Foreign Relations of the United States, 1964–1968, Volume XVI, Cyprus; Greece; Turkey

208. Telegram From the Embassy in Greece to the Department of State¹

Athens, October 19, 1965, 1530Z.

645. Ref: Embtel 597.² In past week Embassy has intensively reviewed present political and economic dynamics in Greece and possible instruments available to mitigate adverse trends. While picture has many uncertainties and while indeed our information has many gaps, I have reached following current conclusions:

1. Strains on Greek political fabric are more severe today than at any time since recovery from civil war and may not be containable. With far right and, more aggressively, far left nibbling at edges, fractured center is enmeshed in uncompromising power struggle between foxy old Papandreou and those former colleagues who have dared oppose him and son Andreas. As result, Greece is now weakly governed. Nor is any substantially stronger government in prospect.

2. Ultimately, this struggle of center forces must be taken to electorate. There is substance, however, in fears held by opponents of Papandreous that election campaign in present tense atmosphere would undermine if not destroy effectiveness of Greek political center for years to come and open field to left-right dichotomy of sort Greece has so calamitously experienced before.

3. Key to avoiding that prospect in next few months is ability of present government or one like it to muster support of workable majority of Deputies when Parliament reconvenes November 15. With current 152–148 edge tenuously based on alliance of ambitious rivals brought together by common opposition to Papandreou and to immediate elections, it will not be easy for Stephanopoulos to overcome timidity of other Deputies who are said to want to bolt Papandreou but to fear they would be dead ducks if he succeeded forcing early elections. Outcome depends on confidence current government can generate in its survivability.

4. Meanwhile Greece is sliding into sharp double-headed economic strains, on which Embassy has commented in series of recent messages. On international payments front, firm fiscal management, emphasis on import substitutes (e.g., in meat production) and other measures should in long run stand good chance of restoring favorable payments balance on which remarkable Greek development has rested since currency reform of 1953. However, trend of declining reserves in relation to external obligations probably cannot be corrected this year by measures GOG capable of taking. Serious payments difficulties loom just ahead. I am assured these could gravely undermine confidence of drachma if GOG unable to find necessary financial resources or if accompanied by political turbulence here.

5. Condition of domestic economy also causing anxiety as fiscal stringency becomes acute. Seeds of trouble lie in some long-term factors, but are accentuated by uncovered costs of Papandreou economic and social programs and by very large wheat surplus produced by past year’s good weather and high subsidies. Administrative immobility reflecting political paralysis of recent months has also had effect. GOG has already cut back capital development program and may shortly have to interrupt work or at least payments on some ongoing projects unless new resources found. While economy still looks reasonably good to ordinary man, it is in fact highly vulnerable to economic and psychological shocks.

6. GOG defense policies and foreign policies do not at present time show signs of deterioration similar to those evident on domestic political and economic fronts. Greece continues to waffle weakly on Cyprus question, but that is old story. A new Cyprus crisis this fall would of course further complicate domestic situation here.

7. In sum, Greece faces imminent and heavy pressures on stability and progress achieved in past dozen years. Among limiting and hardly satisfactory political alternatives available, I now believe these pressures would best be resisted by continuation for some months of centrist government without Papandreous. Even if Papandreous should be returned to power in elections sometime in 1966, government then headed by them might be less unsettling to Greece and to our relations with Greece than if they were to ride into office on today’s emotional tides.

8. As indicated above, I believe there is small hope of averting political crisis unless measures taken to contain worst of economic strains. GOG has already committed itself to some difficult steps, e.g., its decision to substitute 100,000 tons of wheat for imported corn feed. Officials tell us GOG is cranking up to take other steps (Embtel 644),³ but within life expectancy of present GOG these at best will be ameliorative rather than corrective. Effectiveness of such measures may in fact depend, as GOG argues, on Greece’s ability to get some external assistance. I believe any such aid at this stage should be precisely focussed on immediate fiscal and economic problems. Its object would be to get prompt economic effect and to indicate continued sympathetic interest in Greece. It would thus improve psychological climate in which Stephanopoulos government struggling to meet most urgent problems, but if well handled would not cost us influence with successors if Stephanopoulos govt should subsequently be overthrown. Ensuing paragraphs discuss possibilities and identify those I recommend.

9. To ease balance of payment strains, neither imports nor exports look amenable to constructive manipulation in short term. GOG has focussed on getting USAID program loan as tidiest instrument among available levers to meet combined problem of international payments, drachma shortage in investment budget, and psychic requirement to avert slump in confidence of traders and money market. Greeks have considered but, as Department knows, strongly resisted drawing IMF tranche on grounds it would have reverse psychological impact. (Zolotas says IMF staff agrees.) I am not sure they have yet looked hard enough at possibility of getting relief this winter through arrangements with Exim, World Bank or OECD consortium. In view of urgency of problem, Embassy urging GOG to explore all possibilities, not just US program loan, and to apply any measure of discipline permitted by exigencies of situation. I do not yet see how GOG can overcome short-term payments crunch and would welcome Dept’s suggestions.

10. To meet growing shortage of drachmae available for upcoming commitments, GOG can choose one or mixture of several courses: moratorium on new capital works and slow-down of current capital budget projects, cut in military outlays, or negotiations of new drachma-generating loans. Naturally it is looking to latter, though capital works will also be slowed.

11. On particular problem of grain production and needs, GOG is progressing with plans for handling a considerable part of its wheat surplus by designating 150,000 tons for distribution in mountain villages, 1,000,000 tons for poultry and livestock feeding, and remainder for sale abroad. Ultimately several hundred thousand tons likely be sold to foreign buyers, with good chance that bloc countries will take substantial part. Best estimate of Ag Attaché is that GOG cannot in any circumstances succeed in coming year in displacing as much as 100,000 tons of corn with wheat for feed. Thus in Embassy’s judgement GOG will require 200,000 tons of imported corn to meet needs of starch, poultry and cattle producers.

12. Taking all factors into account, I recommend following USG decisions as urgent next steps to help limit risks of major political or economic turbulence this winter and to encourage constructive trends without assuming responsibility for costs of mistaken past Greek policies:

A. As sole practical economic gesture at this time, to offer 150,000 tons of corn by PL 480 sale Title IV plus 50,000 tons under “usual marketing” to meet full requirements of starch industry and about one half requirements of poultry and livestock producers heretofore met by corn. Details of suggested agreement spelled out in separate telegram. This action if taken promptly would help GOG hold down payments deficit and meet substantial part of producers’ demands for traditional feedgrains while forcing Greeks to start adapting to soft wheat as feedgrain. It would hopefully be read as sign of continued US belief in and encouragement of Greece. To produce maximum political and economic effect I urge that such agreement be concluded or intention to conclude such agreement be announced before convening of Parliament on November 13.

B. To examine carefully with GOG all likely sources of prompt international financial assistance other than USAID loans and to support reasonable Greek requests of prospective lenders.

C. To begin consideration of direct US concessional loans, with expectation decision could be made as situation evolves further in coming weeks.

D. To postpone consideration of Greek feelers for invitation to PriMin to visit Washington until we see situation after Parliament reconvenes and after UNGA considers Cyprus (unless, as now seems highly unlikely, Greeks in meantime come up with new ideas on Cyprus that we would wish to discuss with them).

E. To tidy up certain requests we have pending with Greeks. With agreement for VOA Gamma site now confirmed by Stephanopoulos government, top priority is settling marathon joint-use land issue. To avoid further encroachments and other difficulties, I strongly recommend we request GOG promptly expropriate these lands with costs to be borne by USG. Acquisition of additional 27 acres for use for personnel housing at USAF base at Heraklion is also pressing need. By acting promptly we can profit from present readiness GOG to be accommodating and at same time US dollar payments involved in these transactions would provide additional foreign exchange for Greek reserves.

Talbot

1. Source: Department of State, Central Files, POL 2 GREECE. Secret; Limdis.
2. Telegram 597, October 6, transmitted general comments on the Greek aid request. (Ibid., AID 4 GREECE)
3. Dated October 19. (Ibid., AID (US) 15–11 GREECE)