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

328. Telegram From the Embassy in Greece to the Embassy in France⁰

Athens, March 6, 1962, 3 p.m.

124. Paris for General Norstad, Stoessel, McGuire and USRO. Rome for Admiral Hussell and Rood. Gen. Frontistis plans call on Gen. Norstad March 7 to present results military studies showing reductions required three Hellenic services beginning January 1, 1963 attributed withdrawal US defense support in 1963. Proposed reductions already notified by Chief JUSMAAG Athens to Gen. Wheeler. Drastic cuts planned seem designed reduce expenditures to levels substantially below what would seem be required if objective confined to reduction defense expenditure for 1963 by amount of withdrawn defense support.

There has been no effort on civilian side of Greek Government to allocate resources to military completely or even partially to fill gap created by withdrawal 1963 assistance even though this clearly possible in light of overall budget increase equivalent $96 million, of which only $33 million investment. Balance $63 million for miscellany of general purposes. We forced to conclusion Greeks have come to fundamental decision that except as external grant aid may be available they entitled to and should reduce level their defense effort (measured against GNP) to levels other small NATO powers. They using withdrawal 1963 defense support as cover for this decision.

Following analysis may be helpful:

(1) Although level support 1961 and 1962 commonly thought of as $20 million, in fact retention 10 percent of generated counterpart by US for own use brings figure to $18 million.

(2) Carry-over during calendar 1963 estimated at $5 million. This results from time required to procure imports with US dollars and collect the drachmae from Greek importers. Effect of reduction in 1963 therefore about $13 million.

(3) This amounts to 1.6 percent of the 1962 Greek budget.

(4) Military apparently arbitrarily excluded from sharing in steadily increasing tax revenue. If military got proportionate share of increase $6 million additional would be available annually.

(5) By financing larger proportion investment budget through international loans, Greece could, if it wished, divert some of its own financial resources and investment to defense. US, Common Market, Germany, possibly other NATO allies all possible sources of substantial loans for construction projects and equipment.

In summary cessation American grant aid need not have such drastic effect unless Greek Government wants it that way.

However, unless US credits on easy terms and in amounts at least sufficient to equalize past grant aid can be available promptly, there appear to be serious economical, political and psychological factors which will make it extremely difficult if not impossible for government to maintain military expenditures we desire.

I shall comment further on this subject later.

Labouisse

0. Source: Department of State, Central Files, 781.5/3–662. Secret; Niact; Noforn. Repeated to the Department of State and Rome. The source text is the Department of State copy. President Kennedy appointed Henry R. Labouisse Ambassador to Greece on December 18, 1961, and the Senate confirmed the nomination on January 29, 1962. He presented his credentials to King Paul on March 7.