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

322. Paper Prepared by the Operations Coordinating Board⁰

Washington, November 23, 1959.

OPERATIONS COORDINATING BOARD REPORT ON AUSTRIA (NSC 5603)¹

(Policy Approved by the President, April 7, 1956)

(Period Covered: From October 23, 1958 Through November 25, 1959)

1. The agencies represented on the Working Group on Austria have reappraised the validity and evaluated the implementation of the U.S. Policy Toward Austria (NSC 5603, dated April 7, 1956) in the light of operating experience. They further believe there is no need for the National Security Council to review the policy at this time and that there are no developments of such significance as to warrant sending a report to the National Security Council.

2. The national parliamentary elections of May 1959 produced approximate equality between the Socialists and People’s Parties as a result of gains by the former and losses by the latter. The new coalition government under People’s Party Chancellor Raab reflects this balance. Another result of the election was that the Communists were eliminated from representation in Parliament.

3. So far there has been no basic change in Austria’s policy of military neutrality with its strong pro-Western overtones. Austrian international conduct since 1955 has in practice been viewed by the Austrians in terms of its consistency with a broader application of neutrality extending to many political questions. The Austrians have attempted since 1955 to balance acts favoring the West by scrupulous correctness and adherence to their obligations to the Soviet Bloc, and by some actions which have been widely interpreted as favoring the Bloc. Over the last year or two the number and scope of actions favoring the Bloc have increased somewhat. This tendency may flow from what the Austrian Government may consider to be the growth of Soviet power vis-à-vis the United States and from the increasingly active efforts of the USSR to appear reasonable and in favor of peaceful co-existence. Austria may also have been influenced by the fact that other powers, including the United States, have been expanding their relations with the USSR and the Bloc. An additional factor may be the desire of some pressure groups in Austria to create an atmosphere more favorable to building up trade with the East, which these groups see as offering attractive potential export possibilities at a time of sharpening competition and as a hedge against possible future economic declines in the West.

4. Two large rallies were held in Vienna in 1959. Partly as a result of Soviet pressure, the Austrian Government in March 1958 agreed to permit the Communist-dominated World Youth Festival to be held in Vienna. It took place in July–August 1959; attendance was about 14, 000. The Communist organizers were handicapped by the boycott of the Austrian press, the minimal official recognition, the relative unresponsiveness of the Austrian public, and the counter-activities of Austrian and other Western youth organizations. Partly to counter-balance this Festival, the Austrian Government allowed the Sudeten Germans to hold a rally, which took place in May and was attended by about 300, 000.

5. Austria considers the question of the South Tyrol to be its major current international problem. Foreign Minister Kreisky in his September 21 speech before the UN² threatened that, if Italy did not grant autonomy to Bolzano province within a reasonable time, Austria might bring the issue before the UN. U.S. policy remains one of avoiding entanglement in this old and emotion-charged controversy and encouraging the parties to settle it bilaterally.

6. Negotiations between the Austrian Government and the oil companies (Socony–Mobil and Shell) continue to drag on, even though the Austrians undertook in the Vienna Memorandum of May 1955 to settle the claims by April 1957. The U.S. Government in an effort to accelerate settlement (a) still withholds an annual counterpart release of $7 million and an overall counterpart settlement of $418.4 million as well as the disbursement of $11.2 million in PL 480 Title I sales proceeds, and (b) has not submitted the Austrian Assets Treaty³ to the Senate. In renewed negotiations on the Vienna Memorandum, the Austrians in September 1959 indicated that some substitution for outright cash payments must be found, and consideration is now being given to finding an alternative in the form of “hidden compensation”.

7. The last U.S. dollar assistance, in the form of a small technical assistance program, was extended to Austria in FY 1959. No further assistance is contemplated.

8. Austria’s economy has continued to evidence a healthy, balanced expansion. Internally, business activity is being maintained at a high level without significant soft spots. Externally, tourism and foreign capital inflows are more than offsetting trade deficits; gold, dollar and other convertible exchange reserves as of June 30, 1959 had reached an all-time high of $730.6 million, up 34% from June 30, 1958. The future of European economic integration is of current major concern to Austria. Austria is participating in the negotiations for the formation of an “Outer Seven” grouping in the hope that the resultant leverage will lead to an accommodation with the EEC and, ultimately, to a larger free trade area.

9. a. After delivery of items contained in the FY 1959 and previous Military Assistance Program, the U.S. will have provided the basic military equipment for the build-up of the agreed Austrian forces. A small training program has been proposed for FY 1960. During the 1955–1959 period the U.S. Government programmed equipment valued at approximately $80 million. As of July 1, 1959, approximately $20 million worth of equipment remained for delivery.

b. In December of 1958 the Austrian Government submitted a new military force plan, which is based upon the use of a force-in-being (60, 000) and a reserve component (120, 000) for a total of 180, 000 men. A review of the plan by Defense indicates that the concept of reserve forces is sound, but that the plan is too ambitious and should be modified to be more realistically within the capability of the Austrian Government to support. In addition, Austrian legislative action would be necessary to create these reserve forces.

c. On November 5, 1959 the Austrian Minister of Defense discussed a substitute plan involving additional U.S. military grant aid for a 50, 000 reserve component.⁴ This reserve force would consist of all those who, during the previous three years, had had military service. Since there would be no military training required for reservists, no new legislation would be necessary to create the force.

d. The Austrian Defense Minister was informed that, although the reserve plan had merit, the U.S. Government could not undertake any commitment regarding support of the reserve concept until after review by U.S. agencies. The Austrian Minister of Defense will submit his proposal to the Embassy in Vienna for consideration.

e. Subsequent to the events described above, the Departments of State and Defense commenced working level discussions of means of implementing the recently clarified policy regarding new commitments for the provision of military equipment on a grant basis to nations which are financially able to pay for such equipment. A joint State–Defense communication is to be transmitted to their senior representatives in the countries affected, including Austria, in the near future advising of this policy and its implications. The interested agencies will examine any request for U.S. support of an Austrian reserve plan in light of the clarified policy.

0. Source: Department of State, OCB Files: Lot 62 D 430, Austria. A cover sheet and a memorandum by Bromley Smith, Executive Officer of the OCB, indicating that the OCB has concurred in the report and agreed not to send it to the NSC on November 25 are not printed.
1. See footnote 1, Document 295.
2. See footnote 5, Document 319.
3. For text of the treaty, “Austrian Property, Rights and Interests,” signed by Secretary Dulles and Ambassador Platzer on January 30, 1959, and ratified by both parties in 1964, see 15 UST 439.
4. Defense Minister Ferdinand Graf visited Washington November 4–6; a memorandum of a conversation between him and Wells, November 5, is in Department of State, Central Files, 763.56/11–559.