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

863.00/12–1252

No. 838
The Acting Secretary of State to the Acting Deputy Director for Mutual Security (Wood)¹

secret

[Washington,] December 16, 1952.

Dear Mr. Wood: I wish to acknowledge the receipt on December 1 of Mr. Kenney’s recent undated letter² urging that, unless there are overriding considerations of a political nature, further allotments of aid to Austria be suspended immediately pending action by the Austrian Government to fulfill certain assurances given in June, 1952, concerning measures to correct weaknesses in the Austrian banking system.

Although it is fully accepted that the six commitments to which Mr. Kenney referred and which were enumerated in Chancellor Figl’s letter of June 9, 1952³ to Ambassador Donnelly have not been fully met, it should be noted that the Austrian Government has made definite progress in meeting various other requirements which have been attached from time to time during 1952 to the extension of United States aid. Austria, in carrying out its stabilization program which is one of the United States immediate economic objectives in Austria, has fulfilled some of its conditions such as control of credit volume, introduction of selective credit controls, repeal of Untersagungsgesetz, change of foreign trade administration, et cetera.

With regard to the six conditions mentioned above we should recognize that full compliance therewith depends in four instances on satisfactory completion of the investigation of Limor, a Swiss subsidiary of the Creditanstalt. In this connection, the State Department understands that provisions of Swiss banking law have made the completion of this investigation as it was originally envisaged most difficult and complicated. Despite these provisions of Swiss banking law, a reputable firm of Swiss accountants has made an audit of Limor and American attorneys have been engaged by Creditanstalt to obtain further information in an effort to bring the investigation to a successful conclusion. The other two conditions relate to a study of the Austrian banking system by a team of experts and subsequent changes to be effected in the Austrian banking statutes. Prior to the Cabinet crisis in late October the Austrian Government was quite willing to have the survey team in Austria but for one reason or another the team was not constituted; since the interim government took over, the presence of the team in Austria was felt likely to become a political issue in the campaign and the Austrian Government has indicated that it would prefer to have the team’s arrival delayed until after the decisions. This Department shares that view.

Furthermore, we do not believe that withholding aid now which has been promised to Austria would be likely to bring about speedier action on the part of the present Austrian Government. As Mr. Kenney stated in his letter, Austria is now going through a preelection period and the present Government is merely an interim one acting in a caretaker capacity. Therefore, in our opinion, the United States should not invoke sanctions against Austria until the formation of a new Austrian Government following the February elections. In the meanwhile, it is probable that American pressure would merely play into the hands of extremist parties in these elections—both Nationalist and Communist. This, of course, would tend to weaken the electoral prospects of the Peoples Party and of the Socialists who constitute the true democratic forces in Austria and whose success at the polls is required for the continuation of the coalition government formula. Notwithstanding the imperfections of the latter, it appears to continue to be essential to the preservation of a friendly and democratic Austria. Preservation of such a regime capable of resisting the Soviets remains the paramount United States consideration relating to Austria. Under these circumstances, it is necessary for the time being to avoid action which seems bound to aggravate Austrian political tensions without necessarily securing the desired results.

For the above reasons, the State Department cannot accept the proposal of cutting off aid to Austria at this time. It is felt that the final $15 million of direct aid already promised Austria for the first half of fiscal year 1953 should be made available promptly. I understand that the Austrian Embassy asked for the release of $14 million on November 12 in order to finance the import of corn. With national elections two months away, refusal to make this release will have unfortunate political effects definitely unfavorable to the best interests of the United States.

The State Department is most anxious, moreover, to work out an economic program with your Agency for discussion with the new Austrian Government as soon as it takes over following the elections.

Sincerely yours,

David Bruce

1. Drafted by Collins and Nes.
2. Attached to Document 836.
3. Regarding Figl’s letter, see footnote 4, Document 803.