Created: 2/20/1947

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ebruaryno. 6


i nefou[.occupying powers haveoalition

ed after the natlonal elections of Novem-

The authority of the government is still limited by the con-

i^/Tf ?Landhostileof the USSR. The three-party coalition, however, is genuinely

representativeopulation which, except for an extremelymmunist minority, is almost evenly divided into an agrarian Catholic partyrade union socialist party. Both of these parties are united in their opposition to the demands or the USSR and are anxious to begin the reconstruction of the country under their own direction. The Communist Party has almost no Indigenous support and is able togovernment policy only through Soviet assistance.

The USSR desires an Austrian regime subservient to Soviet Unsuccessful in its attempts to influence the Austrian Government by infiltration and intimidation, the USSR nas concentrated on establish-ir^contro, over the Austrian economy, tne USSRc rented itsustria by propagandaat discrediting the government and by actions designed to disrupt its political and economic authority. Into further tneir economic aims, the Soviets rave induairlal machineryarge scale, seized industrial ar.sets. andQ_&roJuce for "lhe Sovietsnow attempting to induce the Austrians to agreeettlement of Soviet claims to alleged German assets in eastern Austria which will give theVcr important industrial propertien in thin area. Theii.which imposes maximum restrictions on the sovereignty of the Austrianand legalizes future Soviet Interference in Austrian affairs. Confronted by political difficulties and Anglo-American support for tne present government, the USSR would probably acceptemporarya government under Soviet influence through dependency upon economic tics with Eastern Europe. The Soviets, however, are unlikely to make any major concessions Tor the sake of early agreement, since the best Inter-eats or tne USSR may be servedrotracted military occupation of Austria, whose government is considered fundamentally anti-Communist.

Only limited coordination of this report with departmental intelligence agencies has been attained. Substantial dissent, if any, willater date.

icy level, however, tney have combined with the US and UK in anconclude the treaty and terminate the

The Austrian people are primarily interested in putting an end tion'shiCh thCLr68ardtolerable burden

Stw8 "pessary -to make peace with the Soviets, yet they do not desire to come under Sovietin order to accomplish this. The Austrian Government therefore wants toiddle course between Eastern and WesterTSurope This

oufrty irdiffeffeci in viewtne fact ^t r

quires close economic relations with the central European andfuture ofnaT-

her^nn,UCh 5Upporl fconwill enabL

her not only to recover economically but also to bargain with her Soviet-dominated neighborsooting of equality. Lacking thissupport lU inCVUably bG focced fto the influence exerteTby'th^

the n AUStria

mestlc or foreign pressureoviet or German Thet0 the Auslrian Governmento -


Important Factors In the Austrian Situation.

The present Austrian Government, which was formed after the national elections ofas recognized byThe four powers represented in the Allied Commission -with due Regard- to the supreme authority of the Allied Commission. The government operates with relative freedom buttill economically atT

ave the Austrian Government greater power: however the Soviets have prevented the government from exercising its additional au-

as not materfallv

reUUon8nlp belween lhe Allled Commission and the Austria^

The Austrian Constitution Is essentially based on the fon*tit.,

TndCd ln

grant the Federal Government certain transitional emergency powers.

and Provincial elections of

IZrIZ ^ Ut0rylhe ltberalparties,

1 d" The Communist Party. ERv! t ri9J thoroughly defeated, securingeal? inhouse of Parliament. The Sovifi Command was clearly surprised by thc elections, particularly in the abil-

Cadt'rS t0 retaln th0ir hold over the paupe^zeS lnitTSTtrla" D* lhe three Western Powers, Socialist andarty leaders have worked together and haveLfS Communists from Infiltrating their ranks. With rare exceptions, the Soviets have refrained from acts of violence against the two liberal organizations, even though they regard them as hostile to the USSR.

BB| FranCeiscriminated against any of the three political parties, although they prefer the two liberal groups.

Pan-Germanlom no longer existsolitical program. All throe political parties are now opposednion with Germany.

Denazification. Denazification, which for the past year has

mire to"*difficultersons are involved. The two major liberal parties

T IrTST IT Tli di8rUpt Stria's political and social afPlied- /he Soviets recently agreed, however, In thel"?lflcationBaAustrian law which

Alfhin-K ricl rather than punitive. Parliament,

yto the severity of the Allied Amendments,themaw which was recently passed.

Displaced Persons. According to official Austrianhere are moreisplaced persons in Austria, concentrate in he US, British and French zones. Many of these are

Urn BTnmm Balkm

Allied rather than an Austrian responsibility. Doth the USSR and the

Austrian Government are vitally interested in disposing of these oer-

J^ t lhCn forcibl* repatriated as being hostile to the USSR as well as to nations under Soviet influence. The Austrians on the other hand, are anxious merely to gel rid of then because thev'rave social menace as welluture economic liability.

Although the US, UK and France desire to solve this problem they have been unwilling to force these displaced persons to returnTo

*Sonets have

The Soviets are construing the Potsdam Agreement

with respect to German assets in Eastern Austria in the broadestble sense ln order to serve immediate Soviet needs and to gain percent EfSiTTi roportion of Austria's economy. It is evident that

t^ ktorbain'emain-

ing to them by which they can Influence the ant1-Communist Austrian

iel dofinlliOTassets as stated in6 includes (II German property in Austria before) German property transfers to and capital investments in Austria after MM date:ustrian property acquired by the Germans6air price. The last proviso is interpreted by the Sovietsanner wholly favorable to thenoelves.

In the Allied Commission, the US has opposed the Sovietof Potsdam, and, therefore, the mass Soviet seizure of industry in eastern Austria. The US has given wide publicity to its return to the Auitrian Government of German properties in the provinces of Salzburg and upper Austriaeans of arousing public opinion against the Soviet policy. The British also oppose the USSR position, and have endeavored consistently to place the discussion of German assetsuadripartite oasis. Although the French have generally supported the US-UK position in the Allied Commission, they have arbitrarily removed certain factories in their zone and have requisitioned badly needed foodstuffs.

Agricultural and Industrial Production. In addition tofrom ravages of war, the Austrian economy has suffered from theuntil recently of eastern Austria, arbitrary Soviet activities in that area, and from French zonal requisitions. The agriculturally rich zone of eastern Austria has not only been forced toelatively largo Soviet army of occupation, but has also been drained by Sovietof livestock and farm machinery as well as by seizures of

cultural estates. Austrian industry, also concentrated in the Soviet zone, was first crippled by mass Soviet removals of machines. Later production, sorely needed in the reconstruction of Austria's economy nas been In part diverted to trie Soviet Army and the USSR itself. The Soviets have insisted that factories producing for the USSR receive preferential treatment In raw materials and workers* food rations. This discrimination nerves to disrupt the national economy and further embarrass the Austrian Government. The Austrian Government has attempted, by measures such aa the Nationalization Decree, to minimize Soviet control over the economy of eastern Austria, but the USSR, in violation of the control agreement ofas consistently refused to allow any such Measures to be enforced in its zone.

Military occupation of the three Western zones in Austria has delayed economic recovery without basically weakening its industrial Althougn the level of agricultural production is satisfactory, the food situation has remained desperate since, unlike Soviet-occupied eastern Austria, these areas are not self-supporting. Vorarlberg and the Tirol in particular have sufferedonsequence of Frenchrequisitions. Austria's industrial potential was expanded betweenercent tn contrast to eastern Austria, theareas occupied by the US, UK and France retain the bulk of thiscapacity. Industrial recovery here has nevertheless been slow to date because of shortages of raw materials and skilled workers, andtne importation from Germany of essential spare parts has been stopped.

International Trade. Up to the present, international trade has been largely limited to interim barter airangements. The long-term credit agreement already reached with the UK, as well as similarabout to be negotiated with the US, Sweden and Switzerland, will serve to increase trade with the Western Powers, as well as to improve Austria's bargaining position in future trade negotiations with Soviet-dominated states.

The French for their part propose toarter-type agreement with the Austrian Government for products* produced .primarily in the French zone, including electric power generated in the province of Vorarlberg.

Result of the Programs Followed In the Various Zones of Austria.

The most outstanding event of the occupation period was the resounding defeat of the Communist Parly at the last election. Theof the pauperized common people to forsake the standards ofgovernmentefeat for the Soviet program in this country.

For the rest, il is difficult to distinguish between thedone by the war and the occupation. The economic situation has been

greatly aggravated in eastern Austria by the Soviets, and,esser

"rbitraryirures of tne French. Thi.turn has adversely afTected theof the zones presently occupied by the US and UK.

Current Immediate and Long-Range Objectives.

Soviet. Political. The Immediate USSR aims are to discredit

Tneu^ity in eastern Austria. TheSovlet-influenced pressew election, while the Austrian

!ff!rtS t0 Wln OVerelements from both It S Pdrly and-lheP"ty. ong-term objective, the USSRegime subservient to Soviet policy. The Soviets therefore reaty which imposes maximum restrictions on theof the Austrian Government and legalizes future Sovietin Austrian affairs. Pending accomplishment of tnis objective they will Probably acceptemporaryovernmentnced by the USSR through dependency upon economic ties with Eastern Europe. The Soviets, however, ore unlikely to make any major conces-

for*he sake of early agreement, since the best interests of the UoSR may be servedrotracted military occupation or Austria, whose government is considered fundamentally anti-Communist.

Economic. The USSR desires to weaken the Austrian economy. This has so far been achieved by the mass, indiscriminate removals of Industrial machinery, and byarge proportion of the industry remaining under Soviet control to produce for the USSR. The amount of food available for the local population has been reduced by theof the relatively large Soviet army of occupation.

The Soviets doubtless hope toong-term influence over Austrian economy byettlement of the German assets question which will leave then in control of important industrial assets. They have already indicated an unwillingness to relinquish theirash settlement. The Soviets probably expect to extract further concessions before tney will Demit Austria to establishcommercial relations with Soviet-oriented states in the Danube Basin. With respect to trade with Germany, the Soviets have taken the position in the Allied Commission that Austrian purchases in Germany should be limited to items which cannot be obtained from the United Nation*.

British and French. Political. The British and French arc anxious to conclude an Austrian treaty In order to terminate the burden of quadripartite occupation and complete the restoration of Austrian sovereignty. They are also interested inolution to the problems of denazification and displaced persons which will promote the political stability of the present regime. Both the British and French desire to insure the long-term Independence of the Austrian Government and prevent it from eitheregenerated Germany or beingto serve Soviet aims.

- a

Economic. Thc British have an immediate concern in the problem of German foreign assets in eastern Austria because they have Interests in some of the properties under negotiation; for thisas well as for reasons of national policy, the British and French are anxious to prevent the Soviets from consolidating their present position in Lover Austria and the Burgenland.

As in the rest of Western Europe, the British want tothe Austrian economy as quickly as possible in order to promote stability. To this end, the British haveredit to the Austrian Government. While the French have indicated that they are unable to extend credits to Austria, they have shown anin barter-type agreements. Both the UK and France want to prevent Austria from becoming economically dependent on either the USSR and its satellites or Germany.

Original document.

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