46. Telegram From the Office of the High Commissioner for Austria to the Department of State1

2602. Joint Embassy–USOM [USCOM?] message. Subject: Economic consequences proposed State Treaty.

Have completed preliminary study this subject which air-pouching today.2 Conclusions indicate Austrian economy could bear treaty costs with presently available resources, although major adjustment current government policies necessary. Calculations projected only for first post-treaty year but believe foregoing conclusion warranted because economic burdens of treaty expected be heaviest in first one or two years. We recognize and stress that calculations subject considerable margin error.
Study analyzes projected B/P after treaty, probable required Federal Budget expenditures, and general impact of treaty upon economy. Major assumptions of study as follows: (a) Austrians lose income from occupation force expenditures, (b) Oil operations at lower rate, with small exportable surplus but costs of extraction and shipment to Soviets require supplementary budgetary expenditure, (c) Austrian reparations for USIA cost $25 million in goods per annum for six years foreign exchange loss partially offset by resources USIA, but full amount chargeable budget. (Now studying [Page 78] USIA complex with Austrian Government and hope evaluate its production and related factors more realistic basis near future.) (d) Austrians will establish army whose size assumed arbitrarily to be 25,000 first year and 53,000 second year, with bulk basic equipment obtained no cost Austrian Government. Assume no air force. (These assumptions considered only tentative and illustrative and do not presume as to ultimate American policy vis-à-vis Austrian military nor as to Austrian decision concerning level its forces and sources financing same. If maximum forces established first year at Austria’s cost without foreign assistance, would change our conclusions concerning economic impact as costs could reach $250 million, an amount clearly irreconcilable with resources presently available.) (e) No serious economic recession world economy, and Austrians maintain political stability.

Re B/P chief costs include following: (a) Loss roughly $55 million per year from occupation troops of which $35 million in dollars and remaining $20 million EPU currencies; (b) Payment $25 million in goods per annum to Soviets; (c) Added import requirements of $5 million for establishment army and (d) Costs civil aviation.

Principal offsetting factors not same magnitude, these including (a) Net increase foreign exchange earnings from USIA production of $10 million per annum; (b) Small exportable surplus oil, not over $3 million per annum; (c) Increased tourism receipts some $5 million per annum; (d) Increase in flow foreign capital $10 million per annum.

Project probable deterioration B/P at $50 million per year and in light present overall equilibrium Austrian B/P believe this probably involves unfavorable balance in roughly same amount.

Re budget, principal additional expenditures foreseen arise from establishment army and payments to Soviets. At moment uncertain as to possible additional expenditures inherent in required oil deliveries to Soviets, operating capital for oil and USIA firms and possible new investment needed immediately. Have assumed that any profits from USIA be used new investment. Net deterioration of budget estimated at about 1.2 billion schillings first year after treaty, assuming military equipment obtained from outside. (If Austrian Government bears total expense net deterioration as high as 7 billion schillings.) In light extremely favorable budgetary development first quarter 1955 believe originally estimated deficit of Austrian Government much too pessimistic and anticipate only small deficit total fiscal operations of federal government this year be covered by cash on hand from 1954 operations. Projecting this development would mean probable surplus total budget in 1956 against which would be new charges of almost 2 billion schillings (as army expenditure increase in second year).
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Economy, already booming, likely to develop stronger inflationary pressures from increased demand resulting from treaty. These pressures may become serious if public investment program not modified to allow for at least part of expenditures that will face Austria, e.g. army, USIA rehabilitation.

Embassy believes on balance Austrian resources if properly directed could cover immediate drain of state treaty. However, economic burdens will undoubtedly present problems, and there are still many uncertain factors which could have adverse effects on Austrian ability find satisfactory solution.

  1. Source: Department of State, Central Files, 396.1–VI/5–555. Secret.
  2. Transmitted in despatch 1261 from Vienna, May 2. (Ibid., 663.001/5–2555)