Foreign Relations of the United States, 1969–1976, Volume E-15, Part 2, Documents on Western Europe, 1973–1976, Second, Revised Edition

381. Memorandum From Secretary of the Treasury Simon to President Ford¹

Washington, undated.

SUBJECT

• Visit of Italian Prime Minister Andreotti

The primary purpose of Andreotti’s visit is to demonstrate to the Italian people (and to rivals within his own party) continued American support for his government and his efforts to stabilize the Italian economy. He is reported to have said that he hopes to obtain U.S. assurances of support in the event of any new speculative attack on the lira.

Ever since his government was formed last summer, Andreotti has been maneuvering to gain acceptance for a comprehensive economic stabilization program which would have a reasonable chance of bringing inflation under control and eliminating the country’s balance of payments deficit. The Christian Democrats only have a minority in Parliament, and they govern by limiting their Parliamentary proposals to measures on which the Communists are prepared to abstain. At the same time the Prime Minister has resisted pressures for a more formal Communist role in the decision making process. This has not been an easy task but Andreotti has handled the situation skillfully.

In connection with the stabilization effort Italy is negotiating with the International Monetary Fund for a medium-term credit of roughly $500 million, the maximum to which Italy is entitled under normal IMF policies (the Italians have already borrowed $2.9 billion from the Fund). The Fund is not satisfied with the Italian stabilization program as it now stands, however. It has insisted that there be further reductions in the Treasury cash financing requirement and some modification of Italy’s wage indexing system. Further negotiations await the resolution of Andreotti’s attempts to meet the Fund’s requests and Andreotti hopes to report further progress.

It has been our view that the survival of Italian democracy depends on bringing inflation under control and that any further financial assistance to Italy should be multilateral and linked to the adoption and implementation of an adequate economic stabilization program. You enunciated these principles of multilateralism and conditionality in Puerto Rico. Thus, we have not acted on recent Italian requests for bilateral short-term financing and we have successfully encouraged other countries to follow a similar policy. This has put the Italians under greater pressure to move promptly to a program which would satisfy the IMF (and, more importantly, restore viability to their economy).

Even though there has been encouraging progress we should not relieve the pressure on the Italians to reach agreement with the Fund. For this reason I believe it would be a mistake to accede to any request for short-term funds before agreement is reached with the IMF on a stabilization program. In any event, Italian reserves are sufficient to cover probable needs for the next few weeks. Consideration could be given to providing short-term emergency financing to cover the interval between the date of an agreement with the Fund and actual receipt of the Fund money but we should not go beyond an indication of willingness to help during such a period.

The U.S. is staying strictly in the background during the negotiations between the IMF and the Italians. Our posture is that the Fund management will negotiate with the Italians and then present a proposal to the Board of Directors. The U.S. involvement comes only when a request for approval of the credit is placed before the Executive Directors.

If Andreotti should finally be able to produce an exceptionally good, effective program, for two years instead of one, it might be possible to improve the chances for the preservation of democratic government in Italy by offering IMF credits somewhat above the $500 million program now being discussed. We have broached the idea informally to both the Italians and the Fund management in a very preliminary way. You might encourage Andreotti to press for a stabilization effort strong enough to merit this approach.

William E. Simon

1. Summary: Simon discussed the forthcoming visit of Andreotti.

   Source: Ford Library, National Security Adviser, NSC International Economic Affairs Staff Files, Box 2, Country File—Italy. No classification marking. In a November 6 memorandum to Kissinger, Sonnenfeldt reported that Andreotti wanted to visit Washington because he felt “political need for US support as he seeks to put through his economic plans.” Sonnenfeldt favored the visit, but stated: “There is no doubt Andreotti is working with the PCI in Parliament and that the Party is to all intents and purposes becoming a working partner of the Government.” Sonnenfeldt continued, “I would assume this dilemma would have to be faced in any talks with Andreotti and that we would continue to emphasize the political risks.” (National Archives, RG 59, Records of the Office of the Counselor, Helmut C. Sonnenfeldt, 1955–1977, Entry 5339, Box 3, HS Chron—Official, Oct–Dec 1976 Jan 1977)