865.24/6–1445: Telegram
The Secretary of State to the Ambassador in Italy (Kirk)
1826. Eeurdes 858, Jan 26. You should address note to Ital Govt in substantially following terms in reply to letter Jan 9 from Ital Minister Foreign Affairs and memorandum, transmitted therewith. This note should also serve as reply to Ital request for $300,000,000 credit (reurtel 1604, June 14).
US Govt keenly aware of economic problems confronting Italy, including budgetary deficit, inflation of prices, deficit in Ital external payments position, and urgent need for supplies. US earnestly desires to cooperate to fullest extent possible in aiding in solution of Italy’s problems.
Ital memo of Jan 9 raises three fundamental problems, namely: (1) Deficit in Ital external payments position; (2) Settlement between US and Italy in connection with various claims arising out of war; (3) Budgetary deficit and inflation in Italy.
Re question 1 basic Ital import requirements for civilian supplies have been met by combined program of US, UK, and Canada and will be met by UNEEA in near future if requests for additional funds are met. Recent action by UNRRA Council therefore probably makes unnecessary a credit to finance such imports as was requested in memo referred to in Deptel 1604, June 14.
Realize that Ital Govt will also be faced with problem of financing urgently needed goods for reconstruction not included within scope [Page 1293] of UNEEA program. US Govt is sympathetic to reconstruction needs of Europe and its policy is to provide assistance whenever possible and appropriate. US Govt prepared to discuss with representatives of Ital Govt provision of funds to meet reconstruction needs for example through the Export-Import Bank. As indicated to the Ital Embassy in Washington loans are made by the Eximbank for specific projects. Applicants for bank loans are required to provide detailed information re projects contemplated and expected source of repayment of loans.
Re question 2, reimbursement for AM lire issues and requisitions by US forces is intimately related to ultimate financial settlement which will be made with respect to claims arising out of the war and also the obligation of the Ital Govt to pay for civilian supplies furnished to Italy. This question therefore expected to be taken up connection with peace treaty.
Re question 3, inflation in Italy involves internal measures and controls as well as supplying of adequate volume of essential goods from abroad. US Govt can be of assistance only in enabling Ital Govt to obtain necessary imports. This point has been covered in discussion of question 1. External assistance alone, however, cannot provide solution to inflation and general financial breakdown threatening Italy. It is of primary importance that Ital Govt take prompt and stringent measures to control prices and wages and eliminate black market. Equally important that Ital Govt modernize and improve taxation system and adopt appropriate emergency tax measures to increase revenues and that it take steps to assure the most efficient use of funds expended. It is hoped Ital Govt will be able to take more positive action than in the past to increase effectiveness of controls to combat inflation since prompt reordering of internal financial situation is of utmost importance in restoration of normal external trade and financial relations.
Note should be submitted by you directly to Ital Govt and not through Allied Commission. You should consult with British colleague16 as to time of presentations of notes but not as to substance, although you should give him copy of US note when presented.17