Paris Peace Conf. 184.011102/260
Mr. Albert Halstead to the Secretary of State21
Subject: The peace treaty.
Sir: I have the honor to inform the Department that the overthrow of the Bela Kun rule in Hungary has given more real encouragement to Vienna than any event since the delivery of the first draft of the Peace Treaty. The report which was published here just before the handing over of the revised Treaty that Austrian owned property in the new states would not be confiscated, created a very favorable impression, but this was soon counteracted because the revised Treaty imposed upon Austria a debt so heavy as to appear insupportable.
The terrorists in Hungary and the communists in Vienna who cooperated, had ever since June 15th menaced the peace and caused an atmosphere of much apprehension throughout Vienna. Now that a government in Hungary has been formed and starts very well the apprehension has disappeared. No matter what the extreme radicals may endeavor to do, Austria will not become bolshevistic unless the peace terms, through enforced bankruptcy make bolshevism inevitable. It should be pointed out that a very large number of persons who had heretofore regarded themselves as Austrians, directly or indirectly supported the old government, contributed to policies financially and by personal efforts, served in the army, navy or official life, with their securities (largely issued by the Austrian Government) will now be enabled under the terms of the Peace Treaty to secure at least a constructive citizenship in one of the new states. Of my own acquaintances a considerable number are now citizens of the new states, people who in the past were Austrian in every sense. These the treaty does not reach and their burden rests upon those who will not, or who have not been able to, change their nationality.
The third paragraph of Article 201, Page 93 of the Draft of the Peace Treaty provides that the new states except Austria are to be freed from obligation with respect to the war debt of the Austrian Government, no matter where that debt may be held. It provides, [Page 556] however, that none of the states, Austria included, shall be liable for war debt bonds held within their respective territory by themselves or by their nationals. This does not release German Austria from liability for war debt bonds owned by nationals of the new states which for one reason or another had been deposited in Vienna banks. As the principal city of the old empire, Vienna was the natural place of deposit for securities as New York is for many Americans who do not live in that city. By being deposited here better interest rates could be obtained and under the peculiar banking practices participation in new issues was facilitated by such deposits. For all these war securities thus deposited here the Austrian Government is liable and encouragement is given to persons who might otherwise remain Austrian to change their nationality. This the new states have not discouraged. It should be remembered that in addition to the war securities that were normally here and belong to nationals of the new states many others were sent to Vienna to avoid the possibility of capital taxes in the new states. It is impossible to state the amount of war securities for which the New Austria is thus made responsible, but it appears to impose a very heavy burden on this country.
The second paragraph of the same article makes Austria responsible for all war debts of the old government held by foreigners abroad, which appears to relieve nationals of the new states, despite their participation in the war, from heavy financial responsibility and to further encourage changes in nationality. The sixth paragraph of Article 201 which begins at the bottom of Page 93 of the Treaty makes the Austrian Government solely responsible for all liabilities of the former government incurred during the war other than those evidenced by bonds, bills, and currency notes which are otherwise provided for.
I would especially call attention to the fact that the old Austrian Government owed about three and a half billion crowns to Germany for supplies and raw materials and perhaps half a billion more to neutral states. Of the debt for this raw material some of it was for food which was consumed throughout the old empire and a considerable part for supplies which were manufactured into clothing and other articles which were for war purposes. Much of this manufacturing was done in factories now in Czecho Slovakia which profited by the manufacture. Not a little of this clothing consisting of uniforms is now used with changed insignia by the armies of the new states. For this no compensation is apparently to be paid to German Austria.
I trust that the Department will appreciate that I simply seek to indicate in the statement above wherein the Treaty seems to be unjust and to threaten the future of German Austria. I naturally do not regard myself as counsel for its defense and I hope it will not appear [Page 557] that I assume an attitude of criticism. The effort is solely to state the facts as they appear in the hope that if my conclusions are right they may have some weight. I fully appreciate that writing from Vienna I must to a degree be influenced by my situation and that from this single angle it is absolutely impossible to view the grave problems presented to the Peace Commission as broadly as it is viewed by those upon whom the responsibility rests in Washington and Paris.
That the provisions creating the Reparation Commission and granting it wide authority are so phrased as to afford opportunity in the future for adjusting the debt due from Austria according to her ability to pay is fully recognized, but in this connection I would respectfully call attention to the danger from the despair that is apt to follow when the final draft of the treaty is presented for signature—that is when all opportunity for further negotiation is ended. To a people whose morale has been so shattered by the result of the war,—who feel themselves friendless, who feel that the influence of the new states is directed against their interests,—the moral effect of a treaty which appears to them wholly destructive deserves consideration. With the best terms that could possibly be imposed the energy of a people notably lacking in that quality must be further lessened.
I have [etc.]
- Copy transmitted to the Commission by Mr. Halstead under covering letter No. 370, August 3; received August 5.↩