Foreign Relations of the United States, 1958–1960, Berlin Crisis, 1959–1960; Germany; Austria, Volume IX

300. Paper Prepared by the Embassy in Austria⁰

Vienna, September 12, 1958.

PROGRESS REPORT ON AUSTRIA

(NSC 5603, approved April 7, 1956)¹

(Period Covered: From January 29, 1958, to September 1, 1958)

A. Summary of Operating Progress in Relation to Major NSC Objectives

1. Summary Evaluation. U.S. policies and programs continued to be generally successful in assisting Austria to maintain its freedom, independence, internal security and stability. U.S. programs in military aid, productivity and technical assistance, surplus commodity sales, and loans supplemented regular diplomatic and public information activities in achieving US objectives. Austria’s implementation of its policy of military neutrality and other related aspects of its foreign policy showed certain tendencies somewhat disturbing from the U.S. standpoint, although the basic Western orientation of the Austrian people remained unchanged.

The U.S. has thus far succeeded in keeping American programs out of partisan politics and informally stressed the achievements of the Austrian coalition government and the stability it has fostered. U.S.-Austrian cooperation in the build-up of the Austrian Army toward a 60, 000-man goal has continued, and on May 26, 1958,² the President approved the allocation of an additional sum of up to $30 million in end-item grant aid, bringing the total to approximately $91 million since the State Treaty.

The Austrian economy continued to expand during 1958 but at a less rapid pace than in 1957, reflecting primarily some weakening in foreign trade. Considering the recessional factors at play internationally, the Austrian situation showed substantial stability and strength. Austria continues to show lively interest in the creation of the European Free Trade Area. However, should it not be established and become operative by January 1, 1959, Austria will probably participate in whatever interim arrangements can be made prior to that date to create association with the European Economic Community in order to avoid being placed in a disadvantageous tariff position. [5-1/2 lines of source text not declassified] PL 480 and counterpart loans as well as the technical assistance program are playing their designed role of helping rehabilitate the industry in the former Soviet-occupied zone.

No recommendation is made for policy review at this time.

B. Major Operating Problems or Difficulties Facing the United States

2. Austrian Governmental Policy and Stability. During the period under review the Austrian Government has shown an increasing tendency to try to avoid taking definite stands on certain East-West issues and, in some cases, to adopt an attitude which in effect would place the US and the USSR on the same moral plane. The principal example of this was the visit of the Austrian Government delegation to the Soviet Union in July, where Chancellor Raab went considerably further than the requirements of protocol in praising his Soviet hosts as being chiefly responsible for the conclusion of the Austrian State Treaty. (Raab said: “We know that the Treaty was concluded in large measure thanks to the Soviet Union.”) In rather equivocal language he seemed to imply a broader policy of neutrality for Austria than strictly military neutrality.

These actions stem in part from the Chancellor’s naivete and ignorance of the communist world’s basic policies and in part from Austrian internal politics. As to the latter, relationships between the two coalition parties have considerably deteriorated during the past year. The two parties are now deadlocked on several major issues without very favorable prospects for compromise solutions. In addition to coalition difficulties, the People’s Party has been shaken by the public exposure of scandals involving high party financial officials in influence peddling. Finally, increasing rumors about the Chancellor’s health have undoubtedly weakened to some degree his hitherto iron-clad control over party affairs and have given rise to active speculations about a possible successor for him.

This domestic situation had led the Chancellor to look for “successes” in other fields. Thus, he has turned to the foreign policy sphere where he has exhibited a rather startling naivete, and by proceeding largely on the basis that Austria bears no responsibility in major East-West issues and can still act as a bridge builder, has sometimes tended to play into the hands of the Soviets.

3. Protection of Property Rights of American Citizens. Further, albeit slow, progress was made in the settlement of the claims of the U.S. and British oil companies under the Vienna Memorandum.³ The Austrian Government retransferred the ownership of the Lobar refinery and the pipelines to a subsidiary, jointly owned prior to nationalization by Socony Mobil (U.S.) and Shell (British-Dutch). The parent companies were given de facto control of the subsidiary and, pending its de jure denationalization which will take place when the remaining claims are settled, the subsidiary leased the refinery and pipelines to the Austrian Government. A collateral agreement for the delivery of crude oil by the Austrian Government to the refineries of the companies and for the delivery of finished products was also signed. The Austrian Government has agreed in principle to form a consortium with the U.S. and British companies for the exploration and exploitation of specified oil concession areas. The only remaining significant issue on which agreement has not been reached is the compensation payable to the companies for the loss of the producing fields in the former exploration areas of the companies. The Austrian Government has expressed the desire to complete the negotiation of all the claims of the oil companies under the Vienna Memorandum before the end of the year.

In a formal note to the U.S. Embassy the Austrian Government gave its assurance (1) to restore pension rights retroactive to May 1950 to former persecutees who were employed by the municipalities in Austria (2) to pass a law to restore life insurance policies confiscated by the German Reich (3) to grant exemptions from the occupation cost tax on property to all former persecutees who were United Nations nationals on the date of the entry into force of the State Treaty. The necessary legislative and administrative action has already been taken to carry out these assurances. The Austrian Government also agreed to amend its laws to remove all requirements as to age, nationality and residence with respect to social security, industrial accident and disability benefits for former persecutees.⁴

A proposal was made by the Austrian Government to settle the remaining categories of claims under Article 26 of the State Treaty by a lump sum payment of $5, 000,000. This proposal in now under consideration and will probably be accepted.

4. Military Build-up Problems. The major factor governing the nature and size of the Austrian military build-up and U.S. assistance program is the Austrian status of neutrality. Major problems in the build-up into an effective combat force are: the current shortness of the period of compulsory military service (nine months); domestic legislation which limits enlisted service to a total of nine years thereby preventing the development of a corps of career non-commissioned officers; domestic legislation which would permit the call-up of trained reserved for yearly training periods with the active army; and the establishment of a program to overcome the present shortage of commissioned officers.

The Department of Defense has initiated a request for a Presidential determination under Section 401 (a) of the Mutual Security Act for a $27.7 million fiscal year 1959 military aid program designed to complete equipping of the Austrian MAP force goal of 9 infantry brigades, 3 armored regiments, 3 artillery regiments and the necessary combat and service support forces. Delivery of this American equipment will complete the end-item requirements for the MAP force basis⁵ and leave a requirement only for follow-on spare parts and training ammunition within the amounts prescribed by Department of Defense instructions for fiscal years 1960 and 1961.

5. Refugees. Of the 180, 353 Hungarian refugees who entered Austria between October 1956 and August 14, 1958, there were 17, 138 remaining in Austria on the latter date, of which 6, 746 were in camps. The Embassy estimates that the expenditures through the Austrian budget for the care of Hungarian refugees will total $17.46 million through December 31, 1958. The Austrian Government’s contribution to the total is expected to be $770, 000, with private Austrian contributions of also approximately $770, 000. The remainder of the funds has come from the United States, other governments and welfare organizations. Funds on hand from previous official and voluntary aid programs plus the proceeds of the special $10 million PL 480, Title II, sales program should eliminate any need for new U.S. aid to the Austrian Government on behalf of Hungarian refugees in FY 1959, beyond the supplementary services provided by USEP. This view is fortified by the fact that substantial numbers of remaining Hungarians should be moving out of Austria in the coming months, especially under the new bloc of 3, 000 U.S. immigration visas for Hungarians from Austria.

The Yugoslav refugee population in Austrian camps was down to 2, 948 on August 10, 1958, according to figures supplied by the Austrian Ministry of Interior. New arrivals are currently about 100 per week, with deportations at about 50 and migrations at 200. Pursuant to the OCB decision of December 11, 1957, a PL 480 Title II program for the direct camp feeding of the Yugoslav refugees is nearing finalization.⁶ Within the ceiling of $1, 000,000 in surplus commodities based on actual needs of camp population and within the specified program time limit of 18 months, this authority should prove ample unless the number of Yugoslav refugees moves sharply upward as it did in 1957. The Yugoslav refugee situation, with its oscillations in numbers caused in part by seasonal factors, border conditions and Austrian second thoughts on a liberal asylum policy as concerns Yugoslavs, will continue to merit U.S. attention. The Austrians have not taken with too much relish to our direct feeding program having preferred either an outright cash grant or, failing this, surplus commodities for resale. The degree of local tolerance of Yugoslav refugees appears to vary with the prospects of Yugoslav emigration and the resources which third countries are willing to contribute to the maintenance of the Yugoslav refugee population in Austria. It should be noted the USEP/Austria grants only resettlement assistance to Yugoslavs and is further tied, as are other USEP units, to the Washington policy determination of expending a maximum of 15% of total refugee program monies on Yugoslavs. The Embassy has long been aware that the limitation of aid to Yugoslavs for resettlement assistance carries the seed of discontent so long as other nationalities in refugee status receive varying levels of U.S. assistance. It is understood that high level consideration is currently being given in Washington to some liberalization of the financial ceiling as regards Yugoslavs. Should this occur and the Austrians be reasonably convinced that the Yugoslavs will continue to move overseas in substantial numbers, it is believed that the Austrian authorities would be prepared to consider reinstatement of a fairly lenient asylum policy.

6. West-East Trade. Removal of copper from the embargo list effective August 15, 1958, should eliminate the recurring problem of Battle Act exceptions for Austrian copper shipments of 1, 000 tons annually under the Compensation Agreement arising out of the State Treaty. [3 lines of source text not declassified] Trade developments between the USSR and Austria, particularly in light of Chancellor Arab’s recent visit to Moscow, and between Austria and Red China, especially in the light of Austrian intent to establish some sort of trade representation in Peking, will merit close watch.

7. PL 480 Program. The United Sates declined to authorize a third PL 480 Title I program in FY 1958. The Austrian request was for a $11.6 million program.⁷ The Austrian Chancellor and several cabinet ministers had pressed the issue during their visits to the United States. The Austrian request, which was considered to have a low priority, was disapproved on grounds of low Austrian commercial purchases of the U.S. commodities involved, Austria’s strong foreign exchange position and the fact that local currency usage is a consideration of secondary importance. There is some opinion that this negative response will drive Austria eastward, especially in feed grains and cotton. Austria will, of course, miss the economic development loans which would have been made possible through schilling proceeds under new PL 480, Title I, loan agreements. The United States has, however, been attempting progressively to encourage Austria to assume her own economic responsibilities, and this rejection should prove one of a number of tests of her capability in this direction. However, close and continued scrutiny appears desirable.

Annex A⁸

ADDITIONAL MAJOR DEVELOPMENTS NOT COVERED IN THE REPORT

1. The Chancellor’s Visits. During this year the Chancellor has made official or unofficial visits to Italy, Germany, the United States and the Soviet Union.⁹

a. In Rome the Chancellor had informal talks with the Pope and other Vatican officials on the long unsettled problem of the Concordat in Austria. He also discussed the South Tyrol problem with Italian Government officials.

b. In Germany, where the Chancellor went to participate in a ceremony installing Chancellor Adenauer as a member of the Teutonic Order, Raab broached informally to Adenauer his idea for a new “initiative” on the German problem. Some weeks later, Raab casually revealed his secret “initiative” to the press. The Raab suggestion was not given serious consideration by any of the parties involved.

c. The Chancellor’s visit to the United States was primarily a good will visit and, from his standpoint, was supposed to “balance off” his later visit to the Soviet Union. Inadequate advance explanations to the Austrian people as to the purely “good will” nature of the U.S. visit and ineptitude in the public relations aspect of the tour resulted in a general impression in Austria that the American visit was a “failure.”

d. The visit to the Soviet Union, on which the Chancellor was accompanied by a full Government delegation, including Vice-Chancellor Pittermann, Foreign Minister Figl and State Secretary Kreisky, was long planned and, from the Austrian standpoint, was for the purpose of persuading the Soviet Union to reduce the deliveries of Austrian oil and goods under the State Treaty. The Soviet Union did agree to deliver to Austria Soviet oil in the amount of one-half of Austrian oil still to be delivered under the State Treaty terms. While this originally was hailed as a great victory for Raab, doubts, deepened by fairly clever and effective stories in the Socialist press, have arisen in the public mind which now begins to wonder if the Soviets didn’t put one over on the Austrian delegation.

Austria is still bound to deliver 1, 000,000 tons of crude annually for the next seven years under the oil compensation agreement, accepting 500, 000 tons annually from the USSR of still unspecified quality but expected to contain sulphur and produce high gasoline yield. These two factors will complicate Austrian refining. The Soviets also agreed to substitute industrial goods for the additional 200, 000 tons of oil which Austria is required to deliver annually through 1961 under the compensation agreement for ex-USIA properties. This formalizes for the duration of the obligation a practice which has already been in actual effect.

2. South Tyrol. Earlier in the year tensions increased between Austria and Italy over the South Tyrol problem. The Chancellor’s visit to Rome at Easter and his talks with Italian officials seemed to produce no noticeable easing of the situation. Following the Italian elections and the installation of the Fanfani government, however, it appeared that Italy might be moving toward a slightly more positive and liberal attitude on the South Tyrol. Diplomatic talks between the two countries have been going on for several months and are expected to lead to a meeting of Foreign Ministers, at which the situation of the German-speaking populace in the South Tyrol will be discussed.

3. Concordat. This long unsettled issue has again faded into the background with little prospect for a solution in the foreseeable future. Chancellor Arab’s informal talks with Vatican officials in Rome apparently had little effect, and there is no indication that the Austrian Government intends to take any further initiative at present.

4. Danube Convention. During its visit to the USSR, the Austrian delegation announced that Austria would adhere to the Belgrade Danube Convention of 1948. After his return, the Chancellor announced that this action had been taken by the Austrian delegation on its own initiative and that the Austrian Government had been considering the step for some time. The action was taken without advance consultation with the US, UK or France, whose Ambassadors in Vienna had been assured by Foreign Minister Figl some months earlier that the Austrian Government did not intend to adhere to the Convention.

5. Overflights of Austrian Territory by U.S. Military Aircraft. At the time of the sending of U.S. forces to Lebanon, Austrian territory was overflown during a three or four day period by a number of U.S. military aircraft transporting personnel and equipment from Germany to the Middle East. The Austrian Government had actually given clearances for most of the overflights, but a few planes flew over without clearances. Press reports of the flights and public reaction led the Austrian Government to suspend the granting of overflight clearances for the time being. In taking this action, and in talking publicly of a “protest” which was never made, the Austrian Government made no mention of the fact that clearances had been granted for most of the flights in question, while the Austrian press treatment of the matter left the impression that all the flights were unauthorized. The manner in which the Austrian Government handled this event was undoubtedly motivated largely by the fact that the Chancellor and other members of the Government were scheduled to leave for Moscow on a state visit only a few days after the flights occurred.¹⁰

6. Austro-Yugoslav Relations. For several months Austrian and Yugoslav representatives have been carrying on negotiations and discussions on a broad range of subjects, including property and social insurance claims, consular affairs, cultural exchanges, various legal and financial matters, movement of persons in frontier areas, etc. It now appears probable that these negotiations will be completed later this year with results satisfactory to both sides.

7. Austro-Hungarian Relations. In the face of repeated overtures from the Hungarian Government to improve relations, the Austrian Government has maintained a cool attitude. The Austrians have repeatedly pointed out to the Hungarians that the situation along the Austro-Hungarian border must be improved before any other matters can be discussed. In spite of this, Hungarian actions along the border have continued to cause incidents which have increased tension between the two countries.

8. Austro-Czech Relations. In early summer the Czech Prime Minister sent a long message to Chancellor Raab which, in addition to urging the Soviet line on various international issues, proposed that Chancellor Raab visit Prague for discussions of Austro-Czech problems. The Chancellor’s reply sidestepped the international aspects neatly and took the line that a meeting of the heads of government should take place only after adequate preparations in lower level talks had shown that a top-level meeting could be fruitful. Since the Moscow visit, however, reports have been received that the Chancellor indicated to the Soviet leaders that he would visit Czechoslovakia early next year or before.

0. Source: Department of State, Central Files, 611.63/9–1258. Secret. Drafted by Galloway and transmitted as an enclosure to despatch 262, September 12. The Operations Coordinating Board issued this paper in a revised and updated form on October 22, as a Progress Report on NSC 5603. (Ibid., OCB Files: Lot 62 D 430, Austria)
1. For text of NSC 5603, see Foreign Relations, 1955–1957, vol. XXVI, pp. 34–37.
2. See footnote 5, Document 295.
3. See footnote 4, Document 295.
4. concerning the Austrian agreement, see Department of State Bulletin, October 20, 1958, pp. 619-620.
5. The request was subsequently reduced to $9 million. Copies of the recommendation for approval of this request, in the form of a memorandum from Dillon to the President, April 27, and of the President’s authorization, April 30, are in Department of State, Central Files, 763.5–MSP/4-3059.
6. See footnote 6, Document 295.
7. See footnote 9, Document 295.
8. Secret.
9. Regarding Raab’s visit to the United States, see Document 296; regarding his visit to Moscow, see Documents 298 and 299. Raab visited Italy April 1-7 and the Federal Republic of Germany in early March.
10. Documentation concerning flights of U.S. airplanes ferrying U.S. troops from Germany to Lebanon over Austria on July 16 is in Department of State, Central File 763.5411.