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

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

Athens, March 12, 1960, 10 p.m.

2507. Reference: Embassy telegrams 2417 and 2506.¹

1. Most important part of my long talk with Prime Minister and Foreign Minister Averoff this morning dealt with stalemate in prewar debt negotiations. Prime Minister rehashed all domestic political reasons why he can not make settlement now, which boils down to delicate political balance in which he says his government finds itself because of economic stagnation and danger that settlement which compares unfavorably with US-Yugoslav settlement² would trip balance. I pressed him make clear whether this means no further negotiations on Gazis January proposals now possible, or whether those proposals still on the table.

2. He said it was the latter. He had pulled Gazis back because rumors were circulating that negotiations were in progress and there had been a flurry of speculation. He had to put a stop to this; particularly since it might expose his government to subsequent charges that insiders had profited by their knowledge of the negotiations. Averoff interjected that in view of this, it would be impossible for government to resume direct negotiations with bondholders, and any further negotiations would need to be conducted through good offices of State Department.

3. Prime Minister concurred saying that he is willing to settle quickly, but he would take no further initiative.

4. I said differences now so small would be a misfortune to all concerned if no agreement reached. They reduced as we understood it to problem of interest arrears for 1940–50 and to the escalation period.

5. Prime Minister asked us to understand that problem not financial, a few hundred thousand dollars one way or other, not important. What is important is that settlement terms enable him to deal with domestic criticism. He was confident that he could hold his government together and deal with domestic criticism on basis of Gazis proposals. (Averoff disagreed with this, but I think this was a bit of by-play put on for our benefit.)

6. I said seemed to me he would have very good arguments to support his case: i.e., Greek international credit restored; new sources of loan capital both public and private would be open to Greece; and finally, a compromise settlement such as we thought might be worked out from last positions taken by both sides could be presented as comparing favorably with terms of US-Yugoslav settlement.

7. Was left that I convey foregoing to Department. As incidental point Prime Minister said he had no intention of settling with Greek bondholders.

8. Following are conclusions I drew from this morning’s meeting:

A. I believe Caramanlis genuinely wants a settlement and is prepared to make one quickly based on Gazis proposals. While Gazis recall may have been a maneuver in the negotiations, I doubt there is much elasticity in the Greek position.

B. Caramanlis will not touch interest arrears for 1940–50. If these waived will have additional talking point to deal with his critics.

C. He will not in forseeable future go much further than Gazis last proposals. I think he may be willing to compromise on escalation period.

D. With election coming up in May 1962 or sooner, he will be more and more reluctant to negotiate a settlement and as time passes will use election as an excuse for postponement. Any deterioration in the political or economic situation, both of which are possible, would complicate matters further.

E. I believe he will not take initiative in present impasse, and therefore that next move lies with bondholders direct or through the State Department.

F. Prime Minister reacted bitterly to the letter from Under Secretary Dillon to Rodopoulos³ with its clear implication, saying he has proved his good faith over the years by upping his offers and can not go any further. (In other words he feels it is time the Department began to apply some pressure to the bondholders.)

9. I think Under Secretary’s letter has been useful and timely and has given Caramanlis real shock. My further views remain as stated in paragraph 7 Embtel 2417.⁴

10. In separate discussion this morning with Jacques, Zolotas emphasized Prime Minister’s desire for settlement but expressed own firm personal belief maximum flexibility would be to reduce escalation period to nine years or possible “eight years starting January 1961.” Claimed Prime Minister’s chief problem now is presentational; expects attack on any plan submitted to Parliament, and wants be able minimize it so far as possible, and to this end insists on being able present it as modeled on and not less favorable than US-Yugoslav settlement.

Briggs

0. Source: Department of State, Central Files, 881.10/3–1260. Secret; Limit Distribution. Transmitted in two sections.
1. Telegram 2417 from Athens, March 3, reported that Averoff had decided to recall Gazis and suspend discussions with the Bondholders Council. (Ibid., 881.10/3–360) Telegram 2506 is printed as Document 286.
2. After the Yugoslav Government announced that it was assuming responsibility for the prewar debt of the Kingdom of Yugoslavia, a temporary 5–year settlement was approved by the Foreign Bondholders Protective Council. The settlement provided for the resumption of payment on bonds at a rising yearly rate through 1964. A final settlement more favorable to the bondholders would then be negotiated.
3. No copy of this letter has been found. However, in telegram 2534 to Athens, March 5, the Department informed the Embassy that Dillon’s letter was delivered in New York and expressed the hope that the Greek Government would give its negotiators enough leeway to bridge the difference between its own position and that of the bondholders. (Department of State, Central Files, 881.10/3–360)
4. In this paragraph, Briggs noted that further waiting would be unproductive: “I believe it would be more useful and, hopefully, more effective to use our influence in support of some package compromise proposal, at this stage and under existing conditions, than to argue abstractly for ‘more flexibility’ on Greek side.”