Conference files, lot 59 D 95, CF 107: Telegram

No. 803
The Deputy Director for Mutual Security (Kenney) to the Mutual Security Agency Mission in Austria1


Musto 371. This is joint State–MSA message. At meeting between Harriman and Figl today,2 there were following developments: (meeting attended on Austrian side by Figl, Loewenthal, Fuchs, Platner, Goertz; on US side by Harriman, Kenney, Perkins, Martin, L. Gordon, Cleveland, Imhof, Allen).

Counterpart. During his opening statement, Figl referred with gratitude to MSA “announcement” in New York Times “that 1.5 billion schilling of counterpart had been released.” Harriman and Kenney made clear that (a) no formal announcement had been made; (b) way had been cleared under internal US Govt procedures (NAC, etc.) for release of 1.2 billion schillings but actual release depended on discussions and negotiations in Vienna regarding conditions of release and uses to which counterpart would be put. Specific mention was made, in connection with conditions, of points brought out in Meyer–Figl letter of January 73 relating to control of inflation and other matters. Throughout meeting Austrians pressed for announcement here, while Figl is in Washington, of release of 1.2 billion counterpart, but Kenney and Perkins reiterated several times US unwillingness transfer negotiations on terms and [Page 1758]conditions of counterpart release out of hands of US element in Vienna.
Figl and Loewenthal raised question of 11 million dollar allotment. Austrians were under impression withholding of 11 million was tied entirely to Limor problem. Kenney in reply did not tie 11 million allotment to Limor specifically but stated MSA not in position to make allotment at the moment in light of generally unsatisfactory Austrian economic situation. Mention was made in this connection of dollar diversion investigation, budgetary problem, lack effective credit control, and need for improvement foreign trade and exchange controls.
Bulk of meeting was taken up with discussion of banking investigation, reasons for inability complete investigation, and Austrian proposals for dealing with political and public relations problems presented by radio and press reports from Vienna in last two days. Essential points of discussion were:
Matter first raised by Harriman who cited long history of investigation of “irregularities” and reference to effect on Congressional and other US opinion of lack of vigorous action in this by Austrian Govt.
Figl said repeatedly that Austrian govt was doing everything within its legal power to assist investigation to its completion. Measures taken include threatening Limor with bankruptcy proceedings, and instruction by Gruber to Austrian Minister in Bern to approach Swiss govt to make special exception to its laws so that Limor accounts could be made available to auditors.
Figl said that since situation had unfortunately blown up in radio and press comment, matter was now so serious as to threaten coalition, in spite of fact that irregularities were “probably less than one-tenth of one percent of funds involved.” Later in meeting, Loewenthal spelled out internal political problem by hinting that if situation developed so as to point finger at Creditanstalt as organ of People’s Party, latter would have no alternative but to point finger in return at irregularities in Laenderbank, and whole basis of mutual confidence necessary for coalition would be in serious jeopardy.
Harriman made it very clear that US could not assist or condone any attempt to conceal or “whitewash” any irregularities regardless of size. US reps did not comment on Austrian figure of one-tenth of one percent.
Figl emphasized need to take decisive action to show world that—referring to the alleged “ultimatum” from the U.S.—”there is nothing to these reports” and that friendship between US and Austrian govts is not affected by them. He referred again not only to political repercussions but to economic problems that would flow from a public scandal (runs on banks, unemployment, etc.). While Austrian govt not interested in hiding anything, Figl said it could not afford to let details of this matter become public knowledge.
There was considerable discussion of why Austrian govt did not have sufficient authority to force disclosure of Limor accounts [Page 1759]to auditors. US reps asked, in various different ways, why Credit anstalt could not control its own subsidiary, and why Austrian govt, which owns Creditanstalt, could not force it to take necessary action. Figl made clear that Board of Creditanstalt was hired by and could be fired by Austrian govt, but that problem was matter of Swiss law restricting disclosure of Limor accounts. He attributed some difficulty to loophole of Austrian Nationalization Law under which Creditanstalt is controlled. Austrian reps handed Harriman copy of legal opinion by Swiss law indicating the technical difficulties involved. Harriman however emphasized that a bank can find out what is going on in its own subsidiary if it wants to. He added that it would be very useful if Austrian govt took steps to eliminate from picture individuals responsible for the irregularities, as soon as sufficient proof of irregularities is available.
Basic Austrian suggestion was this: Since people in Austria now believe, as result of press and radio reports, that US had given “ultimatum” to Austrian govt re dollar diversion investigation, problem was to prove beyond doubt that no such ultimatum had been given. This could be done by (a) releasing 1.2 billion schillings counterpart and (b) making eleven million dollar allotment, both actions being announced forthwith in order to clear up confusion in people’s mind. Re dollar allotment, US reps made clear no possibility making this allotment at this time, in view of unsatisfactory state of discussions with Austrians both on economic and financial reforms and on investigation of irregularities.

Re release of counterpart, Austrians were very anxious for a public statement about 1.2 billion schillings made in Washington. When US reps made clear this could not be done, matter was left as follows: US govt will authorize Ambassador and MSA Mission negotiate with Austrians re terms and conditions of release of 1.2 billion schillings counterpart, and further discussions on this subject will be handled in Vienna. Ambassador and MSA Mission would also be authorized to make appropriate press release on status of counterpart release adding such qualifications as might be necessary. Such statement would be issued in Vienna, in coordination with Austrian govt. Throughout a somewhat confused discussion US reps tried to bring in from time to time the US interest in satisfactory conclusion of investigation and necessary remedial action, and economic and financial reforms regarding which the US has been pressing for action. In latter connection, specific mention was made by US reps on credit controls (and need to keep volume of commercial credit to January 1 level), balancing of budget (pointing out US awareness of lack of budgeted revenue to cover agricultural subsidies), and need to reform foreign trade and exchange controls. However these topics were not developed much in discussion.

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At conclusion of meeting following brief communiqué was issued to press. “Chancellor Figl of Austria met with Mr. Harriman this morning. Their discussion was in continuation of many previous such conversations between the Chancellor and Mr. Harriman when Mr. Harriman was the chief Marshall Plan representative in Europe.”

“The discussion covered in general terms topics affecting economic progress and development in Austria in relation to the program of American economic assistance.”

Cable authorizing action to be taken in Vienna follows.4

  1. Drafted by H. Cleveland; cleared with Collins, Kenney, Perkins, and L. Gordon. Repeated to Paris.
  2. The meeting took place at 10 a.m. at the Mutual Security Agency.
  3. Not found in Department of State files.
  4. Upon Figl’s return to Austria, a meeting was held on June 3 to reach an agreement concerning an approach to the “dollar diversion” investigation. Ambassador Donnelly gave a letter to Chancellor Figl requesting confirmation by the Austrian Government of six specific points of agreement mutually accepted concerning the conduct of the investigation. (Telegram 3782 from Vienna, June 3, 863.10/6–352) At the conclusion of the meeting, Donnelly announced to the press that a further allocation of $11 million in direct aid would be made available to Austria before June 30 and that the release of 1.5 billion schillings in counterpart funds to Austria had also been authorized; an additional .5 billion schillings was under consideration subject to further conversations with the Austrian Government. (Telegram 3783 from Vienna, June 3, 763.5 MSP/6–352) On June 9, Figl sent a reply to Donnelly answering all six points in a positive way, a reply described by the Embassy as “entirely satisfactory.” (Telegram 3836 from Vienna, June 9, 863.10/6–952) The Donnelly letter of June 3 and the Figl letter of June 9 were transmitted to the Department of State in despatch 2009 from Vienna, June 10. (863.10/6–1052)