Foreign Relations of the United States, 1955–1957, Central and Southeastern Europe, Volume XXVI

13. Report Prepared by the Operations Coordinating Board¹

Washington, December 14, 1955.

PROGRESS REPORT ON UNITED STATES POLICY TOWARD AUSTRIA (NSC 164/1)²

(Policy Approved by the President October 14, 1953)

(Period Covered—April 7, 1955 through December 14, 1955)

A. Summary of Major Actions and Decisions

1. The Austrian State Treaty was signed by the U.S., U.K., France, USSR and Austria in Vienna on May 15, 1955 and with ratification by all five powers came into force on July 27, 1955. Coincident with agreement on the Treaty, a separate memorandum of understanding was concluded between Austria, the U.S. and the U.K. which further protects the latter’s property interests in Austria.

2. Austrian Neutrality and its Recognition. Pursuant to the Austro-USSR accord signed April 15, the Parliament passed a Neutrality Law which came into effect on November 5. On November 14 Austria requested neutrality recognition by the four Powers and immediately thereafter, by the other countries with which it has diplomatic relations. The U.S., U.K. and France have agreed to respond favorably, that neutrality recognition is separate and distinct from the guarantee question, have so informed the Austrians, and are now negotiating with the Soviets regarding proposed identical but separate replies.

3. Occupation Termination—Austrian Rearmament—Soviet and French Arms.

a. The Four-Power Agreement on the zones of occupation was terminated on October 25. About 4,500 of the U.S. troops formerly in Austria have been transferred to Northern Italy; about two-thirds of these troops moved directly into Italy; the remainder are being phased in as physical facilities become available.

b. To assist Austrian rearmament the U.S. turned over two-thirds of a military stockpile valued at $60 million (the remaining third will follow), transferred former U.S. military facilities and is considering the sale of munitions as well as a request for light aircraft for pilot training. [3-½ lines of source text not declassified]

c. Both the USSR and France have given the Austrians military equipment and ammunition. The Soviet arms contribution, unlike that of the French, includes small amounts of heavy equipment in the form of medium tanks, heavy mortars and light artillery.

4. German Assets in Austria. Under the terms of the Treaty, Austria regained control of former German assets in Austria, including factories, oil properties, farm and forest lands, and the assets of the Danube Shipping Company in East Austria. For the return of these properties situated in the Soviet Zone Austria paid the Soviets fixed amounts (totalling in value $23.7 million) at the time of settlement, and more important, agreed to the payments of goods and/or money over specified periods of years ($150 million in goods or dollars over a period of 6 years, plus 10 million tons of oil over a period of 10 years).

5. Loans—Agricultural Surplus Sales—Coal Program—Counterpart Release. To assist the economy, the Ex-Im Bank and the IBRD made respective loans in April and June for cotton and the partial financing of a hydroelectric project. In May a coal agreement was reached whereby the generated local currency was to be used to purchase Austrian goods for other countries receiving direct U.S. assistance. Additionally, a PL 480 agreement was signed in June (25% of the local currency to be loaned to Austria for economic development) and in August counterpart, generated by previous programs, in the amount of $28.1 million was released, over 60% of which is earmarked for use in the East Zone. (N.B.: See Financial Annex)

6. Jewish Claims. In July agreement was reached between the Jewish agencies and the Austrian Government, by which the Austrian Government will set up a fund of 550 million schillings ($22 million) to be paid over a period of 10 years as compensation for damages inflicted during the Nazi regime. Legislation implementing this agreement has been approved by the Austrian cabinet and sent to Parliament.

7. Fairs—Exchange Visits.

a. The U.S. atomic energy exhibit at the Spring Fair attracted 100,000 persons in a 16-day period; the U.S. exhibits at the Fall Fair proved most popular and drew about 250,000 observers.

b. The number of exchange visits of Austrian leaders and specialists was increased from 5 to 16 in FY 1955, and 3 additional leader grants have been added for FY 1956.

B. Evaluation of Progress in Implementing NSC Policies and Objectives³

8. General. Our major objective in Austria for the past 10 years was achieved by the conclusion of the Austrian State Treaty and the re-establishment of Austria’s political and economic independence. The Treaty, in its major respects, is a more just and satisfactory document than the draft treaty as it had stood since 1949.

9. The Austrian Army. The new Army, [less than 1 line of source text not declassified] has a current strength of 7,200. This force will provide the training cadre for the Austrian Army which is expected to reach a strength of 25,000–30,000 men by late 1956. It is possible that an effective Austrian defense force will require additional military assistance in view of the lack of manpower and particularly the anticipated lack of budgetary resources. The Austrian Army, as it is now constituted and envisaged for the future, will be capable of maintaining internal security and protecting the Austrian borders in minor border incidents; however, it will not be able to offer more than token resistance in the face of a Soviet and/or Satellite military invasion of any magnitude.

10. Information and Cultural Programs. With the signing of the Austrian State Treaty, the USIA program in Austria is being transformed to one more suitable adapted to the new political status of Austria. Although this transformation has involved the giving-up of the very effective U.S.-controlled Red–White–Red radio network, the level of contemplated expenditure is considered adequate to maintain a useful program without leaving the U.S. open to the charge of taking less of an interest in Austria than previously.

11. Technical Exchange and Productivity Programs. The technical exchange and productivity programs are continuing along the lines summarized in the third progress report. Productivity projects in Austria which can be channeled through the European productivity agency will continue. Technical exchange bilateral programs for Austria were deemed justified and are being continued in spite of the ICA decision to terminate these programs elsewhere in Western Europe.

12. Reform of Austrian Banking System. Some progress is being made toward the reform of the banking system in Austria. With the passage of the National Bank and the Bank and Insurance Reconstruction Laws in October, it is believed that the framework of the capital market laws are completed, and domestic and foreign confidence in Austrian credit institutions thereby increased.

13. Austrian Investment Corporation. No progress can be reported in the investment corporation recommended in 1953 by the Bank Study Group (BSG), although informal contacts with the Austrian Government seem to indicate the possibility of some action in the not too distant future.

14. Economic Situation. Consideration of some of the major economic factors such as the obligations to the USSR specified in the Treaty and related agreements, the annual loss of some $45 million in foreign exchange from the occupation forces, the costs of establishing a national army, the net accrual of foreign exchange to Austria from the oil properties and the USIA industrial plants, and the continuing deficit in foreign trade for 1955 indicate that the net adverse impact on Austria’s balance of payments will probably be about $50 million annually for the next few years; the estimate for the current year will total between $60 million and $70 million. Review and evaluation of these economic factors plus those involving counterpart releases, the sale of surplus commodities, the ICA coal program, Ex-Im and IBRD Bank loans, the maintenance of a high level of tourism and a stable demand for Austrian goods, indicate that Austria may unaided still overcome its short-run balance of payments difficulties and liquidate its obligations under the State Treaty and related agreements provided the general condition of the over-all Western economy remains good and the government is successful in combatting inflationary pressures.

15. Revision of the Basic Policy Paper (NSC 164/1). While certain portions of NSC 164/1 are capable of continuing implementation, it is believed the entire paper should be revised to take into account the changed situation to include the basic elements of Austrian independence and neutrality; the question of possible guarantees of territorial integrity; economic effects, trends and prospects; military developments; results of the Geneva Conference of Foreign Ministers as they may affect the Austrian situation; and Austria’s relations with the Western and Eastern blocs. It is felt that revision should be made soon after a careful review and analysis of the results of the Foreign Ministers Conference.

C. Emerging Problems and Future Actions

The following emerging problems and future actions are envisaged pending the revision of NSC 164/1:

16. Neutrality Recognition. The question of formal U.S. recognition of Austria’s neutral status arises as a result of the receipt of a request therefor from the Austrian Government on November 14.³ The problem is complicated by the fact that the Austrian Government is still considering what the nature and scope of its neutrality should be. In this regard the U.S. should encourage Austrian interpretation of its neutrality in a manner which allows the greatest freedom and flexibility possible to allow closest cooperation with the U.S. on matters such as transit rights, etc., as well as with Western and international non-military organizations.

17. Territorial Guarantee. The U.S. may be faced soon with Austria’s request to guarantee its territorial integrity. The attendant problems for the U.S. of constitutional limitations, coordination with the U.K. and France and our desire to limit any such guarantee to one within the U.N. framework must also be considered.

18. Implementation of State Treaty. Matters relating to implementation of the State Treaty, with particular reference to the disposition of German assets, as well as the problem of accession to the Treaty by other powers, are receiving current attention and will continue to require tripartite consultation.

19. Political Stability. It is essential to U.S. and Western interests that political stability be maintained in Austria and that Communist influence therein be counteracted by all appropriate means. Present indications are that the coalition government will continue at least pending the outcome of 1956 elections.

20. Military Establishment and Soviet Arms.

a. It is essential that Austria’s armed forces be adequate for the protection of her own internal security and at least in part, territorial integrity. Therefore, the U.S. should encourage the Austrians to raise and support an adequate military establishment, and be prepared to consider possible Austrian requests for additional military assistance.

b. Military equipment being furnished to Austria by the Soviet Government raises problems which will require close attention with a view to assuring that Austria does not become dependent upon Soviet arms.

21. Economic Stability and East-West Trade.

a. Economic trends in Austria must be closely followed with a view to determining Austria’s requirements for outside assistance in order to maintain economic stability. Such foreign assistance could be provided by (a) agricultural surpluses for which a new agreement is now being negotiated supplementing the one signed at the end of FY 1955 and (b) additional loans by the IBRD and Ex-Im Banks. (See paragraph 5 above)

b. The question of East-West trade matters is a continuing problem which will require constant attention in an effort to assure Austria’s continued cooperation with COCOM and the U.S. in the field of strategic controls, despite her neutrality status.

22. Escapees and Refugees. The U.S. will continue to be concerned with implementation of the Escapee Program in Austria and with problems relating to the welfare and disposition of Displaced Persons and Refugees.

23. Property Restitution and Commercial Treaties and Agreements.

a. Many problems relating to the restitution of U.S. property interests in Austria and to compensation for property interests which cannot be restituted will require attention.

b. Negotiations will continue toward the conclusion of treaties between the U.S. and Austria on Double Taxation and Friendship, Commerce and Navigation, and an agreement for Cooperation Concerning Civil Use of Atomic Energy. The question of a permanent transport air agreement with Austria to replace the 1947 interim agreement also is under consideration.

24. Danube Convention. Consultations are being held with the British and French with a view to developing the nature of the further action which should be taken to discourage Austria from joining the Communist-dominated 1948 Danube Convention in its present form and to protect U.S. and Western interests in this field.

1. Source: Department of State, S/S–NSC Files: Lot 60 D 661, Austrian Documents. Top Secret. The cover sheet and a financial annex are not printed. An attached memorandum, dated January 26, by the OCB Secretariat Staff reported that the OCB revised and concurred in this report for transmittal to the NSC. The NSC noted the report and directed that the NSC Planning Board prepare a revised statement of policy toward Austria.
2. For text of NSC 164/1, see Foreign Relations, 1952–1954, vol. VII, Part 2, p. 1914.
3. Latest NIE on Austria dated August 23, 1955. [Footnote in the source text. NIE 25–55, entitled “Outlook for an Independent Austria,” is not printed.]
3. See Document 11.