State Department Critical of Italian Plan for Middle East Development

State Department officials indicated today opposition to a plan proposed this week-end by Italy that the United States and Western Europe join in a program of economic development for the Middle East, using contributions based on a Marshall Plan formula.

Under the plan the United States would contribute repayments on its Marshall Plan loans to the proposed Middle Eastern Fund. Each European country owing money to the United States on the Marshall Plan would contribute an amount equal to 20 percent of its annual repayment to Washington which is scheduled to start in 1958. European countries without Marshall Plan loans would make contributions on a different basis. A tentative estimate was that the first year’s contributions would give the fund a starting capital of about $100,000,000.

The Italian memorandum presented to Secretary of State Dulles by Italian Foreign Minister Giuseppe Pelia, in effect proposed that the West cooperate in a bold economic initiative for the Middle East to offset Soviet economic penetration. The Italian proposal would by pass both NATO and the Bagdad Pact and use the Organization for European Economic Cooperation as the parent organization. The Italian memorandum made no reference to the Israel-Arab conflict. However, it was taken for granted that Israel would probably benefit under this plan.

(From Tel Aviv it was reported today that the Italian proposal for a Middle Eastern development fund was received “favorably” in Israel, but officials were reluctant to comment pending a study of details. “It was noted, however, that the basic premises of the proposal were consistent with Israel’s policy, a New York Times report said On the other hand, the New York Times reported from Cairo that the Italian plan was received by the Nasser government “with considerable suspicion.”)

U.S. officials said privately today that the plan involves a default by European nations on their scheduled repayments for Marshall Plan loans. The repayments are scheduled to begin next year. In the view of these officials the multi-national financial agency would actually be financed by the United States. This country does not want to be linked financially or otherwise in any approach to the Arab world with former colonial powers.

Officials here believe that any pooled Western effort is bound to be regarded in the Middle East as an extension of the North Atlantic Treaty Organization, which is in bad color through much of the region. They believe this would be the case despite Italian proposals designed to dilute the influence of the so-called “colonial” powers in the fund’s operations. The fear is that a Western pool would alienate some Arab nationalist leaders from the outset and lead to another policy fiasco for the West.

The State Department seems to be reluctant to see its Middle Eastern policy formally linked with the policies of the European powers with a “colonial” tradition. For these reasons, the opinion at the State Department today was that European participation in Middle Eastern development ventures was a sound principle but that it should be undertaken individually rather than through a Western organization.