Foreign Relations of the United States, 1952–1954, Germany and Austria, Volume VII, Part 2

763.00/11–1052

No. 833
Memorandum by the Deputy Director of the Office of Western European Affairs (Knight) to the Assistant Secretary of State for European Affairs (Perkins)¹

secret

[Washington,] November 10, 1952.

Subject:

• U.S. Policy During the Austrian Elections

The significance of the recent Austrian political crisis² lies in its close connection with the national elections scheduled for about February 22 which will determine if or on what basis the present People’s Party–Socialist coalition will continue. Especially important in these elections will be the program of each party on how it intends to deal with Austria’s increasingly serious economic problems.

From 1945 to the present the coalition has been able to agree on urgent matters because of the immensity of the Soviet menace. Issues on which the major parties were diametrically opposed have been put off pending the end of the occupation. Regarding economic policies, however, the coalition avoided major disputes largely because US aid made good the losses caused by Soviet takings and by the continuance of inefficient policies where vital coalition interests were in conflict. From one standpoint, then, the US made up Austrian deficits in return for the maintenance of political stability and of resistance to the Soviets.

Had Austria carried out a realistic economic policy, it would have achieved the postwar economic progress made by other Western European states, and there would now be every prospect of a peaceful election campaign and a continuance of the previous political stability. Thus from an economic viewpoint, the decline in US aid could have been counterbalanced by a proportionate improvement in the economy, but from a political viewpoint suspicions between the coalition partners stalemated the creation and carrying out of a constructive economic program. No one believes that the Cabinet resignation came about through failure to agree on 400 million schillings on the ordinary 1953 budget. A more plausible explanation is that party leaders felt impelled to establish a preelection position which is more partisan than their actions in the coalition and to demonstrate to the US that Austrian political stability is in jeopardy. As yet the present debate is limited to the narrow ambit of stabilization measures proposed by the Finance Minister and partially opposed by the Socialists. If, however, the economy further deteriorates, as seems likely, broader disputes on economic policy will aggravate the tension.

While the possibility that Austria will recover from the present business recession is not out of the question, it seems likely that an economic crisis will come within the next eighteen months, the date depending upon how much slack exists in the economy to withstand the present unfavorable trends. Since the inflationary limit has not been reached, since unemployment is not yet critical, and since satisfactory supplies of fuel and bread grains are available and foreign exchange reserves are still substantial, it would seem that a crisis is not imminent. However, if for political reasons the parties were to agree on a sixth wage-price agreement, the approach of the crisis might be accelerated.

In these developments the role of the US, as virtually the third member of the coalition negotiations, is especially difficult because the future US contribution determines how far the major parties must go to reach a realistic solution of their difficulties. The aid program for Austria is not achieving the economic objectives of increased exports and production which have been the basis for past and present reductions in aid. The Austrian Government gives no indication of making the adjustments necessary if the Austrian economy is to maintain its present level with the $35,000,000 in aid recommended by MSA for fiscal year 1954. It is apparently not prepared to reduce the imbalance in the budget to a level which could be supported by Austrian resources. While Austria has held the credit line since June, the cause lies largely in the abatement of demand for credits because of the recession, a trend which may be expected to reverse when business recovers. A schilling devaluation remains in the offing. US recommendations to Austria to initiate institutional reforms in the fields of foreign exchange administration, banking, productivity, restrictive business practices have had little noticeable effect except to increase anti-US antagonism. Energetic attempts to carry out even the mandatory provisions of the Zablocki and Moody Amendments in the period before the new Government is formed are almost sure to aggravate this antagonism. In any case, the benefits anticipated from these reforms would only appear in a long-term cycle of five to ten years and not in sufficient time to affect the economy significantly in the next few months. Also to a large degree the Austrian public, not understanding the need for these reforms, is in no position to support them politically.

To avoid the development of an Austrian political crisis it is therefore recommended that:

(1) The illustrative figure of Austrian aid for fiscal 1954 or $35 million be raised substantially. The Department took this position when MSA discussed the aid figure with the Bureau of the Budget and in the MAAC Committee.

(2) US pressures on Austria to improve economic performance during the pre-election period be limited to the minimum consistent with statutory requirements.

(3) The trend of the economy be reviewed on the assumption that Austria either will not or cannot make any significant progress on economic reforms within the next eighteen months.

(4) The US be prepared to make the maximum use of counterpart releases to prevent the collapse or weakening of the present coalition.

1. Drafted by Rutter and cleared by Collins.
2. On Oct. 21 the Austrian coalition party leaders reached an impasse in their discussion of the draft 1953 budget. After intense negotiations on Oct. 22 the Cabinet submitted its resignation to the President just before midnight. President Koerner withheld action on the resignation and urged the coalition leaders to continue negotiations in order to reach a compromise. On Oct. 28 it was announced that a compromise solution had been reached on a provisional budget; it was also announced that the government’s resignation had been accepted and a new government formed with the identical composition. An analysis of this crisis was transmitted to the Department of State in despatch 894 from Vienna, Nov. 17. (763.00/11–1752)