Foreign Relations of the United States, 1948, Germany and Austria, Volume II

Vienna Legation Files: Lot 55F74, Box 3160

Department of State Policy Statement on Austria

secret

Washington, September 20, 1948.

A. Objectives

The basic objective of the United States with respect to Austria is the reestablishment of Austria as an independent and democratic country. The fulfillment of this objective has been the main consideration in determining US policy since the signing of the Moscow Declaration on November 1, 1943.¹ The principal means employed have been the military occupation of Austria, the conclusion of various international agreements designed both to establish and to enlarge the functions of the Austrian Government, and the negotiation of a four-power treaty terminating occupation and recognizing the full sovereign rights of the Austrian Government and people. To assure that the full intent of the Moscow Declaration is carried out, the US has extended economic assistance to Austria on a considerable scale, and in military occupation as well as international discussions has insisted that no action should be taken or rights be acquired by any foreign power in Austria which would prejudice independence following the termination of military occupation and the withdrawal of the military forces of the four powers.

B. Policy Issues

The position of Austria with respect to the Allied Powers is unique in that Austria is still subject to military occupation and at the same time is recognized as a sovereign state by this government and treated in all political and economic matters as a liberated area. The legal rights of the United States as an occupying power, originally defined in the Agreements on Control Machinery and Zones of Occupation concluded by the European Advisory Commission in July 1945,² were redefined in the new Control Machinery Agreement of June 1946.³ These agreements assign to the US a zone of occupation in Austria, a zone in the city of Vienna including rights of transportation and free access, and membership, along with Great Britain, France, and the USSR, in the Allied Council which has general supervisory rights with respect to the Austrian Government. The Commanding General of the US forces in Austria represents this government in the Allied Council as the United States High Commissioner in Austria. In addition, as a result of the de jure recognition of the Austrian Government in January 1946, the United States and Austria have exchanged diplomatic representatives.

Through this mechanism of military and civilian administration, we have implemented in Austria our policy of enlarging progressively the sphere of authority of the Austrian Government and of giving such economic assistance, through UNRRA, army civilian relief, and various grants and credits as would provide for immediate relief needs and the reconstruction of the Austrian economy to meet the future requirements of national independence. In the international sphere, the US has taken the lead in pushing the conclusion of an Austrian treaty in the Council of Foreign Ministers and encouraging the Austrian Government to become affiliated with those international organizations which seek to attain common ends through the cooperation of independent national states.

1. political

The implementation of the basic policy of fulfilling the intent of the Moscow Declaration by the conclusion of a treaty establishing and recognizing Austrian independence has to date been made impossible by the clash between the western states and the Soviet Union on both the content and purpose of the treaty. To the western states in general, and the US in particular, the ultimate fate of Austria is important not only from the point of view of its strategic location in Europe but more immediately to prevent the inclusion of Austria in the Soviet orbit.

The objective of the west has been to reestablish Austria as an independent state within the frontiers of 1937. To this end the United States has made a heavy investment in Austria, in the cost of military occupation and in the expenditures made for relief and economic reconstruction. However great the past and future investments may be in material terms, no accounting can be made of the political value of the successful opposition which the Austrian Government and people have, with the assistance of the western powers, made to the encroachments of the Soviet forces on their national sovereignty as well as the efforts of the Austrian Communist Party to disrupt internal order and stability. Any weakening of this opposition either by the Austrian Government or by the western powers to permit either outright or veiled Soviet control would have serious repercussions in European politics.

The Austrian Government, formed as a result of the elections of December 1945, is composed of a coalition of the Peoples’ Party and Socialists. The Communists obtained approximately five per cent of the total popular vote in this election, and since that time such electoral tests as shop council elections in the factories show that the Communists have not increased their strength even in the Soviet zone of occupation. The government is staunchly anti-Communist by reason of the political orientation of its component parties and by reason of its experiences at the hands of the Soviet military authorities. All forms of coercion have been tried by the Soviets, including the kidnapping and arrest of government officials, but such pressure has not caused the Austrian Government to waver in its consistent support of western aims. Similarly, Austria has resisted all efforts by the Soviets to conclude a bilateral agreement settling the major issues which prevent the conclusion of the Austrian treaty.

The adherence of the Austrian Government and people to western aims is not solely the result of convenience arising from military occupation nor from fear of Soviet aggression in the event the Soviet [Western?] occupation forces were withdrawn. Historically, communism has had no roots in Austria and the Austrian people have always participated in western political movements. Since the liberation in 1945, no strikes or social unrest have hindered the operations either of the government or the occupation forces. The only strike of any consequence was in the Soviet zone in protest over the labor policies of the Soviet military managers. The Austrian Government has willingly participated in such United Nations activities as are permitted within the limitations of its sovereignty still remaining, and is a participating member in the organization for European Economic Cooperation.

In face of the overwhelming support of western aims, the Soviet Union has through its military occupation a formidable foothold in Austria which can nullify the fulfillment of the international agreements respecting the reestablishment of Austrian independence. The Soviet forces have in general pursued an arbitrary and unilateral policy in their zone and have impeded Austrian reconstruction. By means of the economic enterprises and resources held as German assets pending treaty settlement, the Soviets have, on the contrary, deprived the Austrian economy of necessary goods which would have been utilized internally or exported. These enterprises have been operated by Soviet managers with no regard for Austrian law or for administrative control by federal or local government. Resources produced in the Soviet zone have been withheld from time to time from other zones, a practice which has seriously interfered with efforts to establish a unified Austrian economy.

While the ultimate objective of Soviet policy cannot be exactly surmised, it does not appear that the Soviets wish to irrevocably partition Austria. The eastern zone including Vienna would be an economic and political liability to the Soviets unless major changes were made in the political and economic organization of central and eastern Europe. It is more likely that the Soviets seek the withdrawal of western occupation forces from Austria, either through a treaty settlement or through threats, in hopes that through external pressure and internal disorder a government more amenable to Soviet objectives may be formed to replace the present coalition.

The central fact in western policy and for the future of Austria is the conclusion of the treaty discussions. Discussions have been held in the Council of Foreign Ministers on the treaty since June 1946.⁴ The last session of the Deputies in London was suspended on May 6, 1948 as a result of fundamental disagreement on the two specific issues of rectification of the frontiers in favor of Yugoslavia and the payment of 150 million dollars in reparations to Yugoslavia.⁵ In the treaty negotiations the issues have narrowed down to the following:

(a) German Assets.—Under the terms of the compromise French proposal, the problem is to determine the exact amount of properties to be turned over to the Soviets in satisfaction of their claims to German assets under Potsdam and the sum which Austria will pay to regain control over all properties now held by the Soviets which are not transferred to their ownership. The three western powers have insisted that any burden incurred by Austria in this settlement shall be within her ability to discharge without extensive foreign assistance, and, secondly, that any property or rights acquired by the Soviets shall be subject to Austrian law and not bear extraterritorial privileges.

(b) Frontiers.—The western powers insist that Austria shall possess the frontiers of 1937 and that no territory be ceded to Yugoslavia.

(c) Reparations.—The western powers insist that, in accordance with the Potsdam Agreement, no reparations be exacted from Austria.

(d) Military Defense.—The western powers insist that Austria be permitted to arm its military forces, the extent of which has been agreed, with no restrictions on the source from which material is derived.

(e) Independence.—The western states insist that all four powers agree to respect the independence and territorial integrity of Austria.

The remaining unagreed articles in the treaty would be readily settled once agreement is reached on these basic issues. The resumption of discussions on the treaty, the determination of which is initially in the hands of the US Deputy as next Chairman, will depend on developments in western relations with the Soviets in central Europe as a whole. In the negotiations to date we have urged that the treaty contain adequate safeguards to enable the Austrian people to maintain their independence. Pending the conclusion of such a treaty the US will continue to maintain the authority of the Allied Council as the most effective means to oppose Soviet pressure on the Austrian Government, to press for greater autonomy and authority for the Austrian Government, and to concert with Austrian leaders to maintain the present government coalition and to assist its efforts in combatting communism and the aggressive policy of the Soviet Union.

2. economic

The United States was mindful in adhering to the Moscow Declaration that an independent Austria could endure only if it were economically self-supporting. To achieve this result, Austria has to increase production, expand foreign trade, maintain internal financial stability and cooperate with all nations interested in the development of stable economic conditions.

At the end of the war Austria required outside assistance in order to make the structural changes in the Austrian economy required by its severance from Germany and to repair the severe damages and dislocations resulting directly from the war. The low level of economic activity and consumption prevailing in Austria at the end of the war, together with the disturbed conditions in Europe, prevented revival of the export and tourist trades and thereby made it impossible for Austria to finance even the most essential of its import requirements without outside assistance. Accordingly, the US has extended the major portion of all foreign aid received by Austria since the liberation in May 1945. As a result of this assistance, a gradual improvement has taken place in production and the level of consumption in Austria. By the spring of 1948, the average production of certain producers goods had practically attained the pre-war level. On the other hand, recovery in the field of agricultural production and consumers goods has lagged. A considerable degree of financial stability has been achieved as a result of two successful currency conversions taken by the Austrian Government since 1945 with the aid of the Allied Council. The currency reform in December 1947 played a particularly important role in promoting financial stability.⁶

Full recovery and the reconstruction of a national economy capable of sustaining an independent state depends on further foreign aid, a more effective use of available resources and the right of Austria to take her place as an equal among nations working for the establishment of stable international economic relations.

From 1945 to the beginning of ECA operations in April 1948, the foreign grants and credits extended to Austria amounted to more than 600 million dollars. About 80 per cent of this aid came from the United States. Notwithstanding this assistance, Austrian recovery progressed at a very slow pace until late 1947, owing in part to the persistence of abnormal conditions in international trade and in part to the necessary concentration of outside assistance on relief rather than on recovery goods. In addition, indigenous resources could not be fully utilized because of the inadequacy of raw material and capital goods imports and the fact that the country was divided into four zones under military occupation. Unsettled world conditions, particularly the prolonged uncertainty as to the nature and extent of Germany’s industrial reconstruction, have made it difficult for the Austrian Government to pursue a clear-cut policy of industrial reconstruction. In addition, the uncertainty of the status of “German assets” within Austria has proven to be psychologically as well as physically a disorganizing factor.

In order that outside assistance may not create a heavy debt for the Austrian economy, more than 90 per cent of the United States aid to Austria prior to ECA was extended on a grant basis. Because of the relatively slow recovery in Europe as a whole, and because it now appears that by the end of the European Recovery Program Austria may not achieve full recovery, it has been decided that ECA allotments for the present will be in the form of outright grants. We consider it important that the Austrian economy become self-supporting as quickly as possible. It is essential that recovery proceed at a more rapid pace. An increasing portion of the ECA allotments to Austria will have to be used for raw materials and capital goods rather than for food. With the 1948 harvest, food supplies in Austria should permit consumption at an average close to the pre-war level.

With respect to the control and utilization of Austrian resources, we view full Austrian sovereignty in these matters to be an essential concomitant of political independence. Although full sovereignty by Austria will not be realized until withdrawal of the occupation forces, we consider it of paramount importance that Austria be allowed to control its resources without interference. In accordance with this view, the US has consistently advocated and supported in the Allied Council various measures tending to place upon Austria the responsibility for the direction and control of its economy.

In regard to Austrian imports, the question has arisen repeatedly whether imports financed by ECA or through other US grants or credits should be distributed throughout the four zones of occupation. The United States in all cases has urged that Austria should be treated as a unit and that discrimination among the different zones of occupation would result in a division of the country making impossible eventual establishment of a sovereign and independent state. The only limitation which we have placed upon the freedom of trade among the zones in Austria is that shipments to the Soviet zone of materials procured with US funds should not include materials of war potential of the classification now barred from shipment to countries in the Soviet orbit by US regulations.

Since full economic recovery in Europe can be achieved only through international cooperation, we have encouraged Austria to join the various United Nations bodies and other international economic organizations. We have also encouraged the Austrian Government to resume trade relations interrupted by the Anschluss with Germany and by the war. As Austria’s economy complements those of its neighbors, and even though some of these countries are now in the Soviet orbit, it is not considered practical to attempt to persuade Austria to orient its trade primarily toward the OEEC countries rather than toward non-participating areas. Any trade relations beneficial to the Austrian economy should be encouraged provided they do not entail political ties or trade agreements of such a comprehensive nature as to limit its independence. In point of fact, Austria’s trade until the present time has been mainly oriented to the west owing to difficulties the satellite countries have created rather than any unwillingness on the part of Austria.

C. Relations With Other States

With the exception of relations with the Soviet Union, Yugoslavia, and other satellite states, Austrian relations with the European states in general are cordial and have been regularized through the interchange of diplomatic missions. Trade agreements have now been signed by Austria with most European states and the expanding commerce which has resulted from these agreements also effected the increased rate of economic recovery since 1947.

Great Britain and France are signatory to the same international agreements respecting Austria as the United States. On all major issues the British and French have made common cause with the US in opposing the encroachments of Soviet policy on Austrian independence and sovereignty. In many cases the British and French have taken the initiative either in the Allied Council or through diplomatic channels to establish principles of legal right respecting Austria. In economic matters, however, the initiative has been yielded to the United States since we can contribute a proportionately greater share of the assistance required for Austrian recovery.

Austria’s relations with Italy and Switzerland are good and are nourished by a steadily expanding commerce. There are no issues affecting relations with these two states, particularly since the South Tyrol problem has been solved by an Austro-Italian understanding.⁷ Relations with Germany are still subject to many military government controls and trade is hampered by the inability of the Austrian economy to provide dollars for the purchase of goods or services from the bi-zonal area. Relations between Austria and the satellite states of Czechoslovakia and Hungary are correct, with few outstanding issues affecting these relations which could not be solved by direct negotiation.

Austrian relations with the Soviet Union remain the paramount issue owing to the Soviet ability to block the conclusion of the treaty and to continue to maintain forces of military occupation within Austria. During the recent meeting of the Deputies of the Council of Foreign Ministers in London (February–May 1948), the Soviets made ostensible concessions on the German assets issue. At the same time, Soviet policy within Austria did not succeed in imposing the same type of restrictions on free access as imposed on Berlin. After the suspension of the discussions in London, however, relations between the USSR and the Austrian Government deteriorated. The Soviets arrested two high-ranking Austrian officials on charges of espionage against the Soviet forces.⁸ Within the Allied Council the Soviet High Commissioner vigorously denounced the agreement with the United States on ECA assistance.⁹ The attitude of the Soviet delegate towards the Austrian observer at the Belgrade Conference on the Danube does not indicate any change in the Soviet policy.¹⁰

At this point it is not known whether Soviet support given to the Yugoslav claims for frontier rectification and for the payment of reparations will be continued in any treaty discussions in the future. The Cominform denunciation of Yugoslav policy specifically mentioned the nationalistic tendencies of the Yugoslav Government particularly with reference to Carinthia and Trieste. The Austrian Communist Party is opposed to any cession of territory to Yugoslavia, and the only support which frontier rectification finds in Austria is in the microscopic Slovene Communist Party in Carinthia itself. In as much as the Soviets apparently supported the Yugoslav claims in the London Conference only on a formal basis, the Soviet position may conceivably be changed in any future negotiations, thus creating a situation which could be used to advantage in the negotiations on the frontier.

Since the controversy between the Cominform and Yugoslavia began, Austrian relations with Yugoslavia have shown a perceptible change. Prior to that dispute Yugoslavia refused to exchange full diplomatic representation with Austria. In the Council of Foreign Ministers the Yugoslav delegation was vigorously outspoken in its denunciation of the present Austrian Government and its policy with regard to the frontier. Since the Cominform denunication, however, an Austrian trade delegation has successfully concluded the basic work on a trade agreement with Yugoslavia and discussions have been held concerning other problems affecting the relations of the two states, excluding the frontier issue and the demand for reparations. It is not impossible, therefore, that the Austrian and Yugoslav governments could reach an agreement in which Yugoslavia recognized the 1937 frontiers in return for a settlement of the economic problems between the two states.

D. Policy Evaluation

In general terms, US policy in Austria has been highly successful both in promoting economic recovery and in assisting the Austrian Government to pursue a policy of national independence. As a result of the popularity in Austria of the similar objectives of United States and Austrian policies, the efforts of the Soviets to include Austria in the orbit of satellite states have not succeeded, despite the military, political and economic pressure used by the Soviet forces to achieve that end. In the implementation of our policy toward Austria the following problems have arisen, particularly in relating the Austrian settlement to the European situation as a whole.

1. The primary question is the advisability of concluding a treaty and withdrawing the four-power occupation forces in the immediate future. Since the February 1948 coup in Czechoslovakia it has been felt that the presence of the US, British and French occupation forces in Austria provided a means of security against Soviet tactics, which if withdrawn would make Austria susceptible to Soviet aggressive aims. In view of this feeling the Department requested the Joint Chiefs of Staff for a decision whether it would be desirable to withdraw the occupation forces from Austria. The Joint Chiefs of Staff concluded that it was not desirable from a military point of view to withdraw these forces unless such withdrawal was made necessary by overriding political and diplomatic factors. The delegation at the London meeting of the Council of Foreign Ministers subsequently was instructed to continue negotiations in order to get the best treaty possible for Austria and the timing of a decision to withdraw forces was left to a later date in order to take into account general European developments. It has become increasingly clear that there is little possibility of the present Austrian Government being overthrown by a Communist coup unless great pressure is applied by the Soviets or unless one of the satellite states provokes a direct aggressive act against Austria. Nevertheless, in the event that a treaty is concluded, the western states will face the problem of providing safeguards for the maintenance of Austrian security after withdrawal of the occupation forces or of the timing that withdrawal in such a way as to enable Austrian security forces to assume responsibility.

2. The western states agreed, therefore, that it would be undesirable to withdraw the occupation forces until the Austrian security forces can be organized and supplied with arms. Discussions are now taking place among the western powers and Austrian officials concerning the arming of the Austrian police and the drawing up of plans for the organization and supply of the future Austrian army.¹¹ It is hoped that the police and army will be sufficiently prepared in Austria at the time of the withdrawal of the occupation forces to take over immediately the task of maintaining internal order and providing a formal border defense. It is recognized, however, that the Austrian army, as agreed in the treaty, would not be capable of withstanding any direct aggressive act on the part of the Soviets or any of the neighboring satellite states.

3. The apparent impossibility of the Austrian security forces to maintain national independence and territorial integrity raises the problem whether the western states should guarantee Austria against any unprovoked aggression. In the course of modern politics, a coup carried out by an armed minority can have the same effect as an aggressive war in overthrowing established governments and revolutionizing established societies. If any guarantee were given to Austria by the western states it would have to include both a pledge of protection against external aggression and have to take into consideration measures to be employed to prevent any internal coup. The problem of the guarantee of Austrian independence and territorial integrity is involved in Article 2 of the draft treaty. This problem will be discussed in any forthcoming negotiations and a decision will have to be reached either to drop this article from the treaty or to agree among the western states as to the exact form of the guarantee of Austria and the means whereby it is to be implemented.

4. In the event that the treaty is concluded and a compromise solution reached on the German assets question, care will have to be taken to provide Austria with such assistance as may be required to offset the economic advantages accruing to the Soviet Union through the control and ownership of former German assets in Austria. It may be necessary, therefore, to supply Austria on a commercial basis with economic products such as oil and other petroleum products to make up for any deficiencies from local production which will be drained off by the Soviets.

5. Austrian participation in the European Recovery Program gives renewed emphasis to certain problems with respect to the future of Austrian trade with Eastern European countries. Before the war Austria had strong trading ties with these countries, importing from them large amounts of such essential items as coal and foodstuffs. Since the war Austria has resumed its economic ties with the Eastern European countries on a reduced scale and in a somewhat changed pattern. Except for considerations of United States security objectives with respect to the export of items of a military nature, it is United States policy to encourage Austrian trade with Eastern Europe since such trade tends to lessen the need for making available essential items in short supply from the Western Hemisphere or from other participating countries and adds to the over-all pool of these items which can be made available to the participating countries. The possibility must be reckoned with, however, that the Soviets may demand trade arrangements of such a comprehensive nature as to give the Soviets opportunity to exert considerable influence in Austria’s political and economic affairs. Austrian resistance to such an attempt should of course be encouraged and it may be necessary to consider what steps can be taken in conjunction with other interested countries to meet from other sources Austria’s needs from Eastern Europe. Care should be taken, however, to insure that the Austrians are not led by a Soviet attempt at economic penetration to forego appropriate efforts of their own to achieve economic recovery and to increase unduly their dependence on economic assistance from the United States.

1. Foreign Relations, 1943, vol. i, p. 761.
2. For the text of the Agreement on the Control Machinery in Austria see Foreign Relations, The Conference of Berlin (The Potsdam Conference) 1945, vol. i, p. 351. For the text of the agreement on the Zones of Occupation and the Administration of the City of Vienna see Department of State, Treaties and Other International Acts Series (TIAS) No. 1600.
3. For the text of this Agreement, signed June 28, 1946, see A Decade of American Foreign Policy, Basic Documents, 1941–49 (Washington, Government Printing Office, 1950), p. 614.
4. See Foreign Relations, 1946, vol. ii, pp. 493 ff. and 1947, vol. ii, pp. 139 ff. and pp. 676 ff.
5. For documentation on the meetings of the Deputies for Austria, February–May 1948, see pp. 1466 ff.
6. Documentation on the 1947 Austrian currency conversion is included in the compilation on problems of Quadripartite Control of Austria, Foreign Relations, 1947, vol. ii, pp. 1167 ff.
7. For documentation on the Austro-Italian understanding on the South Tyrol see pp. 1352 ff.
8. Regarding the Soviet arrests of Austrian officials see pp. 1433 ff.
9. The text of the agreement under reference, signed July 2, 1948, is printed in the Department of State, Treaties and Other International Acts Series (TIAS) No. 1921.
10. Documentation on the Danube Conference is included in volume iv .
11. For documentation on the problem of arming the Austrian police and organizing the future Austrian Army, see pp. 1356 ff.