Canadian policy regarding claims against European countries for military relief was set forth in P.C. 3065 of July 31, 1947.¹ A copy of that document is attached. In paragraph 5 (a) (iii), the Canadian claim against Italy is set at 5.4 per cent of the total bill rendered to Italy for military relief supplies, i.e. $28,400,000.00 (U.S. dollars).

2. On May 15, 1947, the Government of Italy was advised of the shares of the United States, United Kingdom and Canada in the total military relief bill, including the Canadian share mentioned above. The bill was reckoned in U.S. dollars, but the actual forms of settlement were to be agreed by each of the three countries with Italy.

3. On April 15, 1947, the Italian Representative in Ottawa was informed that in view of the difficult financial position of the Italian Government, the Canadian Government proposed to request no more than a "nominal settlement".1 This policy was confirmed in P.C. 3065 (attached). t

4. The United Kingdom and the United States both waived their military relief claims against Italy. The United Kingdom action was made conditional on ratification of the Italian Peace Treaty by the Italian Government and was taken as a political goodwill gesture. The United States waived its claim of $390,500,000 as part of a comprehensive Agreement with Italy on August 24, 1947, shortly before the Italian post war elections. The Agreement also provided for the unfreezing of Italian properties and assets, the turning over to Italy of twenty eight merchant ships and the payment by Italy of $5,000,000 to settle claims of United States nationals. The purposes of the Agreement were said to be to ease the "burdensome clauses" of the Peace Treaty and to contribute to Italy's peacetime economy.

5. In view of the fact that the United Kingdom and the United States have waived their claims the Italians have expressed the hope that Canada will accept one dollar as "nominal settlement". When the United Kingdom and the United States were waiving their claims they invited Canada to do the same. It was felt, however, that such a gesture by Canada would not carry much political weight in Italy and that Canada's financial contribution to post war European recovery could better be made in other ways. In addition the effect on Canada's post war claims against other countries, some of them allies throughout the war, had to be considered.

6. I do not think that we should insist on payment from Italy in dollars; however, the Canadian Government expects to have a number of uses for lira. Those include the purchase, repair and furnishing of a Canadian Chancery and a residence for the Canadian Ambassador in Rome, the current operating expenses of Canadian Government departments, and the operation of a cultural and educational programme in Italy similar to the one envisaged in our settlement of military relief and other accounts with the Netherlands. Funds needed for these purposes will probably amount to about 10 per cent of our claim against Italy and I feel that, under the circumstances in this case, we can consider this to constitute a "nominal settlement".

7. In view of these considerations, I recommend:

(a) that negotiations be conducted with the Government of Italy for settlement of Canada's claims in respect of military relief;

(b) that, in the first instance, our claim should be written down from $28,400,000 (U.S.) to $3,000,000 (U.S.);

(c) that the claim be further reduced to a figure of no less than $2,000,000 (U.S.) if this proves to be desirable in the course of negotiations;

(d) that payment be accepted in Italian lira at the rate of exchange current between United States dollars and lira current at the times of payment; and

(e) that provision be made for expenditure of the lira received in payment for the purchase, repair and furnishing of a Canadian Chancery and a residence for the Canadian Ambassador in Rome, the current operating expenses of Canadian Government departments, and the operation of a cultural and educational programme in Italy.²

L.B. PEARSON

¹ VOIR DREC, volume 13, documents 72 et 73./See DCER, Volume 13, Document 72 and 73.

² Approuvé par le Cabinet, le 5 janvier 1950 sous réserve que les dispositions concernant les fords reçus en règlement puissent être réexaminées.
Approved by Cabinet on January 5, 1950 on the understanding that the disposition of any funds received in settlement would be the subject of further consideration.