, if Zolotas idea unacceptable even as temporary basis, seems to us any comment urging temporary settlement should give some clue as to desired level. Third, I have comment on procedure. Have always thought it good SOP to use Department for conveying unpleasant statements to other governments and to use our Embassies for conveying agreeable statements. If withholding of DLF aid is to be indicated, I would consider it more appropriate that Department make statement to Greek Embassy Washington, after which follow-up statement could be made here.

6. Will continue defer action until further instruction.²

Briggs

0. Source: Department of State, Central Files, 881.10/8–959. Confidential; Limited Distribution.
1. In telegram 278, July 30, the Department reported on the terms of the Yugoslav debt settlement with France and the view of the Foreign Bondholders Protective Council that Greek proposals for a bond settlement were unacceptable. It noted that the Council did not consider that the Greek financial position supported the Greek position and the Department of State shared this view. The Embassy was instructed to inform the Greek Government that settlement of the bond issue was an essential preliminary to the rehabilitation of national credit and international loans. The United States suggested the Greek Government offer a 5-year temporary resumption of the service on its debts as the first step toward reestablishing its credit. (Ibid., 881.10/6–1959)
2. In telegram 538 to Athens, August 21, the Department of State reported that the Foreign Bondholders Protective Council was unwilling to consider the proposals outlined in telegram 372 and instructed the Embassy to deliver the message transmitted in telegram 278. (Ibid., 881.10/8–959)