863.515/12–947: Telegram

The Chargé in Austria (Yost) to the Secretary of State 64

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1258. USFA and Legation believe that any protest against Soviet-Austrian side agreement (ReDeptel 998 Dec. 8)65 should be weighed with great care. Protest against total sum involved presented at moment when currency conversion is just getting under way would be likely, (1) to shake confidence of Austrian public in currency reform by implying that sum conceded to Soviets was so large as to nullify effects of law, and (2) to shake confidence of Austrians in their government by suggesting that it has sold out to Soviets. To create either of these impressions would not only work counter to US economic and political objective in Austria but would also in our opinion not be in accordance with facts.

If any protest against agreement is made at this time, we believe it should be confined solely to Soviet use of their approval of currency law as instrument of pressure to induce Austrians to settle on terms highly favorable to Soviets long standing 600 million schilling claim only 200 million of which had any shadow of validity. Aside from this feature it could well be argued that settlement was not unfair and that it merely eliminated in application of law certain elements of discrimination against Soviets resulting from their special banking practices. British and French elements each have over 200 million for exchange at one to one rate and, if settlement of last June had not been made, US element would have similar amount.

As to settlement as a whole Austrian Government, rightly or wrongly, remains convinced that agreement by Soviet element to support conversion is well worth price paid. It feels, moreover, that cancellation of Soviet 600 million claim as part of settlement was important advantage rather than disadvantage. Furthermore, it must be remembered that US has made side agreements with Austrians on occupation costs and on PL 84 and that, although cases are of course in essential respects not analogous, our protest would be subject to counterattack on these grounds.

Advantage of presenting protest on point referred to in second paragraph of this telegram would be that it might help to discourage Soviets and Austrians, particularly latter, from making similar bargains [Page 1217]in future and to demonstrate to Austrians our determination to continue to resist Soviet economic pressure here. On the balance, however, we are doubtful whether this advantage is sufficiently great under the circumstances to warrant protest at this time unless US position at CFM would be strengthened by opportunity to point out and publicly present instance as further example of Soviet pressure on Austrian Government. Should it be decided for this or other reasons that protest should be made now, favorable occasion would be regular meeting of Allied Council December 12, since at last meeting we reserved right to make further comment on Austro-Soviet agreement, It would be helpful in this case if British and French elements could be instructed from London and Paris to support protest.

As to second sentence of Deptel under reference we are not inclined to feel that influence of Soviet Military Bank will be enhanced by agreement except to extent that Soviet economic position as a whole is fortified by this settlement. We believe that it is this position as a whole, rather than any of its individual elements, which it will be necessary for the US to combat whether or not the CFM is able to reach agreement on an Austrian treaty. A program along these lines has already been submitted in the USFA strategic survey of Austria (economic) dated Oct 1947 and in LegsDesp 3412 Sept 1866 and further related recommendations will be submitted shortly.

Sent Department 1258, repeated London for USDel 112.

Yost
  1. Telegram Telmar 64, December 10, to London, repeated to Vienna as 1006, not printed, stated that the Department was in accord with the recommendations contained in this telegram (863.515/12–547).
  2. Not printed; it informed that the Secretary of State had requested the Department and Vienna to submit recommendations on the nature of the protest that might be made against the Austrian-Soviet currency agreement of December 2, 1947 (863.515/12–847).
  3. Neither paper under reference here is printed.