Created: 4/4/1968

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Intelligence Memorandum


4 Aprilo.

se Only


This documentthv national defense of the Untied SlaW widirfi the meaning oftfTC US Code, at amended. Its transmission nr ri^aligK of id contcnU to orby anersonprohibited by law.

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The Current Situation in Austria Summary

. .Auftrian Chancellor Klaus, who is coming to

"9Jonpril, brings no pressing bilateral problems with him. The main purpose of his visit is to offset domestic criticism that he has been devoting too much attention to the Eastern European countries in his travels. The chancellor hopes that the publicity surrounding his visit to the US will bolster his image and that of his governing People's Party, which has recentlyeries ofin local and provincial elections at the hands oc the opposition Socialists.

The problems facing Austria in foreign affairs are few and relatively minor, despite theirimpact on domestic politics. Austrians have been less perturbed by tha war in Vietnam than other Europeans, and leading officials have been sympathetic to American policy,'

Note;This memorandum was produced solely bywas prepared by the Office of Currentand coordinated with the Office of Economic

the Office of National Estimates, the

Clandestine Services, andthe Central Reference Service.

^eaam/gnrknround Use Only CONFIDCNTIAL

Austrian Politics

2. Chancellor Klaus is caught in the middle of what fororld War II Austriaingle-party government. From the end of the war until the national elections ofustrian governments were coalitions of the two largest parties, the front-running People's Party and the Socialists, whose vote totals were usually very close. owever, thelost ground to the People's Party and, when slighted in the division of*cabinet portfolios,to go into opposition.

* 3. The People's Party has found the burden of governing alone to be quite heavy. The Socialists, not having to share this burden, have been able to snipe at the government's inability to makeprogress in solving the country's majorproblems. eries of provincial and local elections since last fail, the Socialists have shown surprising strength, even in normally People's Party areas.

4. esult, the government in Januarya cabinet shake-up inew ministers who were particularly unpopular were replaced but which was largely window dressing. The mostshift was to include in the government for the first time Hermann Withalm, who has been rumored

to be in line to replace Klaus as chancellor should the party continue to meet election defeats.ontroversial figure even within his own party. An excellent "staff" man experienced in running the party, he is thought by some to be too opinionated and outspoken touitable

The Austrian Socialist Party/ unaccustomed to an opposition role, spent the firstonths after6 election casting about for issues and an image. It came into its own with last fail's provincial and local elections when the people,to inept government handling of the budget debate in parliament, began giving the Socialists unexpected majorities. Following the Socialist's victory in last month's balloting in Burgenlandand the city of Graz, their party leaders have charged that the People's Party no longer enjoys the confidence of the majority and have demanded that national elections be held in advance of0 due date, Klaus has demurred, however, stating that his government will see out the four-year term to which it has been elected.

The Socialists are led by Bruno Kreisky, chairman since At that time/ hehis rival, Bruno Pittermann, whose leftist image was thought to be responsible for the decline in the party's fortunes Kreisky represents the modernizing and moderate wing of the party; Pittermann, the more traditional/ Marxist element-Kreisky is having great success in welding divergent elements together within the party, and seems clearly on the ascendancy. Yet there is some doubt whether he wouldovernment without the People's Party, even if his Socialists won the next national He commented recently that he doubted Austria could be governed effectively with one of the major parties in opposition. It is necessary, he said, to engage the responsibility of both parties bythe two of them in the government.

Domestic Issues

7, xne immediate fata of Klaus and his People's Party government rests largely upon the evolution of domestic economic developments. At the moment, the country is still suffering the effects of thethat began in the second half6 and con* tinued The Gross National Product in constant prices rose no more than twoubstantial drop from the four percent or more average growth rates of the, and industrial production did not exceed the level of previous years. Austria is heavily dependent onmarkets, which purchase about one third of its total industrial output, and was especially hard hit by the recent recession in West Germany, itstrading partner. At the same time, domestic demand for goods and services has also stagnated. The slowdown in economic expansion has revealed structural weaknesses in the economy, especially the need for rationalization, modernization, and reorientation of industrial production to increase productivity and enhance the competitiveness of Austrian products in world markets.

8. To stimulate the flagging economy, theintroduced an expansionary budget8 and the National Bank eased its monetary policy. Theof these measures, together with the anticipated acceleration of economic growth in West Germany and in other countries who are major trading partners, is expected to spur an increase in national output of from three to four percent To sustain growth at this rate, however- the structural problems of the economy must be resolved. The attendantand economic dislocations, although necessary

to achieve the required modernization of the country's productive plant, are likely to produce continued political difficulties for the party in power.

Foreign Issues

Au3Cri-a's economic difficulties stem

from its exclusion from the Common Market. The maior obstacle has been the USSR, which holds thatwould violate Austrian neutrality and beto economic anschluss with Germany. Even some


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lesser form of association with the Market seems ruled out for the immediate future because of French and Italian opposition.

Austrianin recent yearsarea have resulted only in frustration. government sought to put the best faceon this stalemate by dropping theresponsible for Common Marketthe January cabinet shuffle. Th*mood is that it cannot afford to waitform of association, but must seek atrading agreement with the Market in order

to make its trade items more competitive.

continues to be embroiledover the alpine area known ashich was given to Italyita population is heavily Austrian. sparked by Rome's efforts over the yearsthe area. After World War II,Government agreedarge measureautonomy for the area, but Rome andat odds over whether this agreement hasimplemented and the extent to whichbe "guaranteed" by other countries. no needhird-country involvement in

the issue. In addition, relations are strainedouth Tyrol terrorist movement which RomeVienna is not adequately combating. The latter has begun taking sterner measures against terrorists, however, and there is soma expectation in Vienna that progress will be made on the dispute over "guaranteeing" th* agreement after Italian elections this spring.

on the whole have beenby the Vietnam war than otherdemonstrations in the countryfew and sparsely attended. Thenot been forced totand on the war,officials hav* continuedhe American cause. Within recent weeks.Minister Waldheim has worked closelyMacArthur in developing an Austrian


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positionutch-sponsored peace Because this Dutch plan was not acceptable to Washington, Austria declined to participate in

13. Austria's statuseutral guaranteed by the US, USSR, Great Britain, and France also poses problem. The neutrality treaty's strictures against certain forms of armaments, for example, haveorale problem in the country's armed forces. Among che population at large, thereeeling of 'small-country impotence." On the other hand, the traditionalist-minded Austrians, recalling their imperial past in Danubian Europe, also like to think of themselvesatural "bridge" between the Western democracies andEastern Europe. The Austrians were among the first of the Western Europeans in the postwar era to seek friendlier ties with the East, and through the medium of state visits as well ascultural, and trade accords, they havearge extent normalized relations with their Eastern neighbors.


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