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SEflfftl'T
THE CURRENT SITUATION IN AUSTRIA SUMMARY
strategic importance to the US lies in its contiguity to the Sovlct-sateulte area, and its status as an occupied country where US and Soviet forces are in direct contact. Itatural center of east-west and north-sooth trade. Under present conditions thc USSR controls thc Danube Valley and uses Austriaoor to trade with the west andource of economic gain.
Thc power of thc Austrian Federal Republic is limited by the four-power AlliedThe present government, electedoalition of the People's Partyand conservative) whichajority and holds the chancellorship; and theSocialist Party. National elections, scheduled for October, arc expected to resultontinuation of the coalition, which is stable and pro-Western. The Communist Party, thc only other group to haverepresentation.egligiblewith virtually no chance of gaining legal power.
The USSR has not seized complete control or thc eastern zone, and the general mildness of the occupation has encouraged theto be outspoken and self-reliant.esirereaty is paramount, Austrians are concerned over the economic burden they must bear by terms of the treaty, which they are not yet fully convinced will actually be signed.
That Austrian economic recovery5 has been considerable, despite many adverse factors,onsequence In the first instance, of foreign financial assistance, chiefly from the US. Soviet economic policy still exerts a
drag on Austrian recovery. Despite Soviet removal of output from Soviel-scbed firms and of two-thirds of oil production, the Index of over-all Industrial production,ngricultural recovery has been slow, with Austria supplying only about half Its raUoned food needs Austria'son foreign assistance is Indicated by8ollar area deficits9 million, and deficits with other areasillion.
Austria's foreign policy revolves around the attempt toreaty which will assure thc country economic Independence andof sovereignty. Thc government must balance its pro-Western leanings against fears of the USSR, and its hope of convincing the USSR of the advantage of an Independent Austria. Consequently, although the USthe most Important Influence onpolicies. Austria, with calculated self-interest, "cooperates'* with the Soviet element In the country.
Internal security rests with the police and gendarmerie0 men) in addition lo the occupation forces. Under presentInternal security appears contingent upon the occupation policies of the USSR. The agreed portion of the treaty provides for an Austrian army0 and an air force. Austria, plans to seek authority to begin organization of tbe army as soon as the treaty is signed. Western auUiorities are currentlyendarmerie regimentucleus for an army, capable ofInternal security and safeguardingagainst all but major encroachments.
he Intelligence ore arUza lions ot Uic Department* ol State, Army. Navy, and Ihc Air Force have concurred In this reportaaed on InformaUon available lo CIA as
SEQftET
THE CURRENT SITUATION IN AUSTRIA
Strategic Importance ol Auiliia.
Austria Is Important to US security because of Its geographic location and Its presentstatus wherein US and Soviet forces are in immediate contact. As the easternmost area of Western influence and thearea of Soviet influence inivotal point In thc East-WestSupported and protected by the Western occupation forces, the pro-Western Austrian Government has cooperated with the United States in the face of Soviet occupation ofAustria and Soviet Influence In adjacent areas. The fate of Austria, and US policies in regardssume special Importance to US security In connection with Western Europe consolidation, both poliUcal and economic, and with strengthening the determination of Western European people to resist Soviet
Aspects.
ilitary point of view, theimportance of Austria lies in itslocation, and In its presentwith the Soviet-satellite area.own military role, negligible atbe limited to thatefensivea component of allied armies. Despitebarriers to the south and theof thc western part of thevulnerability to attack over theplain Inr Bsv-rinz
plain in the north makes Impracticable any defense against strong Invasions from those directions. At the same time, the Danubian valley represents the natural gateway to south-central Europe as well as the natural entrance to tbe Balkan peninsula. The currentof Soviet occupation forces inand the Soviet position In the Danubian valley, results in effective Soviet control of Austria's natural gateway at the present time.
Arpects.
From an economic point of view, Austria's strategic importance to the US lies largely in
Its positionransit center for east-west as well as north-south truffle Despite present limitations on over-all International trade, and the prohibitions on east-west Danube shipping in Austria, Austria's position as an important transportation artery Is revealed by the extent ofeast-westcrossing the country. In addition. Austria Is not only an importantof hydroelectric power but also one of the most important potential sources of such power in Western Europe. Existing powermake it Impossible for Austria tomore thanercent of its potential annual output ofillion kwh; further development of this resource will enableto increase greatly its power exports. Of other natural resources, rnagnesite andfurnish considerable exportable surpluses. Austrian oil production, now under complete Soviet control, must be supplemented bybecause Soviet allocations have fallen far short of Austrian needs. Even underconditions, however, Austrian oilalthough substantial, are of limited strategic value. Other natural resources, the most important of which is high quality iron ore. are largely consumed by domestic
c. Importance to USSR.
The importance of Austria to the USSR Isatter of geographic location. In extending its Influence beyond the present satellite perimeter, the Soviet Union can exert considerable Influence within Austria through the Soviet occupation forces. Either bythe occupation, or by specific treaty terms, the USSR can maintain that influence or, at least, neutralize Austriaotentially active and integral part ot Western European economic, political, and defensive planning. Currently, Austria has an additionalto the USSRource of economic gain andoor to east-west trade which is denied the Soviot areas from other sources. While thc course of action which thc USSR
ET
SE,
will follow Inward Austria is stilt uncertain, at present it Is unlikely that the Soviet Union Intends to partition the country. Sovietin this respect would presumably be determined largely by Its over-all European strategy which is presently directed towardisk of war and increasing east-west trade rather than by the negligibleInvolved hi the local Austrian situation.
2. Political Situation.
The power of the Austrian Government is subject to the limitations Imposed by thcCommission (AC) composed of the four occupying powers.ontrol Agreement6 defined the position of the government and permitted Its authority to extendthe country, subject to certain The most important provision of the Agreement stipulates that only consUtuu'onal laws require unanimous AC approval and that other legislation may go into effectif the AC falls to act upon itwithinays. Other provisions leave certain important matters subject to the Jurisdiction of each zonal commander. several noteworthy exceptions, the USSR has. in general, lived up to the specificof the Agreement Soviet officials have, however, interpreted some clauses tothe Soviet zone commander to extend his control to cover phases of the Austrian economy not contemplated by other parties to the Agreement.
a. The Constitution.
The validity of the Austrian Constitution, essentially thatests solely on tha authorityaw passed by thc Provisional Government5 and later approved by the AC. No permanent legislation enacted by the elected parliament exists. Despite an AC request (pushed through by thc Sovietthat the parliamentewConstitution, the government.announced its adherence to9 Constitution. Sporadic Soviet reminders that tho AC directive has not been complied with have so far failed to Influence the Austrian Government. While the USSR couldthe constitutional validity of thcthe Soviet legal position would be
weak.hallenge is likely only should the USSR decide to take unilateral actionthc AC. Such action would extend far beyond constitutional considerations.
b. The Government.
Within the framework of thc Controland its Constitution, Austria functionsederal republic of rune provinces.is madeederal president, agovernment headedederala national parliament consisting of two houses, and provincial governors andThe provinces reserve far-reaching prerogatives and members of the Upper Houseubber-stamp body) of thc national parliament arc elected by theembers of the Lower House are elected by popular vote for four-year terms. Candidates, however, are elected only as names on lists drawn up by political parties, thus the votersarty, not an individual, and the primacy of political parties leads to voting on strict party lines. In both national elections and parliamentary debate. Indeed, before taking their scats Inelected representatives submit undated letters of resignation to their party secretariat.
The present government, electeds in thc hands of the two large parties workingoalition. The conservative People's Party, which is under the Influence of tbe Catholic Church, haseputies ba the Lower Houseabinet minis tries; the moderate Socialist Party controlseputies and 6posts (As the majority party, theParty fills thc position ofecause almost all issues are decided between these parties before any measure is presented to parliament, parliamentary debate andare rare and the voting is easilyThc far-reaching polarization of political life in Austria resultsirtual absence of independent pressure groups; these are represented within thc parties and such interests rarely cross party lines. Forthc People's Party represents primarily the interests of the Chambers of Commerce and Agriculture, while the Socialists represent chiefly the Chamber of Labor and the Trade Union Federation (aboutercent of ail
SKt/RET
and salaryhc Communist Party, the only other party able lo gainscatsercent of the voteeats in parliament.
Communists.
The Austrian Communist Party is ainfluence in the government, has virtually no chance of assuming legal control, andsolelyool of Soviet policy.recognition of the Communists' sobserti-ence to Moscow has contributed greatly to the continuing strong control of labor by theOn the other hand, the CoVamunist Party has an importance out of proportion to its actual strength because Soviet backing gives it an influence in business and labor, anil to some extent in lesser political positions, which would not otherwise exist While there Is scant possibility that the Communists, without Soviet assistance, could execute aputsch in eastern Austria and insituated within the Soviet Zone the chances ofoup in the Soviet Zone are considerably better than inn Vienna, which Is subject to quadripartite occupation, intervention by the Westerncould probably negate such an attempt unless the USSR, determined upon active assistance in attempt lo overthrow theAt present, as In the past four years, the USSR has the capability to seize complete control of the eastern zone andthe country.
Aspectsoccupation, which is entering
Its fifth year, remains the roost important consideration of the Austrian political scene. Slcrnming from this factor arc the present stability of the federal government, thc pro-Westem attitude of the government and the people, thc general distrust of the Communist Party, and thc hmJUUons on economicSomeercent of the populationthe policies of the coalition government in its limited cooperation with the Sovietwithin the country, in its considerable cooperation with, and reliance on, the US, and In its efforts toeasonable treaty. At the same time, tho relative nuldness of the occupation has encouraged ouUpokenncss by the Austrians and haseeling of
which otherwise might not be so pronounced. In addition, the difficultiesfrom the occupation and fromstruggle to recover from Anschluss with Germany and the economic set-backs suffered during the war havepirit ofwhich had been missing from thcRepublic from Its inceptionoth the unpopular policies of the Soviet Union and Austria's own economic ills serve to weld the coalition parties andtable front
e. Coming Elections.
The same coalition Is expected to continue governing Austria alter the national elections, scheduled for October. Although theofew voters, largely ,ex-Nazls who have received amnesty, willstrengthen the Right, participation of new political parties (an Issue on which legal confusion exists) would tend to splinter Rightist strength. The conservative People's Partyeterogeneous organization, and the Socialists, more lightly organized, would, therefore, gain in over-all poliUcal powerplintering of Rightist strength. Should no new parties participate. Uie Teople's Partylikely to retain its lead. Kven with new parties it mightlim majority, because only one new group appears to be of anyand it is still an uncertain orgaruza-Uon which may yet be efleetlrely countered by the People's Party. The Communist Party, even Joinedmall group of left-wingappears urihkely to develop new strength proportionate lo the Increasedand its present representation inmay prove difficult Lo maintain The present lack of official and definitive clarinca-Uon regarding the participation of new parties (the confusion steins5 AC decision which reserved to the AC the right tonew parties) may present the Sovietwith an opportunity to challenge the elections or the legitimacy of theoviet desire to disrupt present coalition cooperation and strength, however, there arc no present Indications that Uie Soviet element will attempt to prevent the elections or intends to challenge their legality.
reaty Considerations.
Austrian reaction to the recent CFMhas been one of cautious optimism. Initial enthusiasm over the definitiveof thc Austrian from the Germanand over the instructions to the deputies writing; thc treaty, has diminished somewhat with the realization of the economic burden which Austria must assume and the prolonged technical discussions which must precede treaty agreement. Previous disappointments over failure toact, moreover,complete beliefreaty willbe signed. Austrians are agreed,that the present efforts toreaty give greater promise of success than any previous attempts.
3. Economic Situation.
The Austrian economy Is based equally on industry and agriculture and is greatlyupon foreign trade because, forabout one-half of thc food and most of the industrial coal must be Imported. While tbe country's prewar economic characteristics were altered by developments during the Anschluss with Nazi Germany, these changes have not been entirely disadvantageous. Agricultural production suffered heavilyGerman domination, but It can beto previous levels of output; and Oer-man-built industrial and power installations arc already contributing to the economy. On balance the country appears to have no less capability of becoming self-sustaining now than before the war.
a. Economic Recovery.
Economic recovery5 in the fields of both production and consumption has been considerable despite such adverse factors as over-cxploltation of resources, war-damage, and dislocations resulting from war; unusual foreign and domestic marketing problems; the loss of foreign credits formerly derived from shipping, tourism, and foreign investments; and Soviet removals of equipment and current output. The primary positive factors in this recovery have been (ba order ofhe financial assistance extended to the(through UNRltA and the ECA) chiefly
by the US; tbc four powers' agreement toAustria as an independent state; and tho flexibility and determination evidenced in Austrian recovery efforts.
The danger existed in the early days of the occupation that the Soviet authorities, through control of Important industries and certain agricultural areas In the Soviet Zone, would be able to manipulate thc production facilities of the entire economy for their own purposes. Although this threat has greatly diminished, Soviet economic policy continues torag on the Austrian economy and delays economic recovery.
b. Industrial Production,
The Index of industrial production rose fromn) tonlectric power outputillion kilowatt-hourss compared withillion kilowatt-hoursour main branches ofmachinery and equipment, andrecently been producing well7 levels. Consumer goods industries, on the other hand, arc operating at much lower rates.
A barge amount of the production ofirms seized by the Soviet authorities in the spring6 as German external assets is taken out of Austria without compensation These firms arc producers primarily ofand mechanical goods and generallyindependently of Austrian laws on prices, wages, foreign trade and othermatters. Thc governmentortion of the output of the seized plants for distribution throughout Austria In return for allocations ofraw and semi-finishedAbout two-thirds of the oil produced (total production8 was estimated atT) Is removed from thceconomy by Soviet authorities.
The ECA program, calling for US assistance7 million (plus the equivalent ofillion from otherhould make possible further increases, though modest, In industrialECA-financed capital goods,for import during the next twelve
S EGRET
will make It physically possibleto Increase the emphasis on theof indigenous resources and Imported semi-finished materials, and thuseduction in expenditures for Imported fin, lshcd goods without impairing the Austrian economy.
' c. Agricultural Production.
Agricultural recovery has been retarded by lack of seeds, fertilizers, fodder, andas well as by the necessity to return to cultivation land which was allowed to remain unproductive during the war. Only aboutpercent of the present daily rationalories is being met from Indigenous.prewar Austrian production suppliedercentuch higher caloric intake, butomewhat smaller population. As aof this slow agricultural recovery, aamount of ECA assistance has been spent for* foodstuffs. (Food importsre estimated9 minion; ECA assistance5he Soviet Zone Is the "breadbasket" of Austria, the question of equitable distribution of food throughout Austria arose early in theperiod. It was solved by four-power agreement requiring all fopd, both domestic and Imported, to be pooled for distribution by the Austrian Government. While the people are better fed now than at any other time since the war, governmental reliance on relief Imports has tended to retard vigorousof agricultural development programs and collection of food quotas from the farmers since the majority People's Party, relying on rural support, has been careful to avoid antagonizing these voters. Increasing faith in the schilling has helped improveof farm products in recent months, and with the best crop since the end of the war in prospect, the ECA has scaled down theestimate of required food imports. .
d. Transportation.
The railroads are the primary facility in Austria's transportation system; road and water transport are currently unimportant For Austrian purposes, Danube shipping Istandstill since nooreast or-west beyond the Soviet
zonal demarcation line below Liru. With this exception, zonal restrictions do not seriously curtail inland transportation. Soviethave imposed some restrictions ontrade. For the most part thesehave served only to delay shipments. The Austrian railroads have greatly Improved their operating efficiencysby0 percent Increase In ton-kilometers of freight8 compared to the earlier period. Nevertheless ran facilitiessome Obsolete and wornout equipment and makeshift structures. Recent Increases in rail rates and in tons carried will about cover operating deficits, but most capitaland improvements can'only bethrough ECAoviet removals of rolling stock have not seriously affected operations to date, bui, further removals of Soviet-marked equipment would reducetraffic capacity.
e. Unemployment.
Unemployment In Austria today is aunimportant problem and the largest laboring force9 Is at workover the past year, however, rose frompersons In8 toersons in9 or toercent of the total workingThere is, nevertheless,hortage of sklUcd workmen as welleedorkers in agriculture.esult of the increased unemployment,labor unions have recently sought to tighten labor laws In order to protectfromliens in the Austrian labor force. These alien workers in Austria, however, are contributing greatly to Austrian reconstruction in every field, particularlyUnemployment can be expected to remain atercent of tho total working population during the next twelve months.
oreign Exchange.
Austria's foreign balance of payments shows clearly the country's dependence on foreign assistance. The total foreign deficit onaccount Is estimated at the equivalent8 millionnd0 millionECAhe largest part of these deficits is with the dollar area:he dollar area deficit was9
FT
asillion deficit with all other areas; estimated deficit7 million, asillion. Before thc Anschluss invisibles netted considerable foreign credits7 aboutercent of total credits on currentow theremall Invisibles deficit. Merchandise trade, however,eavy7 million, imports6 million and9 million. Thc merchandise trade deficits expected to decline0 million. Although there has been some growth Ln volume oftrade (which excludes Imports financed by foreignommercial Imports are not yet covered by commercialConsequently it seems clear that even If the government's planned rate of economic Improvement Ls attained, substantial foreign assistance will continue to be necessary for some time unless current standards of living are reduced
Trade.
The revival of foreign trade has beenby: the demands of the reconstruction program, the loss of German markets, political conditions In the satellite area, and changes ln Austria's Industrial structure and capacity. These factors have forced Austria toifferent and more diversified trade pattern than that which prevailed before thc war. Aboutercent of the currently expanding trade Is with Western Europe and overseas countries', official trade with Eastern Europe has not attained its prewar relativeand appears unlikely to do so ln the near future. (The Soviet element, however, through Its industrial properties seizedlow of extralegal trade to the satellite areas and, Ln return, receives products which are frequently placed on the Austrian blackompensation or barterresulting from the acute postwar shortage of foreign exchange, are only slowly giving way to more flexible bilateral trade treaties and clearing arrangements.
Fiscal Situation.
Inflationary pressure has continued to be an important problem in spite of the tworeforms since the Liberation of the Budgetary deficits (amounting
million schillingsaused mainly by payments to defray the costs of occupation and other extra-budgetary expenditures, and the release of blocked bank accounts,the reduction in the money supply resulting from the currency reforms. On the other hand, ECA counterpart funds ln the amountillion schillings were used8 to cancel an equal amount ofdebt held by the Austrian Natlonnl Bank, thus contributingurther stability of the currency.
A deficit of approximately two billionwas originally budgeted9esult of: shrinking of revenues from the state tobacco monopoly0 million) and additional expenditures suchhirteenth month's payment to all federal employees, totaling0 million; increased social Insurance payments, estimatednd tbe need to finance extraordinary expenditures amounting to0 million owing to the smaller amounts available from ECA counterpart funds thanayment of0 million occupation cost will be required9 which the Austrian Governmentwould be eliminated. Partly ln anto bring the budget intoar-reaching wage-price fiscal agreement wasinto Law Ln9 and is now being Implemented.
The new measures providetoppage of all Federal government subsidies on such Items as coal, public utilities, transportation, and food as well as an Increase in taxation, customs duties, and public utilitiesercent Internal loan was authorized to cover the remaining deficit estimatedillion schillings. In partial compensation for thc expectedln the cost of living (officialeneral wage and salary Increase was ordered, amounting toercent Despite this Increase, real wages have declined, although thc setback has been mitigated by increased variety of consumer goods.
It ls hopedound fiscal policy and the general tendency of world prices to decline willrake on further price rises. In this connection It is to be noted that the black
. SeVtJET
exchange rate of thc schillingto show strength.esult ol theseonsiderable improvement in the over-all budgetary situation Is noweficit still seems probable
The cost-or-Uving index rose abouter-centbetwceiiS ande-rattonlng of manyharp drop in black market prices, and increased supplies ofgoods, however, tended to cushion the effects of the cost rise These factors are not reflected In the costof-llvlng Index. The standard of living, nevertheless, is still low. The new wage-price-tax program, as suggested above, will tend to raise the cost-of-living index from present levels, by anercent On balance, however. It does not appear that this will put workersorse position than last fall.
4. Foreign Policy.
Austria's foreign policy is Irrevocably bound up with Its efforts toreaty which will assure Its economic independence and restore Its sovereignty. In these efforts, themust balance Its pro-Western leanings and reliance on US economic aid and political support against fears of Soviet Intentions and the necessity of convincing the USSReutral and Independent Austria caneneficial factor In the East-West struggle. Within the confines of this policy, Austrialargely concerned with Its ownand the prevention of any deterioration in the present stains quo within the country. To this end, it subjugates both its desire for closer economic and political integration with Western Europe and its antipathy to the USSR; Austria will continue to pursue this policy as long as any hope remains fora treaty or as long asolicyto prevent the Iron Curtain from coming down on the eastern zone of the country.
a. Relations with US and USSR.
Because of the limitations, both self-imposed and created by the Control Agreement,relations with the US and the USSRthe most Important aspects of Austrian foreign policy Whereas the US has en-deaTored to strengthen thc position of the government and has contributed greatly to
Austria's economic recovery, the USSR has sought to curtail the authority of theand deprive Austria of economicAustrians sometimes take US aid for granted and arc not above playing one group against the other for some Immediate benefit; nevertheless, the US continues to be the most Important Influence in government policies. With the USSR. Austriaareful, calculated policy of self-interest in 'eooperauhg" with the Soviet element within the country, .and attempts on thescene toeutral position-Above all, Austrians are displaying animpatience with the occupation, withand with their own Inability totheir position.
b. Relations with UK and France.
Because the British and French have been unable to make the financial contributions that the US has made, and do not represent the military threat that thc USSR presents, their present Influence is small. Austrianwith both countries and with theirforces are satisfactory, however. Relations between the British Labor Party and the Austrian Socialist Party, In particular, are fairly close. Sensitive over theirpositionawn In the East-Westiet, Austrians are envious of Italy's status and the improving status of Western Germany but are eager to achieve even limited security Sn cooperation' with the Western European nations. Any appreciable shift In Austria's foreign policy and in ILi relations with other nations Is dependent upon changes in itsstatus and In definitive changes in the East-West struggle.
5. Inter nol Security.
Internal security within Austria rests not only upon the police and gendarmerie0 men) but also upon the presence of the occupaUon forces who have, lo date,estraining influence upon any disturbing elements. The Communists enjoy anImportance by virtue of the Sovietforces but the USSR has given no evidence of desiring an overt attempt to disrupt Internalbecause active Sovietof Uie Communists would threaten par-
IBCRET
or the country and because the Western Powers could effectively control any suchin the Western zones. On the other hand, the coalition parties, united into the Communist-Soviet threat, havethe old enmities which caused thc democratic regime to collapse and arctogether. Should thc occupation end and the present importance of the Communists dwindle, the possibility of strife between the People's Party and the Socialists might well represent the greatest danger to internalUnder present conditions, however, the continuation of thc stable Internalappears contingent upon the occupation policies of the USSR. Communistorganizations and Soviet-controlled Work-schutz (factory guards) do noterious threat to internal security, either now or following quadripartite troop withdrawal, provided that no large-scale aggression is launched from Soviet-controlled areas.
a. The Armed Forces.
Austria has been demilitarized andby quadripartite action. At present, it has no armed forces.
The agTced terms of the draft treaty provide for an armyncluding gendarmerie, and an air force. Although thcis officially proldblted from planning for this future array, the two major political
parties have recently reached agreement on its essential features and thc government plans to seek Allied permission to befrin organization o( the army on the date thc treaty is signed. Should this be agreed, Austria would have more than tbeays, the period between ratification of the treaty and thc withdrawal of occupation forces, to get at least an army of0 into being. In order toore rapid army organization, and mitigate any possibility that an Austrian force capable of maintaining internal security would not be immediately available following quadripartite troop withdrawal, western occupationare currently engaged in training andendarmerie regiment in thezones. This force could form the nucleus for thc future army.
Despite the possibility of some politicalover the composition andof thc future army. It will be capable of maintaining internal security and ofAustria's frontier against all but major encroachments. Because Austria.would be incapable of resisting major aggression, long-term national security can be found only in collective arrangements or guarantees by the great powers. Such guarantees wiUbe sought from the Western Powers;participation in collective arrangements Ls unlikely so long as thc country Isexposed to retaliation by the USSR
Original document.
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