172. Telegram From the Embassy in Austria to the Department of State 0

1933. Proposed Austrian defense credit.

Kreisky indicated to me May 17 his personal endorsement proposed US credit for strengthening Austrian defense force. Said he felt it essential Austrian military be of strength to serve as credible deterrent against threats or military probing adventures on part Austria’s Communist satellite neighbors, though he had no illusions re resistance to any major Soviet attack.

He urged extension US credits on favorable terms since it was politically impossible increase defense budget enough to allow procurement on pay-as-go basis. Budget would be increased in future by gradual increments which would be adequate repay credits plus maintaining current defense expenditures. He said loans being requested in Sweden and perhaps other Western countries as well as US.

I urged reconsideration Austrian coalition decision not to request US credits under MSMS. I referred to published exchange of notes of August 9, 1957 between US and Austria concerning purchase of military equipment.1 Since it must be assumed Russians already well aware this exchange of notes, as well previous role US as principal supplier Austrian military, perhaps direct procurement by Austria through MSMS procedures would not create problems which GOA had anticipated (Embtel 1479).2 Kreisky was not aware or did not recall note exchange. I [Page 372] have sent him copies and pointed out Austrians are already receiving some Austrian schilling 300 million of military equipment under this exchange of notes and he has promised take another look at matter. We have also advised Schleinzer of above conversation and emphasized administrative difficulties of trying to get credits outside MSMS. Schleinzer was approached prior Washington trip with suggestion that note exchange might be basis for extension proposed credit, but was not then willing reopen question in face adverse coalition decision even though latter was made in ignorance of notes.

ARMA saw Schleinzer this morning and received assurances that Schleinzer would meet with Kreisky morning Monday, May 21 to explore possibility getting GOA agreement on requesting US credit on MSMS basis. ARMA, Mitlacher and Small accompanying group plan depart for US afternoon May 22 and will be in Washington remainder week. We will advise if possible prior their arrival results KreiskySchleinzer talks and change if any in Austrian position. Meantime, suggest appropriate Washington agencies continue plan talks around proposals outlined Deptel 2121.3

Matthews
  1. Source: Department of State, Central Files, 763.56/5–1862. Confidential.
  2. For text of these notes, exchanged August 9, 1957, see 8 UST 1241.
  3. Dated March 14. (Department of State, Central Files, 398.1901–IAEA/3–1561)
  4. See footnote 1, Document 171. In telegram 1962, May 23, the Embassy reported that Austria had agreed to conduct negotiations on the basis of the exchange of notes of August 9, 1957. (Department of State, Central Files, 763.56/5–2362) On May 24, Ambassador Platz-er met with Sulser for discussions on the modalities of an Austrian military purchase agreement. (Ibid., 763.56/5–2462)