The Secretary of State to the Acting Secretary of State
Martel 31. Personal for Lovett from the Secretary. With reference to the teletype conference of 3 and 4 December on Austrian currency [Page 1215]conversion,62 I consider it necessary to instruct US representatives in Vienna to approve law. The problem arose in AC on same day that Austrian treaty was discussed in CFM.63 Our position on treaty was based fundamentally on maintenance of Austrian sovereignty. Approval of currency law by US involves our policy of treating Austria as a sovereign state and permitting it to regulate internal affairs without Allied interference. Both parties fully supported measure in Parliament and it was passed only with the four Communist members dissenting.
In a political sense, passage of law by Austrian Parliament resulted in ousting of Communists from the Government. Soviet acceptance of currency law in AC decreases prestige of Communists in Austria. Moreover, our voting against law would merely have delayed effective date one month.
In making decision, it was considered that political and economic consequences within Austria in event of failure of law to obtain AC approval outweighed possible bad effects which bilateral agreement might have after law comes into effect.
We are hopeful that full explanation of Austrian Government’s action in pushing law in face of Communist opposition will offset possible criticism in US.
There is strong possibility that unless bilateral agreement were signed, Soviets might have refused to implement conversion in their zone thus creating situation encouraging partition. Other alternative would have been the withdrawal of law by Austrian Government with possible adverse effects on position of Austrian Government. Although appreciating the force of your position, I considered it advisable in view of circumstances here to support the Austrian Government in this question.
We should not in any way indicate approval of Austro-Soviet agreement. The basis of settlement is questionable and may include funds open to dispute as German assets. We would appreciate your recommendations and Vienna’s views regarding the nature of the protest which might be made against the settlement particularly with regard to the 600 million schilling “loan” and USIVA funds. Consideration should also be given in policy recommendations to means of offsetting influence and activities of any possible legalization of a Soviet bank in Austria as a result of bilateral agreement.
Not repeated to Vienna.