The Ambassador in Austria-Hungary (Penfield) to the Secretary of State

My Dear Mr. Secretary: The announcement that the national taxes were at once to be increased so as to produce 750,000,000 kronen for the “service of the debt” on the four war loans already issued, was a blow surprising enough to render thinking Austrians almost insensible. The public had fallen into the way of regarding the war debt and its interest obligations as matters to be taken care of by coming generations or as a burden of which the Dual Monarchy was to be relieved perhaps by magic or the alchemy of old. Incidents of the new revenue schedule are an increase of 80 per cent. on land taxes, and of between 60 and 70 per cent. upon industrial enterprises.

Instructed from official headquarters, important journals are beginning to hint at the prospect of yet another chance to financially assist the Government at an alluring rate of interest. In all likelihood it will be found difficult to make this Fifth War Loan “go.” But the patriotism of the people will be played upon with all the ingenuity of accomplished promoters. A fair sum may be realized, but probably nothing like the Fourth Loan, exploited before the great Russian and Italian drives had set in.

Meanwhile the currency of the realm is falling to the lowest value in history. At the moment American money commands a premium approaching 70 per cent., and it is good opinion that the premium will go to 100.

Two days after the announcement of the increased taxation, Roumania’s declaration of war filled the cup of despondency to overflowing. The war proclamation angered the Austro-Hungarians almost as much as Italy’s intervention had done.

I have dispassionately observed the gradual change in the public mood, from exaltation when the Central Powers were progressing in Poland a year ago and forcing Russia from Galicia, to the current state of mind describable by no other words than utter and complete despair. The masses are thoroughly tired of the war and would welcome peace in any form that took but a reasonable amount of territory from them. The people this week have been slightly roused from their despondency by the Austro-German-Bulgar victories over the Roumanians in the Dobrudja, but this for a day or two only.

Threatened with disaster by the Russian advance and with the Czar’s armies almost at the gates of Lemberg, by the victorious progress of the Italians, whose cannon on the Carso are heard in [Page 663] Trieste, and finally attacked in Transylvania by Roumania, Austria-Hungary’s situation is nothing short of desperate.

I am just informed by the American Consul at Trieste that the Italian bombardment has destroyed the aqueduct supplying the city, and that ancient wells and cisterns are being resorted to for water. Should the only seaport of Austria fall to the enemy, it will be a hard matter for the Government to longer keep from the public the true condition of affairs. Italian journals state that General Cadorna’s forces are certain to be in Trieste in a future not distant.

The fact that Hindenburg, aided by Mackensen, had been placed in supreme control of the armies of Austria-Hungary, and that nearly every commanding office in the forces of this Monarchy had been turned over to the Germans, has had a discouraging effect on every class of humanity. It was naturally a blow to the morale of the troops not easily to be rectified. There are stories of Hungarian regiments refusing to longer fight on the Italian front, when Russia and Roumania were attacking their own land.

A military expert tells me that Germany’s chief purpose now is to save Austria-Hungary from catastrophe, and to this end hundreds of thousands of Germans have in the last month been poured upon the southeastern front and into the Balkans, and that a subordinate purpose is to prevent a rupture of rail communication with Constantinople.

Austria’s food supply is being so rigidly conserved that the people have now three meatless days each week, with other days when fats of every sort and butter are forbidden. At best the remaining days are but half-portion ones. Because the army has commandeered two-thirds of the cows, there is a milk and butter famine in the land. The pinch this winter must be severe, and the fear is that March will find the people reduced to straits of real desperation. In all communications to the Department I have consistently maintained that starvation could not come to a Monarchy possessing the grain field of Hungary and Moravia.

Foreign newspapers are making much of the statement that in this Monarchy millions are reduced to eating horseflesh. As in Germany, poor people in Austria-Hungary have always consumed much horseflesh, but not half as much as at present. The price is half that of beef or mutton, and the article is claimed not to be unwholesome. The Government forces horseflesh shops to plainly advertise their character and to sell no other meat.

No less accentuated is the pinch arrived at in finding recruits for the army. Old men, boys, and men who have hitherto been pronounced medically unfit for service, are being called up. In my judgment such soldiers can do little actual fighting. Bear in mind that the Monarchy possesses various racial classes now considered too [Page 664] dangerous to be sent into the field, like the Czechs, Bosnians, Herze-govinians, and those of Italian blood. Even pulpit utterances seem charged with teachings preparing the people for an outcome of the war very different from what was expected a year ago.

In the Austrian division of the realm, where public speech is unknown and any newspaper is little else but a governmental bulletin, one is only told sotto voce of the dark outlook. But in Hungary, where the Parliament is open and the press not so completely gagged, existing conditions are discussed freely enough to make an alien wonder if it is not criminal to advertise the plight that Austria-Hungary is in after twenty-six months of fighting.

I am [etc.]

Frederic C. Penfield