868.20/10–1648: Telegram
The Ambassador in Greece (Grady) to the Secretary of State
Amag 1605. Van Fleet has submitted his comments upon Greek Government memo (Embtel 19691). Yesterday I sent his statement with enclosures to Department by pouch (Amag dispatch 2612). In summary he said concerning Greek armed forces that Greek Army at present strength is inadequate to control border and establish and maintain internal security. He recommends: (1). A mobile field force of 12 divisions with proper supporting arms and services and administrative backing. (2). A static defense force of approximately 30,000. (3). A pipeline of approximately 30,000 to provide recruits and basic training and cover long-term hospital cases and absences from army. These recommendations would bring total armed force to approximately 240,000 men. He recommends a gendarmerie force of 22,000 men; no increase in size of navy but with an increased budget to cover service to an increased land force; an air force increased by 2 fighter squadrons and 1 reconnaissance squadron.
Van Fleet points out costs and availability of funds were not considered in his proposal. Preliminary appraisal financial factors involved in implementation follow:
- (1).
- Dollar costs entire military program would, of course, have to be met from US aid funds. JUSMAPG tentatively estimates that total forces proposed would require annual expenditure of about 300 million dollars, assuming continued US supply of rations. Cost during present fiscal year over and above available funds would depend upon date expansion begun and rate of recruitment.
- (2).
- Internal drachmae cost total armed forces estimated 1,600 billion drachmae annually. This represents increase of 397 billion drachmae over present military budget this fiscal year. Immediate impact Greek budget present fiscal year would be increase 100 billion drachmae [Page 161] because of failure to reduce forces from present level during first half calendar 1949 as previously anticipated. Additional drachmae expenditures this year would depend upon date expansion begun and rate of recruitment.
- (3).
- Regarding internal costs, impossible plan on increased revenue either present fiscal year or next year through taxation and other ordinary means within Greece to extent needed to make more than slight contribution toward meeting increase. Sources such drachmae might be (a) either to provide from additional special military appropriation dollars to be used for import in consumer goods over and above ECA program or by increasing ECA program; (b) virtual elimination of reconstruction program and diversion ECA drachmae proceeds from current import program to military budget; or (c) provision US dollars for substantial sales of gold sovereigns.
- (4).
- From theoretical point of view (a) would be most desirable for Greek economy. However limitation on availabilities food and other types consumer goods which could be used effectively in counteracting inflationary impact of additional budgetary deficit would create practical difficulties and would distort present pattern of long run development program. Implications of (b) are obvious. Greece’s chances for economic recovery within period of ECA, and therefore for many years, would be rendered nil. Full or substantial discontinuance of reconstruction program would represent a victory of first order for guerrillas and Communist countries which support them, (c) of course objectionable on grounds monetary theory. Further possibility of course combination 2 or more alternatives.
- (5).
- As stated above, both dollar and drachmae requirements for this fiscal year would depend on how quickly expansion made operative and this factor makes it difficult appraise impact present drachmae budget. It is opinion my economic advisers that 100 billion drachmae increase in present budget which would be necessitated by continuance present armed forces level could be obtained without serious economic repercussions through increase in ECA consumer goods program or special dollar appropriation for this purpose. For reasons set forth paragraph 4, extent to which consumer goods program could be raised to permit further increase is uncertain, although at the moment it appears dangerous to count on substantially more than the 10 million dollar equivalent.
Foregoing represents factual statement of General Van Fleet’s proposal and its financial implications. Views as to course which should be taken will follow in separate telegram within a few days.