AUSTRIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01762A000800010050-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 20, 2016
• Document Release Date: April 17, 2006
• Sequence Number: 50
• Publication Date: February 14, 1966
• Content Type: REPORT

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14 February 1966
Political
With three weeks to go before the parliamentary elections
of 6 March, all political activity in Austria is centered on
the election campaign. The election is not expected to termin-
ate the coalition between the People's Party (middle class,
conservative) and the Socialists which has governed the country
since 1945, but it will influence the form of the coalition.
The emotional climate of the campaign is provided by the
ever fresh Austrian memory of its 3-day civil war of 1934.
The People's Party recalls the radical Marxism of the Socialists
while the Socialists remember that the civil war killed
Socialist non-combatants and ended in a right-wing dictator-
ship followed by German annexation. Memory of old animosities
supports popular feeling that maintenance of the big-power
coalition is an important guarantee against inter-party violence.
The fall of the coalition government last October came
about essentially because People's Party Chancellor Klaus and
Socialist Vice Chancellor Pitterman were too weak to control
personal rivalries between the parties. As an immediate cause,
budget cuts imposed by the finance minister (of the People's
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Party) last fall particularly annoyed the-Socialist ministers.
The cuts reminded the Socialists of the power of the finance
minister to upset carefully worked out coalition compromises.
The principal campaign issue now is how to provide
effective leadership. The coalition is being criticized--
with each party absolving itself of blame--for failure to
deal with such problems as a continuing housing shortage and
with a spectacular $100,000,000 deficit in the national rail-
roads. Each party is also emphasizing its ability to curb
price increases and to counteract a recent slight decrease
in Austria's rapid rate of economic growth.
Most observers believe that the People's Party and the
Socialists will each poll better than 40 percent of the total
vote as they have in every election since World War II (see
chart attached). As for Austria's two minor parties, some
right-wing Liberals are expected to vote for the People's
Party on 6 March; and the Communist Party, for the first time
since 1945, has ordered its members to support the Socialists
in almost all districts.
After the election, the two major parties are expected
to cooperate in forming a new government, although the 20-year-
old coalition seems likely to be looser in form. A principal
proposed change would give to the legislature some of the
powers of initiative and decision, which are now monopolized
by the cabinet.
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Economic
The rate of economic growth dropped off somewhat in
Austria in 1965 largely because adverse weather conditions
cut down agricultural production. The country's total output
for 1965 appears to have been some 3.5-4 percent above that
for 1964. This rate is considerably under the 6 percent
increase shown for the previous year and somewhat below the
average of recent years. Production is expected to rise by
4 percent in 1966. Per capita gross national product, now
about $1,165, has risen particularly rapidly in recent years
because of slow population growth.
Sharp increases in prices and wages--aggravated primarily
by supply problems--are causing some concern. Retail prices,
for example, rose about 5 percent during 1965 while wage
increases of 13 percent were realized in the first six months
of the year alone.
Austrian foreign payments are in near balance. A trade
deficit is expected to diminish in 1966 as imports slacken
while exports should continue to boom. Larger net receipts
from tourism are also expected.
Defense Policy
National defense problems represent an aspect of Austrian
government policy which shows increasing importance in recent
years. Since 1955, when Austria regained control over its
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national security, a small armed force has been reestablished,
recruited from a cadre of regular troops augmented by short-
term conscripts. The armed forces are subordinate to a
Ministry of Defense which has consistently been headed by
a People's Party official. This is particularly important
because of the absence in Austria of a chief of staff of
the armed forces. The Socialist Party, which has tended to
be anti-militaristic and to press for a reduction of the
9-month conscription period, maintains a "State Secretary"
within the ministry whose job is to watch out for Socialist
party interests.
Most of the equipment for the Austrian Army has been
supplied by the United States as grant aid through the
Military Assistance Program, which was formally initiated
in FY 1957 and terminated in FY 1960. The USSR supplied
small quantities of mortars, guns, tanks, and aircraft. In
addition, Austria purchased small arms, light anti-aircraft
artillery, fire control equipment, tanks, and signal equipment
from several Western European countries. Since 1962, most
equipment except tactical aircraft has been purchased from
the United States. Requirements for aircraft in recent years
have been filled mostly from Sweden, France, and Italy.
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Defense expenditures for the period 1961-64 increased
at an average annual rate of over 28 percent. Although the
defense budget is published with a functional breakdown of
proposed expenditures, it is difficult to determine precise
delineation of military and civilian pay, funds for the air
force, procurement and maintenance costs, and other outlays.
It is estimated that allocation of annual expenditures by
function during the past several years has averaged as follows,
military and civil pay, 30 percent; operations (with some
procurement and maintenance included), 42 percent; and purchase
of major items of equipment and construction, 28 percent.
Actual defense expenditures for 1961-64 and 1965 budget
estimates appear below:
Annual Defense Expenditures, 1961-65
(in US Dollars)
Defense Expenditures 71,615,390 79,230,770 99,923,080
Defense as percent
of national expendi-
tures
Defense as percent
of GNP
1964 1965
133,000,000 113,692,310*
5.2 4.2
1.6 1.3
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The primary mission of the armed forces is to help
maintain the neutrality to which Austria is pledged under
the 1955 treaty which ended the Occupation. The strength
of the Austrian armed forces is considerably less than that
of the defense forces of fellow neutrals Sweden and Switzer-
land. The Defense Ministry believes that possession of
defensive missiles, in conjunction with the development
of an early warning and ground control intercept system,
are vital to Austria's ability to deter violations. of its
neutrality. The ministry has held exploratory talks within
the government and with the signatories of the State Treaty--
the United States, United Kingdom, France and the USSR--on
the subject of the eventual acquisiton of such missiles.
The three Western powers have agreed to reinterpret the 1955
State Treaty, which prohibits Austria from possessing, con-
structing or experimenting with special weapons, including
missiles, to permit defensive missiles acquisition. The USSR
has thus far remained opposed. The Austrians apparently have
been encouraged by Soviet agreement in 1963 to a reinterpreta-
tion of treaty commitments with Finland. The reinterpretation
now allows that country to acquire defensive missiles. There
has been also some speculation that Austria may be asked by
the USSR to purchase bloc military equipment as the price for
Soviet permission to introduce defensive missiles into the
Austrian armed forces.
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14 February 1966
Political
The Finnish political situation is currently in a period
of feverish activity as all parties prepare for the quadrennial
general elections on 20-21 March. The outcome is expected to
confirm the continuing trend toward the strongly pro-Western
Social Democratic Party (SPD), which is expected to be restored
to its former position of influence on the domestic scene.
For the past 7-8 years the SPD has been effectively
isolated from active participation in the country's political
life by President Kekkonen and his Center (Agrarian) Party,
on grounds that the Social Democrats do not support Finland's
official policy of neutrality and friendly relations with the
Soviet Union. Kekkonen, however, appears to have been motivated
more by concern for the waning fortunes of his Center Party and
a desire to weaken the Socialists than by any genuine concern
about basic disagreement over foreign policy.
Despite this handicap and the steady Soviet attacks on
the SPD leadership, the party registered a decisive victory
in municipal elections a year ago, and political observers
expect the March elections to result in a major shift toward
the Socialists despite the behind-the-scenes maneuverings of
Kekkonen and the Soviets. There is a good chance that the
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SPD will emerge from the elections as the single largest
party in the 200-member parliament. In any case, President
Kekkonen's dominance of the local political scene will not
be significantly affected, primarily because of the real
power and influence the head of state wields under the
Finnish constitution.
Economic
While Kekkonen and his Center Party have sought to foster
an undercurrent of concern about foreign policy in the pre-
election skirmishing, relations between Finland and the USSR
have remained on a relatively even keel in recent years. Trade
relattns, which are probably the most reliable indicator of
the state of relations between the two countries, are extensive
and continue to expand year by year. In 1965 total trade
between the two countries reached $440 million, making Finland
one of the Soviet Union's major trading partners in the free
world. Despite the slow but steady increase in trade with
the USSR, Finnish exchanges with the Free World have expanded
even more rapidly and continue to account for more than 75-80%
of Finland's foreign trade. Finnish exports to the USSR com-
prise for the most part ships (ice-breakers, cable-laying
vessels as well as merchant ships), industrial machinery, and
a growing volume of consumer goods such as furniture, textiles
and food-stuffs, The Soviets, for their part, provide petroleum
products, coal, breadgrains, semi-finished metal products and
vehicles.
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At Soviet insistence, this trade is conducted on the basis
of bilateral balancing--essentially a barter arrangement with
no settling of imbalances in gold or convertible currencies.
Finland has traditionally exported more to the USSR than it
has imported, but the imbalance has reached as high as the
equivalent of $40-50 million in recent years. The Russians,
faced with a shortage of foreign exchange themselves, have
refused to settle in gold or convertible currencies and have
insisted that their purchases of Finnish goods will be deter-
mined by the amount of Soviet products Finnish businessmen
are willing to import.
Defense
While running a favorable balance in its trade with the
Soviet Union, Finland has in the postwar years almost invari-
ably had an imbalance of imports over exports in its exchanges
with the Free World, reaching some $200 million last year.
Long aware of this continuing problem--and the desirability of
working down its export surplus in trade with the USSR--the
Finnish government has sought to encourage business and govern-
ment components to purchase from Soviet sources. As a result,
the Finnish defense forces have on occasion purchased limited
quantities of spare parts and ammunition which have been applied
against the trade imbalance.
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In addition to these relatively minor purchases, however,
the Finns have negotiated Soviet credits earmarked for the
specific purpose of acquiring military equipment. Such arms-
purchase agreements were negotiated in 1959, 1962 and 1964.
The earlier agreement covered armor, artillery prime movers,
miscellaneous equipment and spare parts for items previously
purchased. The purchases were financed out of a 1959 Soviet
credit of $125 million. In its purchases from the USSR since
late 1963 Finland has acquired such equipment for its air
force as MIG-21 fighters, jet trainers and helicopters. Large
quantities of weapons, vehicles and radar have also been
purchased from France, the United Kingdom, Switzerland and
Sweden.
In early 1963 Finland secured the permission of the
signatories of the 1948 Peace Treaty (mainly the UK, France,
and the USSR) to modify provisions of the treaty and thus
enable it to acquire defensive missiles. Both the UK and
the USSR acceded to a reinterpretation of the treaty, but
the Finns apparently were given to understand that they should
"balance" any purchases of missile-related equipment between
East and West. Since that time, the Finns have purchased
some 350 surface-to-surface Vigilant anti-tank missiles from
Britain, and some 200 SS-11 anti-tank missiles from France.
They sounded out the Soviets on the purchase of a battery or
two of SAMs, but no final decision apparently has been made
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by the Finns who may be concerned about their obsolescence
and the reported reluctance of the Soviets to release more
modern and classified equipment.
Finnish defense officials are apparently still shopping
around for jet fighter aircraft, helicopters, and radar and
missile equipment, but the biggest handicap to procurement
in the West remains budgetary considerations and the currently
aggravated balance of payments problem.
Finnish Military Expenditures
Amount
% of budget
% of GNP
1964
$115,000,000
5.5
1.7
1965
126,000,000
8.8
1.8
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Vote DdStributim in Austrian Nstioia1 Coemcil Emctiosa
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