Foreign Relations of the United States, 1949, Council of Foreign Ministers; Germany and Austria, Volume III

CFM Files: Lot M–88: Box 113: Reber Files

Memorandum by the United States Deputy for Austria at the Council of Foreign Ministers (Reber)¹

secret

[Washington,] May 11, 1949.

Subject: U.S. Approach in Future Negotiations on Austrian Treaty.

1. The Situation:

The Conference of the Foreign Ministers’ Deputies for the Austrian Treaty convening at London on February 9, 1949, suspended discussions on May 10th after 53 meetings in order to give the Ministers the opportunity either to discuss the Austrian Treaty themselves or to give their Deputies new guidance. During this time the Deputies completed two reviews of the 18 disagreed Articles outstanding without reaching full agreement on any one of these Articles. The principal accomplishment of the meetings consisted of the renunciation by the French of their proposal in Article 27 for far-reaching restrictions on Austrian economic activities of military significance and a declaration of relinquishment by the Western Delegations of claims to German assets in Western Austria. A major development was an offer made by the United States Delegation to agree to an increase in the lump sum if in turn agreement could be obtained on conditions of payment that would permit Austria to maintain its economic independence.² In contrast to the meetings of a year ago when attention was centered on Article 35 on the German assets question, the chief topic of discussion this year concerned the Yugoslav claims in connection with Articles 5, on frontiers, and 34, on reparations. The Soviet Delegation continued to give strong support to the Yugoslav claims, which have been modified since the earlier negotiations, but placed greater emphasis upon the creation of an autonomous regime for Slovene-speaking elements than upon territorial rectification. The impression was received that this support depended largely on the following considerations:

1. Furtherance of Soviet objectives in Yugoslavia;

2. Possibility of using the Soviet position on these claims for bargaining purposes in relation to Article 35; and

3. A pretext to prevent conclusion of the treaty at a time considered inopportune by the Soviet Government.

The Soviet Delegation repeatedly stated that it will not make further concessions with respect to the amount of the lump sum or other aspects of Article 35 and that the Soviet position is final thus evidencing a determination in this regard similar to that of the Western Powers concerning the maintenance of the 1937 [1938] frontiers and the rejection of reparations. The Soviet representatives apparently feel that, in reducing their original proposal from 200 to 150 million dollars as compensation for German assets to be relinquished by the USSR to Austria while the Western Delegations have not raised theirs beyond 100 million dollars except for the value of Austrian assets in Hungary, Bulgaria and Rumania, they have made a generous gesture which has not been matched. The Soviet Delegation has been suspicious of every move made by the three Western Powers concerning Article 35 and has regarded with mistrust the US memorandum of April 8 on conditions attaching to a settlement under the lump-sum approach. An example of this attitude is the Soviet conviction that the US proposal for review of payments provides a means for reduction or extinction at some future date of Austria’s remaining obligation.

2. The Problem:

It has not proved possible to ascertain the ultimate intentions of the Soviet Government with respect to the Austrian treaty. The discussions recently completed indicate, however, that the stalemate arises from the failure thus far to obtain agreement on three basic questions: frontiers, exclusion of reparations, and German assets. The resolution of these larger issues would break the log jam and allow in all probability a speedy settlement of the questions of secondary importance. Given that the Soviet Government is not unalterably opposed to a treaty, the hope of further progress of importance depends on the consideration of these basic issues in relation to each other in future negotiations.

In view of the Soviet insistence on 150 million dollars for the lump sum, the problem is whether the United States is prepared to enter into a bargain whereby our contribution will be to meet the Soviet figure in return for Soviet agreement to our position on frontiers, reparations, and withdrawal from industry in Eastern Austria. It is doubtful whether a treaty can be obtained by any other means.

In our opinion the advantage of such a bargain would on balance lie with the Western Powers. The arrangement would include as an essential condition the relinquishment to Austria of all property held or claimed as German assets or war booty (except those oil and Danube Steamship Company properties specifically transferred to the Soviet Union and retained under Austrian law) with a general waiver of creditor claims arising out of the control of such properties after May 8, 1945. While a treaty on these terms would impose a burden on Austria of 15–25 million dollars more than previously contemplated, it would return several hundred industrial enterprises to the Austrian economy. It would allow the Austrian Government generally freedom of action in long-range economic planning and utilization of its resources as well as permit economies through the withdrawal of the occupying forces, thereby giving an impetus to the efforts of Austria to establish itself on a self-sustaining basis.

So long as the conclusion of a treaty is delayed, the Soviet drain on the Austrian economy will continue, possibly to the extent of 20 million dollars a year. The US will be called on to support a heavy burden of assistance to Austria and conditions will not permit a permanent solution of many of Austria’s basic economic problems through the assistance of the ECA. The situation inside Austria will lead to increasing dissatisfaction among the Austrian people and resentment against the occupying forces with growing risk of a political crisis. The Austrian situation cannot remain as it now is for an indefinite period.

3. Recommendation:

That in these circumstances if the Austrian treaty is included on the agenda of the CFM meeting at Paris, the Secretary, subject to the concurrence of the British and French and at a favorable moment, offer to agree to a lump-sum obligation of 150 million dollars on condition that the Soviet Minister accept Articles 5 and 34 and the relinquishment of claims to German assets (other than to oil and Danube Steamship Company properties transferred to the Soviet Union by the treaty) and of creditor claims, as outlined above. If the Soviet Minister accepts this proposal the matter should be referred to the Deputies for settlement of the details involved.

It is further recommended that in case the Austrian treaty is not considered by the Foreign Ministers at Paris the US Deputy be authorized to put forward this offer at the first favorable occasion in future negotiations by the Deputies for Austria.³

4. Tactics of Negotiation:

If the foregoing US offer is presented in the CFM, an attempt should be made to avoid discussion by the Ministers of the method of payment of the lump sum including the question whether the obligation would be met in part through the value of Austrian assets in Hungary, Bulgaria and Rumania, reserving such matters for consideration by the Deputies. The US would endeavor in every way to obtain agreement on the transfer to the Soviet Union of the assets in Hungary, Bulgaria and Rumania as a partial payment of the lump-sum of 150 million dollars but if this proved impossible would agree that the obligation should be discharged entirely by other means.

In dealing with oil properties in connection with this offer, the US could agree to the transfer of oil production areas in Eastern Austria which would produce the equivalent of 60 percent (rather than our present position of 58–60 percent) of the 1947 production and to 55 percent (rather than 47 percent) of the oil-prospecting areas in Eastern Austria, subject to possible increase in this percentage depending on consideration of individual properties and within a maximum of 60 percent.

1. Addressed to Secretary Acheson and Robert D. Murphy, the Acting Director of the Office of German and Austrian Affairs.
2. The reference here is to Document C.F.M./D/L/49/A/44, which was circulated after the 152nd meeting of the Deputies April 8. (CFM Files: Lot M–88: Box 115: Documents)
3. A revised text of this paper, consisting of a shortened section 1 and sections 2–3, was prepared May 17, presumably by Reber, and bears the marginal notation in his handwriting “paper sent to NSC”. A copy of the revised text is in CFM Files: Lot M–88: Box 113: Reber Files.