No. 519
763.5–MSP/11–2951
Memorandum by the Deputy Director of the Office of
Western European Affairs (
Williamson)
to the Deputy Assistant Secretary of State for European Affairs
(
Bonbright)
secret
Washington, November 29,
1951.
Subject: Austrian Aid Program.
I wish to call your attention to the attached memorandum concerning
the problem of additional aid for Austria for the fiscal year 1952.
It is apparent from this memorandum and other contacts that we have
had with ECA that the Austrian
program stands exactly where it stood a year ago when the ECA initiated its so-called “get tough
policy”. WE has pointed out in a
paper which is now in
[Page 1081]
your office that the situation in Austria is reasonably explosive
and that it is impossible at this stage of the game to use Austrian
aid in order to test the economic theories and objectives of the
ECA. There has been a great deal
of discussion on this problem in Austria and, despite the low esteem
in which the ECA holds the Austrian
Government, the area involved still remains an occupied area on the
military frontier which does not admit of the same system of
administration utilized in the more fortunate states of Western
Europe. Finally, the ECA in
Washington does not keep its mission in Vienna adequately informed
of the development of this program and, consequently, an entire
series of conflicting commitments have been made to the Austrian
Government.
On the basis of the foregoing I would like to urge that the following
steps be taken: (1) that the paper on Austria be distributed to the
various government agencies dealing with this problem, and; (2) that
Ben Thibodeaux be called back for
consultation in order that we may straighten out this situation
before the end of fiscal 52.
[Attachment]
Memorandum Prepared by the Office of Western
European Affairs
secret
[Washington,] November 17,
1951.
Austrian Aid Program Fiscal Year
1951/52
The ISAC letter of October 12,
1951 to the President and the accompanying ECA analysis of FY 1952 Requirements for Economic
Support Under Title I of the Mutual Security Act1 present briefly the
arguments for an increase of the Austrian figure from $105
million (Model I) to $130 million (Model II). In this paper the
Department of State desires to show: (1) the anticipated
weakening of Austrian political stability in the event Austria
does not receive as a minimum the Model II aid figure of $130
million; and (2) the special case of Austria with respect to
other Western European countries.
In FY 1951 Austria received total
aid of $202 million. During initial discussions of FY 1952 aid both the High
Commissioner and
[Page 1082]
the
ECA Mission in Vienna
proposed aid of $185 million. In anticipation of internal
reforms which ECA/W believed
the Austrian Government could carry out, ECA was prepared to recommend an aid figure of $145
million to the Congress. In view of expected Congressional
reduction in aid, the ECA
Mission in Vienna, early in September, asked the Austrian
Government to prepare a 1952 program on the basis of $120
million annual aid. The Government replied it could not accept
the consequences of a program below $144 million. Later that
month in its presentation to Congress ECA reduced its proposed aid figure to $105
million. The Department did not approve the $105 million figure.
In defending this figure, Mr. Bissell pointed out to Congress the danger
involved in an aid program which would result in a sharp cut in
investment, consumption and production. He stressed the effects
of such a cut at a time of declining Ruhr coal deliveries and in
the face of Poland’s threat to cut-off her coal deliveries if
Austria should stop ball bearing deliveries. Subsequently,
ECA recognized the gravity
of the situation by stating in its analysis, attached to the
ISAC letter, that $130
million is a minimum aid figure if Soviet attempts to achieve an
economic and political penetration are to be contained.
Recent economic developments emphasize that the $130 million
figure recommended by ECA is a
minimum aid requirement for fiscal 1952:
- (1)
-
Inflation—Inflationary pressures
within the Austrian economy continue to increase with a
resultant further decline in real wages, increased
capital flight, widening budgetary deficit, weakening of
the schilling (black market quotations for the dollar
jumped from 30 schillings to 35 schillings in October),
and a threat of devaluation.
- (2)
-
Coal—At an aid level of $105 it
will be impossible to include sufficient United States
coal deliveries and thus decrease Austria dependence on
Polish coal. This, of course, will not permit a
strengthening of Austria’s bargaining position with
Poland concerning the shipment of strategic materials
demanded by that country.
- (3)
-
Unemployment—While summer
unemployed reached a postwar low of less than 70,000 out
of a labor force of over 2,000,000, latest estimates
based on an aid level of $145, indicate that the winter
level may climb to 250,000, or higher. With an aid level
of $105 unemployment would be substantially higher.
Unemployment will be particularly heavy in the powerful
construction workers union, and to the extent it occurs
in Vienna and the Soviet Zone, will be more serious than
would be expected from a comparable level of
unemployment in other parts of Western Europe.
- (4)
-
Food Supplies—Distrust of the
economic situation has caused Austrian farmers to fall
behind in grain deliveries to market and may cause them
to withhold potatoes, the most important item in the
Austrian diet. It is possible the Government will not be
able to
[Page 1083]
induce the farmers to deliver sufficient foodstuffs to
the urban population and the Government lacks the power
to coerce the farmers. Under these conditions Austrian
food consumption in urban areas will be reduced, a
situation which may lead to public demonstrations
against the Government.
In addition to these economic factors, the following political
considerations support the conclusion that Austrian aid should
be raised from $105 million to $130 million:
- (1)
- Since Austria is not a member of NATO, it can make only an
indirect contribution to Western defense. Nevertheless,
its very existence as a Nation friendly to the West
serves as a valuable shield to the NATO countries.
- (2)
- United States policy towards the middle-of-the-road
Austrian Government with respect to aid will be a matter
of serious consideration to the Governments of other
Western European countries, particularly West
Germany.
- (3)
- In September–October, 1950, at the time of the 4th
wage-price agreement, the Communist Party with direct
backing from the Soviets organized serious disturbances
which were checked by the unity and courage of the free
trade unions and the Government. The Communists did not
attempt to repeat these efforts to discredit and weaken
the authority of the Austrian Government at the time of
the 5th wage-price agreement last July because the
Austrian public understood the necessity for this
action. But in the event of a 6th wage-price agreement
this coming winter a real danger exists that the
Communists will be able to capitalize upon mounting
public resentment against the Government to foment
serious public disorders.
- (4)
- The increased prospect of political disturbances also
menace the security of British, French and the United
States occupation forces in Austria. In September, 1950,
the United States was prepared to use troops to quell
disturbances. If public disturbances should produce
conditions beyond the capacity of Austrian police to
control, the military commanders of the Western powers
may be forced to employ troops for this purpose.
- (5)
- Worsening economic conditions may force the Austrian
Government to make trade concessions to the Soviet bloc.
These may take the form of (1) larger deliveries of
strategic materials in return for coal and food, thus
circumventing United States East-West trade controls,
and (2) increased barter trade with the East when
Austrian exports become too expensive for sale in the
West.
- (6)
- Austria has a democratic and stable coalition
Government. This Government, however, has rarely been
able to take decisive action on important matters in
dispute between the coalition partners. There is no
reason to believe it can achieve the drastic internal
reforms needed to remedy Austria’s economic situation in
time to affect the situation in this fiscal year.
Conclusion—Austrian aid in the amount of
$105 million will not be sufficient to preserve United States
security interests in Austria. If this figure cannot be raised
by $25 million to a minimum of
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$130 million, the Department deems it
quite possible or even probable that the Austrian economy will
deteriorate to such an extent as seriously to weaken political
stability through Communist inspired public disturbances
supported by the Soviets. This will result in the inability of
the coalition Government to exercise effective authority, and
threaten the security of United States occupation forces.
The Department is aware of the difficulties involved in alloting
an additional $25 million of aid because Austria is not a NATO member. It is noted that
Austria will not be included in the TCC determinations and that it will be very
difficult to establish the applicability to Austria of the 10
percent transferability clause in the Mutual Security Act. For
the reasons above, however, the Department considers it
necessary to determine the availability of funds and the method
of their transfer to the Austrian aid program. One suggestion is
that the $25 million be taken from the $130 million fund left
for contingencies by ECA after
Model I allotments were made.
