Papers Relating to the Foreign Relations of the United States, 1920, Volume I

863.48/173: Telegram

The Ambassador in France (Wallace) to the Secretary of State

Paris, November 18, 1920—9 p.m.
[Received November 20—10:52 a.m.]

1936. B-323. For Davis, Secretary of State and Secretary of the Treasury. Referring my B-318³⁸ regarding report Austrian Section concerning Austrian economic situation.

1. With some reserve as to exact date of crisis, Austrian food situation will become acute. Same true of all imported raw material. Must endeavor distinguish clearly between necessity immediate decision on emergency relief and later decision on question of permanent rehabilitation, though decision on first question necessarily somewhat affected by opinion whether under any feasible arrangement Austria can get on feet again; also by fact that if Austria must be left to become bankrupt, consequences minimized if food for winter supplied so that people may have summer months to make such adjustments as are possible instead of being forced to face bankruptcy combined with food crisis during the winter.

2. Like every other demand for European relief this one inevitably will in world public opinion come home primarily to United States either by direct request, propaganda or by inference. England will naturally make action contingent on United States action. Informed by French representative on Austrian Section that French Government holds that their financial position makes it impossible for them to contribute either directly or indirectly through the Government but that Government will do everything possible to attract private French interests to Austria’s support. From past experience believe that Italy will take approximate position France. Neutrals will not be handed their fair share of responsibility. All this inherent in situation and can not be avoided. United States will inevitably have to accept or refuse largest share of responsibility. This applies more particularly to emergency relief than to permanent plan for rehabilitation which United States could with better grace leave to those having direct political and business interest in situation. Out of 190 million installment suggested by Austrian service 45 millions is estimated as necessary to meet minimum requirements Austrian situation, cereals and fats, to next harvest.

3. Food situation very similar to last year but financial and economic situation much worse clearly indicated by exchange rate. Austrian Government very weak and people apathetic, very little accomplished in the way of rehabilitation last year. Last year’s relief largely confined to consumptive credits which while saving life can nevertheless not be considered as having contributed to permanent rehabilitation of the country. Without depreciating [importance of] mere life-saving nevertheless lack of progress tends to discourage further aid by outsiders. This failure due partly to fact that relief had to be furnished before conditions could be made effective, particularly Austrian Section organized so late its influence could not become effective in time; also Austrian Government and people overwhelmed by conditions, particularly terrible load left by war and future requirements of treaty, incapable of serious effort where could see no hope of success. Impression generally prevails that under better conditions they would not prove very efficient. I hear constantly of friction between Vienna and rest of Austria particularly farming classes, latter not desiring to expend great efforts to raising crops with maximum prices fixed by law and a tremendous fluctuation [in] value [of] paper money. Relation[s] with neighboring states not too good, though this is not fault of present Austria in particular. Except for reparation demands I do not regard treaty as responsible for condition. Prewar causes combined with war made downfall inevitable and under existing circumstances no arrangement could have been devised [to] avoid results now occurring. Does not help situation to recall Austria’s primary responsibility as instigator of the war but should not be forgotten.

4. Advances, whether for temporary relief or permanent plan, ought not to be regarded from ordinary loan point of view. Present condition of Austrian exchange such that any outside expenditure or loan which appears in budget in crowns makes budget so impossible as to destroy credit and hope of reasonable exchange basis. This very fact is basis of hope of Austrian Section that comparatively small amount of outside relief may save Austria by making unnecessary use of exchange in purchasing food which must for the present be sold inside country at prices harmonizing with salary and wage status inside country. They think that reduction of such purchases, with revolving fund for raw materials, combined with psychological effect of substantial aid upon productive forces of Austria, would restore exchange to some more reasonable figure and gradually work out restoration. I cannot conceive that 250 millions over five years can accomplish so much but have not attempted to study conditions of plan. If any attempt is to be made plan must be studied on the ground not by me or by existing personnel [of] Austrian Section, but by real economic and financial experts. Even then it will be a gamble. Repeat that present decision must be limited to food emergency and question whether and when money shall be repaid can be pretty nearly disregarded. Whitman, liquidator Austro-Hungarian Bank, who approves this cable puts his thought as follows. Quite logical but quite inconceivable that world can look on while civilized capital like Vienna starves, but if world proposes help, not very businesslike to limit help to mere charity without effort to change the fundamental situation which unless changed will prolong and aggravate the agony.

5. From fact that plans are fathered by Goode, judge considerable chance England may do something. They of course are likely to say they will if we will or they cannot because we will not. France may be affected greatly by her feeling that Austrian independence is necessary for safety [of] France. Italy will not, probably cannot do much.

6. To get best results, whether we refuse or accept, we should if possible act quickly. Recognizing and sympathizing with general administrative policy I nevertheless feel that we should assume too serious responsibility by refusing to aid with contribution, preferably cereals, and perhaps cotton. If we make any offer my inclination would be, while always consulting and cooperating with others, not to join inter-ally or international action which tends to arouse expectation [of] continued assistance; also has other disadvantages. Would make offer conditional on immediate cancellation of all objections averred under peace treaty, whether costs [of] army of [occupation], restitution or reparation, with reduction of Austrian Section to lowest possible limits necessary for what little would be left under the treaty, acting also as small supervisory commission charged with supervision [of] credits and execution [of] conditions attached to credits. Would also make offer conditional upon corrective measures insuring future economic harmony inside Austria and with her neighbors, productive effort [of] entire population, united support for administrative economy, united sentiment for private sacrifice particularly by rich, fixing a minimum budget by practical disbandment of present army, reduction [of] government employees, etc. Would not be content with Government promise but would demand some indication of really united public opinion which alone can make Government strong enough to do what is necessary. This is large order but you could get good deal for 25 millions at the present moment, something which in all probability would go a long way in the maintenance of order in central Europe. Offer particularly effective if ignores largely question of repayment but emphasizes necessary constructive conditions.

7. Suggestion to scrap Austrian reparations would have great effect on German indemnity question without seeming to be intended for that purpose. Boyden.

Wallace

38. Not printed.