Vienna Post File: Lot 54 F 57: top secret: 711 Austrian Treaty

Memorandum by the Chief of Intelligence Coordination, Office of the Director of Intelligence, United States Forces in Austria (Kretzmann)

top secret

Subject: Negotiations in London Regarding the Austrian State Treaty, 22 November to 17 December 1947.

1. Chronology

Throughout the week prior to the opening of the CFM Conference on 25 November tri-power conferences were held at the British Foreign Office between representatives of the State Department (Ginsburg, Williamson, Oliver, Goldsmith) and British and French experts on appropriate figures to be filled in the blank spaces of the French settlement [Page 807] proposal, first submitted to the ATC in Vienna in October 1947 without specifications.

After the arrival of the US High Commissioner for Austria and the US Deputy for Austria the strategy to be used in the treaty negotiations was discussed with the Secretary and his staff. Although there were objections from members of the staff primarily interested in the German problem that a settlement of the German assets in Austria by means of payment from current production might prejudice the settlement of the reparations problem in Germany, it was approved to consider the French settlement proposal as basis for negotiations, without immediate commitment on our part.

After the first meeting of the Foreign Ministers on Tuesday, 25 November,15 it became clear that there would be no immediate consideration of the Austrian problem by the Foreign Ministers. On Wednesday the Foreign Ministers agreed to refer the Austrian treaty immediately to the Deputies, with instructions to examine the report of the ATC and the French proposal for settlement of German assets and to report back to them no later than Tuesday, 2 December.

The Deputies began meeting on the 27th and in four sessions subjected the French proposal to rather thorough examination. It came somewhat as a surprise that the French Deputy immediately presented the final figures without first securing an agreement in principle on the mode of settlement. Despite repeated efforts by the British and American Deputies, the Soviet Deputy refused to meet any more frequently and for any greater length of time than the absolute minimum. On Monday, 1 December, the Russian Deputy rejected the French settlement proposal on grounds that it did not do justice to the rights of the Soviet Union under Potsdam.

The report of the Deputies16 was presented to the Council on Tuesday, but was not discussed until the closing minutes of the session on Wednesday.

On Thursday, 4 December, the discussion of the Austrian matter was continued, but no progress could be made because the Soviets rejected the French proposal on grounds of being unjust to their rights under Potsdam and had no alternative proposal to make, except for Mr. Molotov’s ambiguous suggestion to take 10 percent less than what they were entitled to under Potsdam. On Mr. Marshall’s suggestion the Austrian problem was shelved temporarily.

On Wednesday, 10 December, Secretary Marshall announced that he would consider proposals for further action on the Austrian treaty [Page 808] at Thursday’s staff meeting. Two memoranda were presented at this meeting, the one submitted by Mr. Dodge, and the other by General Keyes. After some discussion of both of these on 12 December the Secretary reserved decision on whether to ask for a secret session of the present conference on Austria or on whether to ask for a special session of the CFM at a later date to consider the Austrian problem alone. There was no opposition by the members of the Secretary’s staff to the proposals set forth in General Keyes’ memorandum, which dealt with long-term strategy.

On Monday, 15 December, the Council of Foreign Ministers broke up on the German reparations question. During the course of the final debates, when Bevin reproached Molotov with having no counterproposal to offer for a solution to the Austrian problem, Mr. Molotov suggested substituting two-thirds of the oil rights for the figures given in the French proposal. Mr. Bevin seized upon this and forced Molotov and the other two Foreign Ministers into agreeing to submit this proposal to the Austrian Deputies for consideration.

The Austrian Deputies met once again on 17 December and the Soviet representative proposed that his element submit an over-all proposal for settlement of German assets in Austria within a fortnight (1 January 1948). It was agreed that the Deputies should recess pending the receipt and study of this proposal and should meet again in London not later than 1 February 1948, the specific date of the meeting to be set by the US Deputy, as the next chairman, within five days of receipt of the Soviet proposal.

2. Analysis

The French proposal for settlement of the German assets problem had been introduced in outline form late in the sessions of the Austrian Treaty Commission but had not been discussed there. In brief, it provided for certain concessions to the Soviet Union in oil production, exploration and distribution rights, the outright award of the assets of the DDSG external to Austria, and the liquidation of the remaining German assets in the eastern zone of Austria and their redemption by means of a lump sum settlement payable to the USSR over a period of years, beginning after Austria had achieved minimum economic stability. The proposal was an over-all solution which provided for the protection of Austrian industry from extraterritoriality, with certain limited concessions, and included agreement on the remaining unagreed items of the treaty. Some misgivings were expressed regarding this settlement by members of the American delegation because it was concerned primarily and almost exclusively with the economic aspects of the treaty. It furthermore did not take into consideration the changed European situation brought about by the inauguration of [Page 809] the European Recovery Plan. There was no guarantee that once the principle of the proposal had been accepted any limitation could successfully be imposed upon the Soviet attempts to raise the price of settlement. (For details of the French proposal and the figures inserted in London, see Appendix 1 containing the report of the Deputies for Austria to the Council of Foreign Ministers.17)

When the French proposal was rejected by the Soviet representative in the meetings of the Deputies, it was not clear whether he had rejected the principle of a lump sum settlement or had merely rejected the specific figures proposed by the French. In Mr. Molotov’s discussion in the Council of Foreign Ministers session of 4 December this point was also obscure and was further confused by his proposal to accept 10 percent less than what the Soviet Union was entitled to under Potsdam.

When the discussion of the Austrian matter was indefinitely postponed by the Foreign Ministers, the members of the Austrian [American] delegation worked out proposals for further strategy on the Austrian treaty. One such proposal was submitted by Mr. Dodge18 (see Appendix 2, Annex A) and a second one by General Keyes19 (see Appendix 2, Annex B). There was no basic conflict between these two memoranda, since Mr. Dodge’s proposal was concerned with the immediate objectives and General Keyes’ memorandum with long-term objectives for Austria. General Keyes’ memorandum had been previously coordinated with all the other members of the Austrian delegation.

In the ensuing discussions it became clear that one of the reasons the German group on the US delegation was objecting to the French method of settling the Austrian problem was the fear that payment of this obligation out of current production would prejudice the settlement of the German reparations problem. Mr. Dodge repeatedly pointed out the difference between the two insofar as the Austrian obligation was not to be considered as reparations but as a redemption obligation (see Appendix 2, Annex C). In connection with Mr. Dodge’s proposal that the western elements consider renunciation of property rights to German external assets in western Austria a paper was prepared by the British Foreign Office (see Appendix 2, Annex D) which set forth a proposal regarding the eventual disposition of these assets. This paper was pot presented for approval by the US delegation but indicates the trend of thinking in the British Foreign Office.

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The verbatim minutes of the last session of the Council of Foreign Ministers (see Appendix 2, Annex E for the pertinent extract) indicate clearly that Mr. Molotov had no intention of submitting a new proposal on Austria. When reproached by Mr. Bevin because he had no proposal of his own to make after rejecting the French proposal, Molotov spoke briefly of the figure of two-thirds to be substituted for the 50 percent in the French proposal regarding oil production. Mr. Bevin forced Molotov to submit this to the Deputies and secured the agreement of Mr. Marshall and Mr. Bidault to this proposal. At the Secretary’s staff conference the following morning Mr. Dodge presented an analysis of this “proposal” (see Appendix 2, Annex F) which indicated that it was not a genuine offer.

Nevertheless Mr. Koktomov at the meeting of the Deputies was forced to elaborate this vague proposal of Mr. Molotov’s into a genuine settlement proposal. He agreed to accept the principle of the French proposal and to supply detailed figures from the Russian side to substitute for the figures supplied by the French.

3. The Soviet Proposal

From all previous indications of the Soviet attitude on German assets it would be logical to assume that the terms of settlement proposed by the Soviet Union will be so exorbitant as to make acceptance impossible by Austria or the western powers. It is possible, however, that the Soviets may make an offer sufficiently reasonable to be discussed for the purpose of continuing four power discussions at least on one phase of current European problems. The submission of a concrete proposal by the Soviets will place the other Allies in the position of either accepting their demands or rejecting them as exorbitant. This latter move would place the western Allies on the defensive from the point of view of propaganda.

4. Other Alternatives

Before negotiations were left open by the surprise development of the last meeting, members of the U.S. delegation had considered a proposal for three-power recognition of Austria’s sovereignty, the conclusion of the objectives of the occupation, and a three-power declaration refusing to recognize the legality of the Soviet seizures of German assets in their zone under Order No. 17. In view of the developments, this plan has been temporarily shelved, but it should be kept in mind if the further negotiations of the Soviet proposal collapses.

For the Director of Intelligence:
Edwin M. J. Kretzmann

Lt Col GSC
Chief, Intelligence Coordination
  1. For reports on the meetings of the Council of Foreign Ministers under reference in this memorandum, see pp. 731772 passim.
  2. Document CFM(47) (L) 15, December 2, 1947, p. 798.
  3. None of the appendices and annexes to this memorandum are printed here. Some of the documents included in the appendices are printed separately elsewhere in this volume. The Report of the Deputies for Austria is identified in the previous footnote.
  4. Ante, p. 801.
  5. Ante, p. 795.