Foreign Relations of the United States, 1958–1960, Berlin Crisis, 1959–1960; Germany; Austria, Volume IX

316. Memorandum From the Assistant Secretary of State for European Affairs (Merchant) to the Under Secretary of State for Economic Affairs (Dillon)⁰

Washington, March 19, 1959.

SUBJECT

• The 1958 Annual Release of ICA Counterpart in Austria

Background:

On November 7, 1958 Ambassador Matthews wrote to you (Tab B)¹ that he had been holding up the annual counterpart release for 1958. The 1958 annual release level requested by the Austrian Government in July 1955 was 550 million schillings. The National Advisory Council approved this level on October 17 and authorized the Embassy to release an additional 500 million schillings of reflows if it considered it appropriate. In addition, Ambassador Matthews has also not approved arrangements for PL–480 loans totalling 150 million schillings and has been holding up all PL–480 loans since August. He believed that his action would encourage the Austrian Government to reach settlements on the pending negotiations under the Vienna Memorandum and Article 26 of the Austrian State Treaty. Ambassador Matthews asked for your support in obtaining the concurrence of ICA that the funds should continue to be withheld until after Christmas. By your letter of November 15, 1958 (Tab C),² you concurred, and ICA instructed its representatives in Vienna to cooperate with the Ambassador (Tab D).³

On January 21 [27], 1959 Mr. Smith of ICA requested your concurrence in proceeding with a release of counterpart and negotiation of a provisional counterpart settlement, a long standing objective of United States policy in Austria.⁴ In my memorandum of February 2, I suggested that you await the results of your conversation with Vice-Chancellor Pittermann.⁵ You accepted my recommendation, and by a memorandum from Mr. Bell of W/MSC dated February 5,⁶ICA was asked to continue to hold up the counterpart for two additional months.

Discussion:

I understand that when Ambassador Platzer called on you on March 18 to present a copy of the Tenth Anniversary Volume on ECA aid,⁷ he asked that counterpart be released in view of the Austrian Cabinet’s action on Article 26. He said that he doubted that the Vienna Memorandum problem would be resolved until after the elections, which are about two months away.

Ambassador Matthews has now been authorized to conclude the exchange of notes on Article 26 and this will probably take place shortly. Prospects for an early agreement on the Vienna Memorandum do, indeed, seem dim. Vice-Chancellor Pittermann has been back in Austria for almost one month. No reply has been made to the four alternative oil company proposals of January 30, 1959,⁸ and there is no indication that the Socialists have reached a position on the matter.

In the meantime, the Austrian Government has agreed to advance the date of national elections from October to May 10, 1959. As reported in the New York Times (Tab E),⁹Raab has publicly linked the United States failure to release counterpart with the Socialist refusal to reach a settlement of the Vienna Memorandum. Chancellor Raab is charging that the failure to release the counterpart funds has resulted in “grave damage to the Austrian economy” and in an increase in the level of unemployment. The Chancellor had earlier declared that he was sure that the United States would not accept “any compromise which is now being worked upon by the Socialists”. In his radio address of March 15, Raab said that all open issues between the two parties (i.e. including the Vienna Memorandum) would be settled in the negotiations leading to the formation of a new cabinet after the elections.

Thus a long period of political strife over the counterpart and Vienna Memorandum issues appears probable even after the May 10 elections. After the May 13, 1956 elections a new coalition government was not formed until the end of June. A similar delay can be anticipated this time.

The counterpart release was to cover an investment program for the period July 1, 1958 through June 30, 1959. The release was requested by Chancellor Arab’s letter of July 18, 1958.¹⁰ The funds are the property of the Austrian Government and represent reflows of previous loans. There is evidence that the failure to release the counterpart has had an adverse effect upon the Austrian economy and that by curtailing investment our action has contributed in some measure to increased unemployment.

The Department has also received complaints from representatives of two wholly owned American corporations in Austria that their counterpart or PL–480 loan applications, which have been approved by the Austrian authorities, have not been acted upon for many months by the Embassy. One firm clearly states that its 1959 investment program has been curtailed by the PL–480 fund freeze. (Tab F)¹¹

I believe that you should write Ambassador Matthews pointing out that you believe the time has come to reconsider our decision to hold up the counterpart and PL–480 releases and asking him for his reactions to an early release of these funds.

Recommendation:

That you sign the letter at Tab A.¹²

0. Source: Department of State, Central Files, 763.5–MSP/3–1959. Confidential. Drafted by Cameron and Chapin and concurred in by McBride. None of the tabs was attached to the source text.
1. Document 306.
2. See footnote 2, Document 306.
3. Not found.
4. See Document 311.
5. See footnote 4, Document 311.
6. Not found.
7. No record of this conversation has been found.
8. A summary of these proposals was transmitted in telegram 1818 from Vienna, February 4. (Department of State, Central Files, 863.2553/2–459)
9. The article is in The New York Times, March 17, 1959.
10. Not found in Department of State files.
11. Tab F was a letter from a representative of Caro Werke; not found in Department of State files.
12. Not found. A memorandum of April 1 from Merchant to Dillon, however, indicates that the letter was dated March 18. (Department of State, Central Files, 763.5–MSP/4–159) A letter of March 24 from Matthews to Dillon strongly recommended not agreeing to release of the counterpart funds before the Vienna Memorandum issues were resolved, a suggestion that Merchant accepted in his memorandum of April 1. (Ibid., 263.0041/3–2459)