868.51/1–3045: Telegram

The Ambassador in Greece (MacVeagh) to the Secretary of State

125. For Department and Secretary of Treasury from Embassy and Patterson, following my No. 98 of January 26, 7 p.m. See my No. 72 of January 19, 1 p.m.79 Mr. Varvaressos has now returned80 and taken up his duties as Governor of the Bank of Greece. At meetings with Hill81 and Patterson, yesterday and today, he expressed grave concern over the financial and economic developments here, though cautioning that his remarks were not only confidential but necessarily tentative in view of the short time he has been in the country.

He said the Government and the people of Greece must be made to realize at once that Greece is a very poor country, and that permitting the current high prices and wages will not make it any richer but will, in fact, result in economic chaos. Varvaressos believes strongly that in both the outlying areas and in the capital the Government must begin at once to sell ML82 supplies at “economic” prices to all but those actually indigent, and must abandon the now widespread practice of issuing them free or at prices designed to cover only distribution costs. He also believes it is imperative that prices of certain locally produced essential goods be controlled, and that wages be firmly fixed on the basis of the prices of ML goods and the controlled prices of local goods and not be related to the Black [Page 197] Market prices. He is disturbed at the apparent attitude of many of the Government officials that their problems are so difficult that only foreign aid can solve them and that what they can do is so small it is not worth doing.

Varvaressos believes Greece must raise an army no larger than the country itself can hope to support. For the immediate future he thinks it essential that the Allies clothe, equip and provide rations for this army, but he regards as ridiculous the request that the Allies pay the salaries and wages of the Greek armed forces. He regards the proposal that these forces be paid the Middle East rates of pay as very unsound and said its result would be another full-scale inflation. He said further that if the Government insists on paying the armed forces at this rate he will refuse to accept any responsibility for what happens here.

Varvaressos said the drachma is over-valued by at least 100 percent but he believes that political and psychological factors make it impossible to alter the rate at this time.

He reported that it is being proposed to charge 11 percent interest on loans by banks to industrial firms. In his opinion this must also be changed. He sees the important problem as one of getting the local factories back into operation, and said the banks must loan only to firms who can actually produce and that the rates of interest must be very low and the firms must be made to sell their products at fixed prices. He feels strongly that now is not the time for either the banks or industrial and commercial firms to attempt to recoup quickly their losses of recent years.

He regards the past policy of the Bank of Greece in selling gold to the public as most undesirable.

The US economic and financial advisors to General Scobie are in agreement with Varvaressos on these matters and his views are in fact the same as those they have been expressing to me and in turn to the Greek Government, except that they have not discussed the problem of altering the exchange rate.

Repeated to London as 17 for Embassy and Treasury Representatives. [Embassy and Patterson.]

MacVeagh
  1. Not printed.
  2. From London, where he had engaged in conversations with British officials on Greece’s financial problems.
  3. Henry A. Hill, Special Assistant to the Ambassador in Greece.
  4. Military Liaison.