Foreign Relations of the United States, 1961–1963, Volume XVI, Eastern Europe; Cyprus; Greece; Turkey

310. Airgram From the Embassy in Greece to the Department of State⁰

Athens, March 12, 1961.

G–508. Ref: Embtel 1509.¹

1. Probably most difficult question which will arise during Caramanlis² visit is pre-war debt problem and related issue of DLF loan freeze. Following comments supplement refuel and our earlier messages.

2. With most Greeks in pre-electoral mood, chances of negotiating bond settlement before elections are practically nil. Already decisions on other problems far less controversial are being postponed and Caramanlis will make no move which might conceivably cost him votes. Any attempt by U.S. to push through settlement before elections could only fail; moreover, public knowledge (which inevitable in Greece) of such an attempt could only lead to further acrimony.

3. I continue believe in general validity Embassy’s appraisal (Embtel 526, August 31)³ of Caramanlis’ Govt’s behavior in last summer’s negotiations, i.e., that last minute demand for “most favored debtor” treatment, coupled with simultaneous withdrawal of DLF application for highway financing, was made with foreknowledge it would cause collapse of negotiations. I believe it would be poor tactics for U.S. Govt. at this time to view with favor Greek demand for “most favored debtor” treatment. Not only would they continue delay settlement for domestic political reasons, but it would be counter to Greek character if they did not view such a gesture as one of “softness” which could later be exploited through further endless rounds of negotiations like those of the last two years. The time may come when it might be advantageous for the U.S. bondholders to be in a position to offer some concession in Greece’s direction, e.g. bondholders might be willing withdraw their “standard clause” which probably not very meaningful in case of Greece. However, any gestures on our part should, if made at all, come only after Greeks show evidence they genuinely want a settlement by making a reasonably firm offer to conclude an agreement along the lines almost-agreed with U.S. bondholders last August.

4. I suggest Caramanlis be told when he is in Washington that basic U.S. attitude remains unchanged regarding importance attached to debt settlement and that we expect this matter will be taken up immediately after Greek elections as a matter of first priority action. If Caramanlis is especially insistent on need for statement about availability DLF financing, Dept may wish indicate that DLF would examine loan applications submitted for purely private projects. Whether we should then expedite such examinations, or drag our heels, can be left for later decision and would depend on all circumstances, i.e. nature of loan request, date of Greek elections, etc.

Briggs

0. Source: Department of State, Central Files, 881.10/3–1261. Confidential; Limit Distribution. Drafted by Palmer and Berger.
1. Telegram 1509, February 7, discussed the alternatives available to the United States in its efforts to arrive at a settlement of the Greek bond issue. (Ibid., 881.10/2–761)
2. Karamanlis was to visit Washington April 17–20.
3. Not printed. (Department of State, Central Files, 881.10/8–3160)