213 Lt Col W. R. Hodgson, Secretary of Department of External Affairs, to Mr J. McEwen, Minister for External Affairs

Memorandum 7 May 1940,

ITALIAN ENTRY INTO THE WAR

1. The present policy of Italy is still one of non-belligerency, as distinct from neutrality. In practice, the policy has meant active assistance to Germany in the economic and diplomatic field, with Mussolini retaining freedom of action to intervene militarily at a favourable opportunity.

Under these conditions Germany has all the advantages of Italian support without the liability which would be involved in actual Italian belligerence.

2. Italy might become involved in war against the Allies as a result of- (a) A decision by Mussolini to come in on the side of Germany by attacking Allied interests in the Mediterranean.

(b) Unilateral action by Italy against Yugoslavia.

(c) A decision by the Allies to force Italy's hand in insisting on strict neutrality and in enforcing the economic blockade against Germany so far as it affects Italy.

3. The main factors which can be regarded as affecting any decision by Italy are- For participation (a) Mussolini is convinced that Hitler will win the war in a short time, and that Italy has more to gain by a German than an Allied victory.

(b) Gambling on the preoccupation of the Allies and their non- interference, a favourable opportunity is presented for extension of Italian territorial and economic interests in the Balkans.

Following on the seizure of Albania, the subjugation of Yugoslavia by similar methods seems easy to accomplish.

(c) Italy has long standing claims against France over Tunis, Corsica and East Africa, which have not been satisfied by peace negotiation. The Italian ambition to conquer Egypt and so link up her North and East African Territories to form a vast Italian Empire has scarcely been concealed. An Allied defeat or peace compromise may well achieve this objective.

(d) Entry of Italy will cause Allied diversion of forces from main theatre, will close Mediterranean to Allied and friendly neutral shipping, and facilitate overwhelming blow by Germany in Western Europe.

Against participation (a) Italy, more than any other country, is dependent on imports by sea for vital industrial raw materials, especially iron, cotton and oil.

The present war has aggravated her bad economic position.

The Allies will at least close all her exits from the Mediterranean to the outer seas.

The United States will enforce the Neutrality Act against the Mediterranean theatre of war, thus completely cutting off all American supplies from Italy. It can be safely assumed that a war lasting over six months would find Italy in a desperate plight.

(b) Effects of (a) on population would be cumulative and probably decisive should the war be of long duration, as Vatican, Royal Family and moderate elements are opposed to participation at the outset.

(c) Italy would lose all the benefits of her present policy, and the chance of the rehabilitation of her financial position. She is not self-contained to the extent that Germany is, she has little or no resources of raw material except six months oil supplies, and she cannot rely on any substantial assistance from Germany whose present needs would be the same as Italian deficiencies.

4. On the whole the balance seems well on the side of non- participation. The risks of a long war are too great for direct entry on the side of Germany.

A gamble on the seizure of Yugoslavia without Allied intervention seems more likely, and this is felt to be the most likely danger at the moment.

5. The question then arises as to what action the Allies will take.

Following on the subjection of Finland, Norway, Poland and Denmark, the blow to Allied prestige will be enormous. It is likely that the whole of the Balkans, with the exception of Turkey, would, even if not directly invaded, come under the complete economic and military domination of Germany and Italy.

Can the Allies prevent this in any case? From the military aspect, the answer appears to be a decided negative, although naval pressure might in the long run be decisive. No details are available as to the military strength of the Allies in the Mediterranean area, but it is known that they are scattered in Syria, Palestine, Suez Canal Zone, French and British Somaliland, the Sudan, West Egypt and Algeria.

In the last war, fatal adventures were seen at Gallipoli, Salonica and Mesopotamia, dependent on sea home supplies and sea communications-all strong enough to [? constitute] dangerous dispersions, and never at any time enough to compel a conclusion.

Then the Allies had complete command of the Mediterranean, with Italy an Ally. Now, Italy controls the Aegean and Adriatic, the only means of approach by which assistance to the Balkans could be rendered. She has a powerful Air Force of some 3,000 first-line aircraft and 120 submarines, and their operation from home bases would rule out the possibility of any Allied military operations in the Balkans until the Italian fleet could be destroyed.

In the meantime, Yugoslavia and other Balkan countries would be overrun.

6. The following conclusions are therefore reached- (a) Italian intervention might in the last resort prove an effective contribution to the winning of the war by the Allies.

The immediate risks and disadvantages are so great, however, that Italy should not deliberately be forced into war by the Allies.

(b) Should Italy alone attack Yugoslavia, we cannot render effective assistance, and should accept the fait accompli.

(c) If Germany and Italy combine against Yugoslavia or another Balkan country, or take action in common, prejudicial to Allied interests, then it can be assumed that Italy would be regarded as being automatically at war with the Allies.

(d) Mussolini may also decide to intervene directly by an attack on the Allies.

(e) Action following on (c) and (d) would then be as visualised in the appreciation by the United Kingdom Chiefs of Staff [1], namely, naval and economic pressure, French air action against Northern Italy, French military action against Libya, and immediate action to restore imperial communications in the Red Sea and Suez Canal Zone.

(f) The last mentioned is the one [of] main concern to Australia, and the one in which the most effective assistance could be given.

For this reason, it seems desirable that the forces already decided on to be sent abroad should be concentrated as rapidly as possible in the region east of Suez, with a view to- (i) defensive role so long as Italy retains her present non- belligerent policy;

(ii) offensive role against Italian East Africa should Italy intervene.

1 See Document 210.

[AA: A981, ITALY 60B]