173. Telegram From the Embassy in Austria to the Department of State0

2043. Pass Defense. Schleinzer informed ARMA yesterday he concerned negotiations defense loan not proceeding well. ARMA explained that costs, delivery items and delivery dates all basically worked out and only outstanding problem is financing. ARMA stressed that world-wide US obligations and resultant effect on available appropriated funds required that basic Austrian approach be made through EXIM Bank. Referred meeting Harrer of Finance Ministry Washington with Linder 7 June.

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Schleinzer told ARMA of importance US credit to strengthening GOA defenses and of significance of political victory in securing GOA approval negotiate for loan in magnitude dols 50 million. He frankly stated his worries re future of defense forces if current attempts at securing credit fail.

ARMA reminded Schleinzer of Secretary McNamara’s assurances to him and reiterated US Government doing everything possible assist Austria securing necessary US credits. Schleinzer stated that if it appears negotiations likely collapse he wishes make direct written appeal to Secretary McNamara. In meantime he requested ARMA send urgent telegram expressing his concern.

It apparent in Schleinzer–ARMA talks, and later confirmed in Embassy talk with Harrer, that Schleinzer had not coordinated financial details with Finance Minister Klaus. Klaus apparently approved credit on assumption terms would be nominal or no interest with approximately 10-year repayment period. Schleinzer implied to ARMA that a credit approaching commercial terms had not been authorized by Finance Ministry.

Harrer in later conversation with Embassy officer stated Finance Ministry due to secrecy surrounding matter was not informed details preliminary negotiations. Finance Minister had indeed operated on assumption loan would carry no interest. As things now stand Klaus had not approved accepting credits under terms provided proposed US package. Harrer had prepared report for Fin Min based on info just received by him from Defense Ministry confirming that about four percent interest involved and repayment of about seven years. Claimed that such terms could not be approved by Fin Min. Harrer’s report included certain recommendations for counterproposals which Fin Min had not as yet acted on. Harrer departing for US on assumption that counterproposals would be approved early next week and serve as basis negotiations. Implied he would have some sort of limited signing authority but could not at present be more specific about counterproposals. Embassy officer remarked that trip to US on assumption non-interest loan achievable would be waste of time. Harrer admitted this but reiterated suggested repayment period much too short and suggested interest rate considerably too high.

Embassy has been in frequent touch with Harrer, and upon return ARMA from US, outlined to him on 28 May general nature US proposals, including lack MSMS funds. We had assumed Fin Min Klaus fully informed on details negotations to date. Much of present confusion here undoubtedly derives from Schleinzer’s failure keep his colleagues informed, as well as his ignorance financial matters. Understandably, Klaus wished secure most favorable terms possible, both for budgetary reasons and view potential controversial political aspects first Austrian [Page 374] defense loan since achievement sovereignty. Harrer departs Vienna today. He is knowledgeable Fin Min senior official who will provide financial expertise to Austrian negotiating team which has been lacking until now.

Deptel 22481 just received. Concur in views expressed FYI, but urge door be kept open for continued negotiations, since strongly doubt Harrer will be able accept present US proposals. With view anticipating GOA objections, suggest, if possible, consideration formula such as price cutting which might have some effect as offset against contemplated rate of interest.

  1. Source: Department of State, Central Files, 763.56/6–262. Confidential.
  2. Telegram 2248 to Vienna, June 1, reported that a military credit would be easier under the MSMS program and outlined the probable difficulties of securing the Export-Import Bank loan desired by the Austrians. (Ibid., 763.56/5–2362)