AUSTRIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A001500080001-6
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 55
• Document Creation Date: December 23, 2016
• Document Release Date: January 30, 2013
• Sequence Number: 1
• Publication Date: May 1, 1948
• Content Type: REPORT

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Declassified and Approved For Release 2013/01/30 : CIA-RDP78-01617A001500080001-6
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 1. This copy of this publication is for the information and use of the recipient
designated on the front cover and of individuals under the jurisdiction of the recipient's
office who require the information for the performance of their official duties. Further
dissemination elsewhere in the department to other offices which require the informa-
tion for the performance of official duties may be authorized by the following:
a. Special Assistant to the Secretary of State for Research and Intelligence, for
the Department of State
b. Director of Intelligence, GS, USA, for the Department of the Army
c. Chief, Naval Intelligence, for the Department of the Navy
d. Director of Intelligence, USAF, for the Department of the Air Force
e. Director of Security and Intelligence, AEC, for the Atomic Energy Com-
mission
f. Deputy Director for Intelligence, Joint Staff, for the Joint Staff
g. Assistant Director for Collection and Dissemination, CIA, for any other
Department or Agency
2. This copy may be either retained or destroyed by burning in accordance with
applicable security regulations, or returned to the Central Intelligence Agency by
arrangement with the Office of Collection and Dissemination, CIA.
This document contains information affecting the national
defense of the United States within the meaning of the
Espionage Act, 50 U.S.C., 31 and 32, as amended. Its trans-
mission or the revelation of its contents in any manner to
an unauthorized person is prohibited by law.
 Declassified and Approved For Release 2013/01/30 : CIA-RDP78-01617AO01500080001-6
Published May 1948
33357
AUSTRIA
TABLE OF CONTENTS
SUMMARY
SECTION I -POLITICAL SITUATION
4.
ECONOMIC OUTLOOK . . .
SECTION III -FOREIGN AFFAIRS
II-11
1.
GENESIS OF PRESENT FOREIGN POLICY
III-1
2.
NATURE OF PRESENT FOREIGN POLICY
III-1
3.
PRESENT RELATIONS WITH THE USSR
111-2
1.
GENESIS OF THE PRESENT POLITICAL SITUATION
I-1
2.
PRESENT GOVERNMENTAL STRUCTURE
1-2
3.
POLITICAL PARTIES
1-3
(1) People's Party . .
I-3
(2) Socialist Party . .
1-4
(3) Communist Party . .
1-5
4.
CURRENT ISSUES
1-5
a. Foreign . . . .
I-5
b. Domestic . . . .
1-6
(1) Currency Conversion
1-6
(2) Nationalization Law
1-6
(3) Denazification Law
1-6
(4) Collective Bargaining Law
I-6
(5) Displaced Persons
1-6
5.
STABILITY OF GOVERNMENT
1-7
1.
GENESIS OF THE PRESENT ECONOMIC SYSTEM
II-1
2.
THE SOVIET ECONOMIC POSITION IN AUSTRIA
11-2
3.
DESCRIPTION OF THE PRESENT ECONOMIC SYSTEM
11-3
a. Agriculture . . . .
11-3
b. Natural Resources , .
11-4
c. Industry . . . . .
11-6
d. Finance . . . . .
11-7
e. International Trade .
11-9
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4. PRESENT RELATIONS WITH THE WESTERN OCCUPATION POWERS (US,
UK, AND FRANCE) . . . . . . . . . . . 111-3
5. SIGNIFICANT RELATIONS WITH OTHER NATIONS 111-3
a. Soviet Satellites . . . . . . . . . . 111-3
b. Italy . . . . . . . . . . . 111-4
c. International Organizations 111-4
1. GENESIS OF MILITARY POLICY
2. STRENGTH OF FORCES OF OCCUPATION
a. USSR .
b. France .
c. Great Britain
SECTION V - STRATEGIC CONSIDERATIONS AFFECTING US SECURITY
SECTION VI -PROBABLE FUTURE DEVELOPMENTS AFFECTING US SECURITY
APPENDIX A-Topography and Climate
APPENDIX B - Communication Facilities
APPENDIX C-Population Characteristics
APPENDIX D - Chronology of Important Events
APPENDIX E-Biographical Data
Austria - Railroads
Austria - Zones of Occupation
Yugoslav Claims
 SUMMARY
The present political temper of the Austrian people is conditioned by the straitened
economic circumstances and the political experiences which they suffered from the
Treaty of St. Germain in 1919 to the Anschluss in 1938. Because of the economic im-
potency of the country, occasioned by the Treaty, Austria was compelled to rely on
foreign economic support and to alter its form of government from a democracy to
that of a semi-fascist state. Although re-established as an independent nation after
World War II, Austria still suffers from the war's political and economic aftermath-
aggravated by the East-West struggle which complicates the four-power occupation
of the country - and remains economically dependent on foreign powers.
Austria's relation to US security lies in: (a) its position, second only to Germany,
as a critical point of contact in Central Europe between the Western Allies and the
USSR; (b) its importance to US objectives throughout Western Europe; (c) its pivotal
position in the rail and water transportation network of Central Europe; and (d) its
strategic location along the northern border of Italy, flanking Czechoslovakia and
Germany and bordering on the Balkans. The nation's military capacity is microscopic;
its place in US economy negligible.
In November 1943, Austria - with nearly seven million highly literate and in-
dustrious people living in an area approximately the size of the state of Maine -was
declared a "liberated" country. Like Germany, however, Austria is subject to quadri-
partite occupation; Vienna, like Berlin, is divided into four zones of occupation. In
contrast to Germany, the Occupation Powers in Austria have officially recognized the
national Government, which has entered into diplomatic relations with a large num-
ber of states. The sovereignty of the Government is restricted, however, by the Allied
Commission for Austria, and is greatly limited by the conditions of four-power oc-
cupation, termination of which is the single immediate desire of the Austrian Govern-
ment and People.'
Soviet policy is designed to force Austria into the satellite orbit through economic
and political pressure. Owing to the extreme weakness of the Austrian Communist
Party, the USSR has sought to force changes in the composition and orientation of
the Austrian Government primarily through prolonged delay on the Austrian treaty
and, concurrently, through economic penetration. Soviet demands for "German assets"
alone involve a claim which is valued in excess of 700 million dollars. Soviet leaders
probably reason that Austria can be forced into the satellite economic orbit provided
they can secure a treaty which would permit the USSR to continue operating these
? Although Austrian enthusiasm for an early treaty has subsequently been reduced by the
recent Communist coup in Czechoslovakia, the Government still favors a treaty which will give
adequate assurances of Austrian political and economic independence.
NOTE: The information in this report is as of January 1948 except where otherwise stated.
The intelligence organizations of the Departments of State, Army, Navy, and the Air Force
have concurred in this report.
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properties outside the jurisdiction of Austrian laws. The USSR has also apparently
calculated that in the absence of a treaty, hunger, unrest, economic stagnation, and
general discouragement will tend to create a situation wherein an offer of food, free
Danube navigation, and trade opportunities could be exchanged for Austria's accession
to the Soviet orbit.
It is possible that certain long-term considerations may lead the USSR to make
some concessions in its economic demands on Austria.* The Kremlin has an obvious
interest in the withdrawal of the occupation forces of the Western Allies from Austria.
Soviet leaders may reason that with complete quadripartite troop withdrawal, they
would be able to exert increased pressure on the present Government through internal
economic controls and political subversion, supplemented perhaps by threats of border
aggression from Yugoslavia and Hungary. Soviet representatives have already blocked
proposals to permit the Austrian police to carry adequate arms.
While the USSR would be capable of communizing its zone of occupation by violence
or by a forced partition of the country, it has not embarked on such a program, nor
are such moves likely in the near future. From the Soviet point of view a putsch or
a forced partition would seem undesirable because it would: (a) forfeit western Austria
to the US, UK, and France, thereby delaying and perhaps damaging Soviet chances
of absorbing all of Austria; (b) as a further evidence of Soviet expansionism, unneces-
sarily antagonize the US; (c) prolong Western occupation in a strategically important
area of Europe; and (d) deprive Soviet-operated industries in eastern Austria of valu-
able sources of raw materials and semi-finished goods in the western zones of Austria.
The policies of the US, UK, and France are designed to support Austria politically
as an independent and democratic entity, and to complete as soon as possible a treaty
to implement this objective. The US and the UK have extended economic aid in pur-
suance of this policy. The French, despite a desire to adhere to Western policy, have
been unable to extend financial support to Austria; they have, on the contrary, ex-
ploited their zone of occupation for their own immediate purposes and have also laid
claim to German assets.
In the immediate future, Austria's political prospects depend upon its ability to
survive quadripartite occupation intact, and upon the conclusion of a treaty which
will permit it to resist absorption by the USSR. Austria's long-term political pros-
pects as an independent democratic state depend chiefly on the degree to which the
national economy is restored and stabilized and the extent to which Austria can be
successfully integrated into the economy of Western Europe. Both major political
parties, the People's Party and the Socialist Party, are pro-Western and are strongly
entrenched both in their long political tradition and in the social structure of the
nation. It is expected that these two parties will continue for several years to cooperate
in a coalition Government. The long-term stability of such a democratic coalition
will, however, be subject to serious strains arising from: (a) a basic divergence of aims
between the two parties aside from their own common opposition to the USSR; and (b)
? Current Soviet tactics at the London negotiations (April 1948) on the Austrian treaty have
followed this pattern, and suggest strongly that the USSR now favors conclusion of a treaty.
 the fact that traditional ideological differences may be unduly intensified owing to
O personality conflicts between opposing political cliques.
Austria's economic prospects are precarious. At present, Western subsidies are
maintaining the economy on a subsistence level and are bolstering it against complete
Soviet domination. The USSR, from an existing major foothold, seeks to draw the
remainder of the Austrian economy into the Soviet orbit. The critical short-term
situation heavily overshadows the longer-term possibility that, given both a re-establish-
ment of Austrian political and economic autonomy and a general European politico-
economic improvement, the country's expanded and more diversified economic potential
will be capable of a more sound and stable economy than that enjoyed during the
prewar period. As an optimum, the Austrian economy cannot be expected to stand on
its own feet in less than four years.
 SECTION I
POLITICAL SITUATION
1. GENESIS OF THE PRESENT POLITICAL SITUATION.
Three major forces are relevant to the contemporary Austrian political scene:
(a) separation from Germany; (b) economic collapse as a result of the war; and (c)
quadripartite occupation which has caught the nation in a struggle between the West-
ern democracies and the USSR.
As a background to this scene, and as part of an examination of the Austrian
capability for democratic self-government, it is desirable to consider briefly the fate
of the Federal Republic of Austria as established by the Treaty of St. Germain in 1919.
From 1273 until 1918, Austria had been the heart of the former possessions of the
House of Hapsburg. At their height, these had a total population of 52,000,000 and
dncluded such diverse national elements as Germans, Magyars, Czechs, Poles, Croats,
Serbs, Slovenes, Italians, and Rumanians. These peoples were held by adroit political
maneuvering in an imperial framework which, despite many difficulties, was on the
whole so successful as to justify the observation: "If Austria did not exist, it would be
necessary to invent it." The people who formed the core of this paternalistic regime,
possessed in 1919 little of the sense of political individualism that is an essential of
democracies.
The Austrian Republic was born unwillingly in a period of great economic hardship
and social unrest. The reluctance was not merely ideological; the majority of Austrians
believed that a nation of seven million could not exist as an economic entity in the
middle of Europe. They therefore preferred union with Germany as the most natural
and traditional, and perhaps the most realistic, solution for their problem. At any
rate, the Austrian sentiment for Anschluss was strong from the beginning. In 1934,
the Republic in its constitutional form fell victim to a variety of internal and external
pressures and was succeeded by a dictatorship.
The chief immediate factors responsible for the eventual collapse of democracy in
Austria were the following: (a) Austria's desperate economic position led the Govern-
ment to pursue unpopular deflationary policies in order to gain necessary foreign sup-
port. The control exercised by foreign powers over Austrian economic and foreign
policy in turn served to bring the whole system of parliamentary democracy into dis-
repute. (b) The authority and prestige of the Government was further compromised
by lack of Austrian national consciousness. This was evidenced by Anschluss sentiment
as well as by strong provincial loyalties - the latter being accentuated by the antag-
onism between the Austrian Socialist movement centered in Vienna, and the clerical
and conservative forces, centered mainly in the rural provinces. (c) The two major
parties, the leftist Social Democrats and the rightist Christian Socialists, were unable
to compromise their opposing interests and ideologies. Behind both parties stood
rival para-military organizations: the Socialist Republikanische Schutzbund and the
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rightist Hcimwehr. The dominant wings in both parties were controlled by powerful
extremists who tended to regard parliamentary democracy as a temporary form of
government. (d) As the dominant Christian Socialists came to rely internally on
rightist and pro-German factions for political support, the Republic became increas-
ingly dependent on Fascist Italy, and subsequently on Nazi Germany.
A final step in the destruction of the Republic occurred in March 1933, when the
Christian Socialist Government, defeated by the opposition of Socialists and Pan-
Germans, refused to recognize the validity of the voting and declared Parliament in
abeyance. A year later a "Rump" session of the Lower House approved a long list of
emergency decrees, including a new fascist-type constitution which created the "Chris-
tian-German Federal State of Austria on corporative lines." This "corporative" con-
stitutional phase from 1934-1938 was characterized by: (a) the suppression of the
Socialist and Communist Parties and of civil liberties generally; (b) the substitution
of four different bodies representing social, economic, and cultural groups for a demo-
cratic parliament; (c) a weakening of Vienna's political position; and (d) a constitu-
tional strengthening of the position of the Catholic Church.
Having forcibly suppressed the Socialists, the Schuschnigg regime was unable
to withstand German pressure after Italian support had been withdrawn, and in
March 1938 the nation was absorbed by Germany. In April 1939, Austria disappeared
as a political entity when, by authority of a German law, the country was split up into
seven different districts (Reichsgaue) under their own governors and administrators.
Austria, therefore, participated in the subsequent German war effort as an integral
part of the German Reich.
2. PRESENT GOVERNMENTAL STRUCTURE.
The present Austrian Government operates within the framework of a constitu-
tional system. The Constitution is essentially that of 1920 as amended in 1929.' It
sets up a republican state, based on a federal structure similar to that of the US, and it
provides for democratic institutions and practices - including free elections, govern-
ment responsibility toward the electorate, judicial independence, a bill of rights, etc.-
such as are characteristic of the traditional concept of parliamentary, liberal democ-
racy. The constitution provides for a federal President, a national government headed
by a federal chancellor, a national parliament consisting of two houses, a provincial
governor and parliament for each of the nine federal states, and subsidiary districts
and local governmental agencies.
The present national Government was formed after the elections on 25 November
1945. It is subject to the authority of the Allied Commission (AC), as stated in the
Control Agreement of 28 June 1946. This Agreement theoretically improved the po-
? The main effects of the reforms of 1929 consisted in strengthening the power of the President
at the expense of the Lower House and coincidentally, at the expense of the party bosses. The
President, rather than the Lower House, was empowered to appoint the Government, although the
confidence of the Lower House was still necessary. Even more important, the President could dis-
solve the Lower House with the assent of the Government, although he could only do this once
for the same reason and fresh elections had to be held within ninety days.
 sition of the Austrian Government by stipulating that only constitutional laws would
henceforth require unanimous approval of the four powers; all other legislation would
automatically go into effect if the AC failed to act upon it unanimously within thirty-
one days after it was submitted. In practice, however, the effect of this relaxation of
Allied controls was vitiated by other provisions which left a number of important
matters subject to the jurisdiction of each zonal commander. Thus, in case any one
power disagreed with the decisions taken on the national level, it could in certain cases
countermand them in its own zone of occupation. The USSR took widest advantage
of this possibility for unilateral action in its zone of Austria with regard to such matters
as the distribution of food supplies and petroleum products, the seizure of German assets,
and the nonrecognition of Austria's nationalization of certain industries.
The present Government is a coalition of the People's Party and the Socialist Party,
with the Communists in opposition. On most major issues the Communists have
voted against the Government; they have also conducted an intensive campaign
attacking the Socialist-People's Party coalition and calling for new elections even before
the end of the occupation.
3. POLITICAL PARTIES.
In the national elections of November 1945, the conservative People's Party (suc-
cessor to the Christian Socialists) received 49.8 percent, the Socialist Party (formerly
the Social Democrats) 44.6 percent, and the Communist Party 5.4 percent of the total
vote. Thus the People's Party obtained an absolute majority of 85 deputies; the So-
cialists elected 76 deputies; and the Communists four (the first time the latter had
ever elected representatives to Parliament).
The existence of two parties to the left of center (the Communists and Socialists),
as against one to the right (the People's Party), was a novel development. During the
parliamentary period (1918-1933), the two left-wing groups were opposed by at least
three parties composing a right-wing bloc. The emergence of a one-party bloc on the
right in 1945 came about because the former Pan-German and Nazi parties could
obviously not be revived. Thus the People's Party, successor of the Christian Social
Party, also became the successor of these formerly independent right-wing agrarian,
Pan-German, Heimwehr, and Nazi Party groups, as well as numerous resistance groups.
The excesses committed by the Soviet Army were largely responsible for the victory
of the People's Party, the anti-"Red" character of which was widely appreciated. A
vote for the People's Party was therefore an open and convenient expression of antago-
nism to the USSR. The Socialist Party, as a proponent of Marxist theory, correspond-
ingly suffered a loss of votes, despite its traditional anti-Communist position. It did,
however, succeed in generally holding the worker vote against strong Communist
election propaganda.
Details concerning the three political parties represented in the government follow:
(1) People's Party.
Support. The People's Party represents primarily middle-class, industrial,
and peasant interests, is closely affiliated with the Catholic Church, and looks to the
 US for support. It has become the reservoir of all right-of-center political forces, a
number of which had been organized in separate party groups before the Anschluss.
As a consequence, the party includes heterogeneous class and sectional interests, some
of which constantly threaten its unity.
Platform. It aims primarily at the maintenance of a capitalist democracy
modified roughly along the lines of the social and political program of the Catholic
Church.
History. It was founded as the Christian Social Party in the 1890's, and
represented originally the lower middle classes, and subsequently the peasants, the
aristocracy, and business and industrial interests. Between 1920 and 1934, the Chris-
tian Socialists were the chief party in Austria. Lacking a majority in Parliament,
they succeeded generally in maintaining their control of the government by coalitions
with other conservative parties, notably with the Pan-Germans. Throughout this
period, the Christian Socialist position regarding the Constitution, Hapsburg resto-
ration, and the Anschluss remained ill-defined. Under Dollfuss, the Christian Socialists
were directly responsible for the overthrow of the liberal constitution of 1920 and the
imposition of an absolutist regime in 1934. The fact that the Christian Socialist
leaders who participated in the dictatorship of 1934-1938 were generally subjected to
German oppression along with prominent Socialists and Communists made possible
the re-emergence of the party in 1945 under a new name, the People's Party.
Since then, as the only non-Marxist party in Austria, it has been widely supported
and, in the elections of November 1945, it lost only two provinces to the Socialists
(Vienna and Carinthia) and won an absolute majority in the provincial parliaments
of five provinces (Upper Austria, Lower Austria, the Burgenland, Styria, and Salzburg),
as well as a two-thirds majority in two provinces (Tyrol and Vorarlberg).
(2) Socialist Party.
Support. The Socialist Party represents chiefly the interests of the working
and lower middle classes. The party is highly disciplined and, despite some Com-
munist inroads, it has the overwhelming support of the trade unions. The greatest
source of Socialist strength remains in Vienna, although the party has considerable
support in the provinces, notably in Carinthia, where it presently enjoys a majority
in the provincial parliament.
Platform. It aims chiefly at the establishment of a socialist democracy, in
general corresponding to the program of the British Labor Party. At the same time,
it is a firm supporter of the US. Its leaders advocate greater national centralization
of power at the expense of the provinces. Its record, despite its Mandan dogma, has
been one of unqualified and consistent opposition to Communism and the USSR. This
has increased Socialist prestige and strength since the November 1945 elections at the
expense of the People's Party, elements of which at one time favored making certain
tactical concessions to the USSR in the hope that such concessions would make
possible an Austrian treaty and the subsequent ending of quadripartite occupation.
History. The Socialist movement in Austria has long been among the most
important in Europe. It is traditionally internationalist and is characterized by the
 extremely broad variety of cultural and cooperative economic activities which it has
sponsored. Austrian Socialism, particularly from 1918-1934, was characterized by theo-
retical extremism coupled with practical moderation. By theoretical extremism it
was able to retain within the party left-wing elements which would otherwise have
drifted into the Communist camp. Although its Marxist dogma also inspired the active
enmity of powerful clerical, conservative, and peasant groups, by practical modera-
tion it was able to extend at least a degree of party influence over some of the peasants
as well as over the lower middle classes.
The ability of the Socialist movement to survive suppression under Dollfuss
in 1934, and subsequently under Hitler in 1938, resulted from the fact that it was the
political expression of a resilient, indigenous social movement.
The party's internal political policy is based on achieving its objectives by
democratic, evolutionary means. At present this takes the form of active participation
in the coalition government. Under strong conservative leadership, the Socialists have
gained considerably in prestige, and are now believed to have sufficient support to win
a new national election, but not to gain a working majority in the lower house.
At present the party lacks young leaders, as well as representation in the
administrative bureaucracy. The Socialists are trying to remedy these shortcomings,
and, given sufficient time, will probably do so.
(3) Communist Party.
Support. The Communist Party represents chiefly the radical working-class
elements, which are concentrated in cities.
Platform. Its internal policy aims at a radical, Soviet-type Socialism; its
foreign policy, at an Eastern orientation designed to bring Austria into the Soviet orbit.
History. The strong Socialist hold over the working classes has prevented
the Communists from exploiting the political, social, and economic situation after
the first and second World Wars. An attempted putsch in 1919 was suppressed by
the police. During the constitutional period from 1920-1934, the Communists were
unable, despite large-scale unemployment and economic hardships, to gain a seat in
Parliament or even in the Municipal Council of Vienna. The Communist record of
resistance during the absolutist period from 1934-1938 made possible their modest
successes in the election of November 1945, where they secured approximately five
percent of the popular vote. The Communists were represented in the Government
until November 1947, when they withdrew, using the currency conversion law as a
pretext. The fact that the public generally regards Communism as the tool of the
USSR continues to attach a fatal stigma to the movement.
a. Foreign.
Soviet hostility to the present Government and Soviet economic pressure con-
tinue to be Austria's greatest concern. These factors are responsible for the Allied
deadlock in the Austrian treaty discussions (see Section III).
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b. Domestic.
(1) Currency Conversion.
By a law of 30 November 1945, the Austrian currency was converted from
reichsmarks to schillings on a one-to-one basis. A currency revision measure passed
by Parliament in November 1947 is designed to reduce inflationary pressure on the
national economy. In order to obtain Soviet approval of the new law, the Govern-
ment was forced to make concessions which amounted to giving the USSR control of
20 to 25 percent of the new currency in circulation. Knowledge of the proposed re-
form produced a lack of confidence in the present currency, and consequently, a tem-
porary business paralysis.
(2) Nationalization Law.
By a law of 26 July 1946, some 70 major enterprises in the key industries
of Austria were transferred to public ownership of the state or to joint ownership of
"works cooperatives" and the state. This law, which is undoubtedly the most im-
portant piece of legislation adopted by the Government, has not yet been implemented,
owing to Soviet refusal to recognize its validity in the eastern zone. Soviet authorities
claim that it violates Soviet rights to German property under the Potsdam Agreement
and have declared that they would not recognize the nationalization law in their zone.
Consequently, the Austrian Government has postponed implementation of the law
pending final Allied agreement on the rights of foreign property.
(3) Denazification Law.
The final Denazification Law was passed by Parliament on 6 February
1947. It is estimated that it will directly affect approximately 500,000 Austrians who
were registered Nazis. Some 50,000 of this number are expected to fall into the
category of major offenders; the rest will be classified as less implicated and minor
offenders, and will be cleared after a nominal fine. This final version of the Denazi-
fication Law was virtually forced upon the Government by the Allied Commission,
which considered previous Austrian legislation on the subject as too mild.
(4) Collective Bargaining Law.
On 26 February 1947, Parliament adopted a new collective bargaining
law. An extension of similar legislation during the First Republic, it provides for in-
dustry-wide collective bargaining and gives a virtual monopoly position to the Chamber
of Commerce and the Trade Union Federation as the representatives of management
and labor respectively in the bargaining process. A new Works' Councils Law, pro-
viding for increased labor participation in industrial enterprises, was passed in March
1947.
(5) Displaced Persons.
There are approximately 600,000 persons in Austria who are not Austrian
nationals. Roughly two-thirds of this group are racial Germans. Some of these fled
into Austria from the Balkans and the East in advance of the Soviet Army; others
were expelled later from the country of their origin. The group includes also about
51,000 South Tyrolians. The racial Germans can be assimilated into the Austrian
body politic. On the other hand, the remainder are bona fide refugees and displaced
 persons, including Jews, who for political or economic reasons cannot return to their
homes, and are generally not assimilable. The Austrians regard these people as a
political, economic, and social liability, and therefore want to get rid of them. More-
over, the continued presence of this group will seriously complicate Austria's relations
with the Soviet Satellites. The USSR and its satellites generally regard this group
(minus the Jews) as a "security threat" and desire forced repatriation.
Both major parties, representing approximately 95 percent of the electorate, want
to resist absorption into the satellite orbit. Their ties to the West are based on eco-
nomic considerations as well as on ideological, cultural, and historical grounds. Though
most Austrians appreciate the need for trade ties with Eastern Europe as well as with
Western Europe, they realize that they must depend primarily on the West for assist-
ance in long-term economic rehabilitation as well as for current relief supplies. Aus-
trians, therefore, approve the Government's participation in the European recovery
program (ERP), and would oppose economic ties with the East which involved political
concessions.
The USSR is interested in exploiting its economic controls over eastern Austria
and its position as an occupying power in order to add Austria to its group of dependent
states. Though the USSR is capable of forcing a partition, such a move is unlikely
in the near future. Through its economic controls, the USSR: (a) deprives the
Austrian economy of many of the industrial goods and most of the petroleum pro-
duced in its zone of occupation; (b) consumes indigenous food products; (c) exerts
a powerful influence over the economy of the three western zones; and (d) complicates
the collection and distribution of products, particularly of foodstuffs. By this process,
the USSR is able to bring constant pressure on the Austrian Government.
Assuming that Austria survives quadripartite occupation intact, and that the
USSR is not permitted to force the nation into the Soviet sphere, Government stability
will be contingent on a continued major party collaboration, which seems probable
for at least several years to come. Neither the People's Party nor the Socialist Party
can hope to gain a practical working majority in any elections which might be held
during that period; furthermore, neither party will wish to assume sole responsibility
for the conduct of national affairs.
In the past, both major parties have opposed new elections under the existing
conditions of four-power occupation. There are indications, however, that the So-
cialists may force new elections by fall 1948 in the hope that they might then gain
majority control of the Government. In making their decision, Socialist leaders will
doubtless consider the danger that: (a) the USSR might actively intervene in influ-
encing the voting in its zone of occupation; and (b) following such elections, the USSR
would probably demand the right to block any new cabinet which failed to meet Soviet
specifications, thus indefinitely delaying the formation of a new Government and
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possibly resulting in a cabinet less representative of Socialist interests than is the
present one.*
Confronted by Soviet pressure as well as by economic hardship, the two major
parties have little alternative to a continued cooperation in a coalition government
during the next few years. Long-term cooperation between these parties, however,
will be more difficult when it is no longer enforced by a common fear. Leaders of both
parties profess the need for mutual understanding, and it seems evident that, in this
respect at least, they have profited by their common suppression during the period
from 1938-1945. The Austrian political party structure remains, however, subject
to certain basic weaknesses arising from: (a) basic divergences of aims between the
two parties aside from their common opposition to the USSR; (b) traditional ideological
differences susceptible to exaggeration through personality conflicts between opposing
political cliques; (c) the uncertainties of a precarious political and economic existence;
and (d) an undue intrusion of foreign issues in internal affairs as a consequence of
dependence on foreign powers.
The conservative People's Party, now a reservoir of most non-Marxist elements,
will probably in the long run lose some of its following. This loss would introduce one
or possibly more new parties into the political arena to compete with the People's
Party for the vote of the Center or Right. The immediate advantage of this political
shift would accrue to the Socialist Party, leading ultimately to a condition of govern-
mental instability. In this situation the two major parties would compete for the
support of minority groups in an effort to achieve a working majority of votes in the
Lower House. In such competition, the conservative People's Party would probably
succeed, as it did generally from 1919-1934, in gaining minority party support, par-
ticularly that of regional, rightist, or nationalistic elements.
AnschZuss sentiment, together with pro-Germanism, which was a source of major
difficulty from 1918-1938, is no longer a political factor in Austria. It is, however,
possible that with German revival right-wing Pan-German sentiments may develop,
though probably not to the extent of the pre-Anschluss period, even under optimum
conditions such as economic distress in Austria and prosperity in Germany.
* The two major parties have recently reached an agreement to postpone new elections until
November 1949, when the regular term of the present parliament expires.
 Austria today has a highly unbalanced economy in which are mingled the cumu-
lative effects of the 1918 dissolution of the old Austro-Hungarian Empire, the Anschluss
with Nazi Germany, and the present effort of the USSR to engulf Austria in the spread-
ing circumference of Soviet economic authority.
Under the old Empire, Austria had prospered as a hub of the transport, the com-
merce, and the finance of Central Europe. Following World War I and the dissolution
of the Empire, this situation was suddenly reversed and grimly simplified in terms of
a small nation of few developed natural resources, driven to export approximately one-
fourth of the country's total production in order to pay for its vital imports. Though
this hardship was mitigated somewhat by a gradual increase in domestic food produc-
tion and by the influx of relief funds from abroad, the Austrian economy remained
chaotic until it was relieved by the League of Nations reconstruction program of 1922.
By the 1930's, Austria had become 75 percent self-sufficient in the production of food
and had achieved a reorganization of its domestic industry as well as necessary re-
orientation of its foreign trade. However, Austria's level of industrial development
remained relatively low, and its economy suffered greatly during the world depression
of the 1930's.
The Anschluss with Germany in 1938 and the subsequent war (though of ultimately
disastrous implications) brought temporary economic relief. To obtain Austrian pro-
duction, the Axis provided raw materials and food; existing industrial capacity was
increased by large new enterprises. Austrian oil fields and hydroelectric power were
vigorously developed and exploited by the Germans. Germany assumed control of
banking, transport, and other major phases of the economy. Though agriculture re-
trogressed as the war proceeded, in general the Austrian economy was at a high level
so long as the level of the Axis war economy was maintained.
The end of World War II left the Austrian economy prostrate. Again, as in 1918,
the nation was suddenly cut off from a larger economic sphere into which it had been
closely integrated. Industry, oriented toward German rather than domestic or peace-
time trade demand, was virtually at a standstill. Agricultural production was almost
paralyzed. Allied zonal partition compartmentalized the country. The forests are
today in the US and UK zones, the iron deposits in the British, and the hydroelectric
capacity in the French. The Soviet Zone includes important manufacturing capacity
(though not the pig iron and crude steel production), all oil, and much of the food
potential. Although the crippling effect of zonal partition has diminished, within the
Soviet Zone the USSR has assumed monopolistic positions in key industries which it
has seized as German assets, and has heavily handicapped potential recovery of the
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economy by appropriation of industrial production, removal of industrial facilities,
and intrusion of obstructionist policies.
Austria has developed some international trade by means of bilateral agreements
with both Western and Eastern European countries. In 1947, however, Austria re-
quired in excess of $200 million of outside assistance to maintain the economy at its
reduced level.
Even with outside aid and considerable resolution of the difficulties which beset
it because of the occupation, Austria can expect no great improvement in its basic
economy for some time to come. It will require years to achieve the former 75 percent
self-sufficiency in food. Raw materials must be imported for industry. Replacement
parts, machinery, and tools are required to rehabilitate Austrian industry. The ques-
tion of German external assets in Austria must be solved. All these factors are in
turn dependent on the extent to which Austria (a) is successfully incorporated into
the economy of Western Europe, or (b) is forced into subordination to the USSR, or
(c) is able independently to integrate its economy with Europe as a whole.
The USSR could probably subjugate the economy of the entire country within
six months after quadripartite troops leave unless treaty guarantees reduce present
Soviet controls over the Austrian economy. Soviet aims in this regard are revealed
by the over-all development of Soviet economic policy in Austria.
After an initial period of mass looting and industrial dismantling which began
in the spring of 1945, Moscow apparently became convinced that such a program was
of only limited advantage and self-defeating in result. By that time, however, the
Zistersdorf oil fields had been stripped of much capacity, while capacities in the electro-
technical, machine-building, and many metallurgical industries had been reduced to
1937 levels or lower. Aircraft, armament, automobile, and locomotive construction
firms had received similar treatment; one of Austria's two sulphuric acid plants had
been dismantled. In a short time eastern Austria would have been almost completely
deprived of many of its industries. Soviet leaders found, moreover, that the bulk of
the equipment seized had been wrecked during its removal and transport into the
USSR.
A positive program was therefore undertaken to establish a long-term Soviet con-
trol over Austrian economy and to force the country into the satellite system through
economic pressure. A Soviet order of June 1946 declared that, on the basis of the
Potsdam Agreement, ownership of German property and assets in eastern Austria
were henceforth vested in the Soviet Union. The USSR further decreed that the burden
of establishing proof of ownership lay with the Austrian Government, thereby placing
under Soviet control many firms whose legality as German assets is exceedingly ques-
tionable. Original seizures in June 1946, plus those of the past year, have placed almost
300 firms under Soviet control, and have given the USSR a monopolistic position in
oil, heavy electrotechnical equipment, Danube shipping, heavy cables, dyestuffs, and
other key industries.
 These industries are operated by the Administration of Soviet Assets in Austria
(USIA), the Soviet Oil Administration (SMV), and the Soviet Danube Shipping Com-
pany (SDGP). British and US policy allows the Austrians to administer German-
owned firms as part of the Austrian economy. Soviet-controlled firms, however, operate
outside the Austrian economy as though they were in Soviet, not Austrian, territory.
Although in some respects these firms comply with Austrian laws, they enjoy de facto
immunity from all Austrian governmental controls; they are independent of wage, price
distribution, export-import, and tax regulations, and they are not affected by govern-
mental decisions on distribution of power or fuel.
After the Soviet Union had achieved a firm economic foothold by these means in
the eastern zone, it began systematically to integrate Soviet-claimed assets into the
over-all Austrian economy. Through its monopolies the Soviet Administration forced
delivery of raw materials and finished products from the western zones. On the other
hand, by supplying western zone firms with materials and orders, USIA is able to in-
fluence parts of the Austrian industrial economy outside of its immediate possession.
Concurrently with this penetration of the western zones, the Soviet Union has ob-
structed trade with Western Europe. On the other hand, extensive USIA transactions
with Czechoslovakia and Yugoslavia have bartered Austrian-finished products which
were critically needed at home against raw materials from the satellite states.
Should the Soviet policy be continued, Austria will cease to have an independent
economy. Present Soviet claims are estimated at $700 million. USIA makes sub-
stantial profits, largely through black market operations; these excess profits are used
to strengthen the monopolistic power of USIA and to purchase raw and finished ma-
terials which are shipped to the USSR with no compensation to Austrian economy.
If Austria is to survive as a free and independent country, most of these controls must
be broken.
3. DESCRIPTION OF THE PRESENT ECONOMIC SYSTEM.
a. Agriculture.
Austria's food situation is critical, and its agricultural recovery lags behind
all other European countries. During prewar years the nation never succeeded in
producing more than 75% of its food requirements; World War II seriously disrupted
Austrian agriculture, and with the collapse in 1945, the country became almost com-
pletely dependent on foreign aid. Indigenous production has risen but is still far
below the prewar level; the US is supplying approximately 607o of the Austrian basic
ration.
During the period 1933-37, imports of food, feedstuffs, and agricultural raw ma-
terials accounted for about 3670 of the country's total imports in terms of value. The
greatest deficiency was in fats and oils of which 4570 were imported, while 307 of the
cereal grains and 187c of the meat consumed were imported. The active agricultural
population totalled 1,670,000, or one-third of the working population. Farms of 50
acres or less predominated, and cattle and dairy farming formed the foundation of the
agricultural economy. Cereal grain cultivation steadily increased in this period; the
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principal crops were rye, oats, and wheat. Potatoes and sugar beets also were grown
extensively.
Whereas in prewar years Austrians enjoyed the relatively high consumption of
2900 calories per person per day, postwar food shortages kept the rationed caloric
schedule at no higher than 1550 per day for the normal consumer until November 1947.
Production of rationed foods in 1946 reached approximately 5070 of this reduced de-
mand and amounted to only one-half of prewar production. The greatest shortage
continues to be in bread grains and fats. The indigenous production for 1947 was still
approximately 507o of 1937 production.
The 1,550 caloric schedule, the lowest in Europe with the exception of Germany,
has caused continuing political agitation. To quiet this unrest, in November 1947, the
Austrian Government announced a ration increase to 1,700 calories but the success of
this plan is dependent upon indigenous production and collection rather than on in-
creased imports.
Austria's agricultural production faces serious difficulties. There are shortages
of fertilizer, agricultural machinery, equipment and spare parts, seeds, pesticides, and
farm implements. The wartime decline in arable land has not been overcome. The
Austrian Government has been given authority over collection and distribution of
indigenous production in all zones, but its controls have not as yet been completely
effective. This is due in part to Soviet actions in the eastern zone-the richest agri-
cultural land in Austria, normally producing 6070 of all agricultural commodities.
Sporadic Soviet prohibitions and retardations of food movements out of this zone pre-
vent the success of governmental plans for equitable distribution throughout the whole
of Austria. No deliveries have been made to the Austrian economy from the 200 estates
confiscated by the Soviet authorities. Finally, the system of collection and distribution
has been weakened by the unwillingness of farmers to sell at the official price levels
and for currency which cannot at present purchase vitally needed goods and materials.
The Government has adopted strict measures to provide for the collection from pro-
ducers, but has not fully implemented them.
b. Natural Resources.
Oil, timber, hydroelectric power potential, iron ore, and magnesite are major
Austrian natural resources. Attractions for tourist trade and Austria's geographical
advantages as a transport center are also of economic importance.
Oil, within the past ten years, has become one of Austria's principal economic
and strategic resources. Lying within the Soviet Zone, all the producing fields and
refineries are located in the Vienna basin, 25 to 35 miles northeast of the capital.
There are five fields of sufficient importance to be referred to individually: St. Ulrich-
Prinzendorf, Gaiselberg, Kreuzfeld, Zistersdorf, and Neusiedl. Although oil was first
discovered in commercial quantities at Zistersdorf, production in this area is now
declining and the St. Ulrich-Prinzendorf and Kreuzfeld fields have taken first place.
Total reserves of the Vienna basin are estimated at somewhat over 10 million tons.
Total refining capacity, also located in the Vienna area, is approximately 925,000 metric
tons per year.
 The estimated monthly production of 70,000 metric tons of crude oil under Soviet
management is considered an excessive extraction rate that will impair the long-term
productivity of the fields. (The wells have an estimated life of only 15-20 years.)
Only about 407o of the minimum monthly requirements of the Austrian economy is
furnished the Austrian Government for distribution. The bulk is exported mainly to
the satellite countries; a small proportion is sold to Switzerland.
Forests cover 37% of Austria. In the prewar period they supplied substantial
direct exports as well as raw materials for the important domestic pulp and related
industries. Most of the timber is in non-Soviet zones.
Austria's installed hydroelectric capacity in 1945 was 1,250,000 kw., accounting
for a little less than 90% of the total electric power generated. An additional capacity
of 1,370,000 kw. is under construction as part of a government program which aims to
offset the nation's coal deficiency. Actually, the country's water power resources would
easily support 10 billion kwh. a year, much of which could be readily used domestically
while the balance could be exported. Such a development would require large outlays
of capital which are not currently available, but is planned under the European
recovery program.
Iron ore deposits (mainly in Styria in the British Zone) are of good quality.
Prewar production was adequate for domestic iron-steel requirements as well as for
some direct export.
Before the war, Austria was the world's second largest producer of magnesite,
a raw material for refractory brick and other ceramics. Production has been relatively
low since the end of hostilities; output in 1946 was 95,388 tons as compared with an
estimated 480,564 tons in 1944. Deposits are principally in non-Soviet zones. Other
industrial minerals of consequence are salt, talc, graphite, and gypsum.
Prior to World War II, Austria produced only about 5%v of its hard coal require-
ments for the steel industry and industrial fuel purposes. Hard coal reserves are esti-
mated at no more than 30 million tons. The Soviet-controlled Gruenbach mine in
Lower Austria is practically the only large anthracite mine in Austria; its current pro-
duction amounts to approximately 13,000 tons per month, but only about 10% of this
output is available to Austria. Large imports of hard coal are therefore necessary;
the bulk of imports come from the Ruhr, with Polish sources second. Brown coal
(mainly in US and British Zones) is produced in substantial quantity but it is a poor
substitute for hard coal. Brown coal can be used for certain purposes, but not for cok-
ing or for railroad operations. Brown coal reserves are estimated at some 600 million
tons.
.A lucrative tourist trade accounted for more than 10% of Austria's total foreign
exchange receipts in the 1937 balance of payments. The tourist program is being
revived despite the present disturbed conditions in Europe. The reduced scale of the
present operation is indicated by the fact that it yielded less than $100,000 in 1947 as
against $37 million in 1937.
Austria's geographical position makes it a major transit area. Formerly an
estimated $15 million of annual revenue was derived from rail and water transit of
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goods and passenger traffic. At present, interzonal traffic on the Danube has virtually
ceased as a result of Soviet refusal to allow free navigation of the Danube, and the
USSR's claim to the assets of the Austrian Danube Shipping Company.
c. Industry.
Current industrial production is roughly 60% of the prewar level. The produc-
tion available domestically is reduced by the output siphoned off by the USSR.
Programs for rehabilitation and conversion of many industries are still incom-
plete. Much of Austria's industrial capacity is in fabricating and finishing processes
and production of luxury goods, industries which are geared to relatively high economic
levels both abroad and, to a lesser extent, at home. The nation is heavily dependent on
foreign raw materials as well as markets; it has the iron ore for the steel industry but
no coking coal, and the important textile industry depends on imported raw material.
Since the end of the war these basic factors have been critically accentuated by the
general dislocation of the European economy, occupation policies and industrial sei-
zures, fuel and power shortages, and lack of skilled labor.
Iron ore and the bulk of pig iron and crude steel capacity are intact in the US
and UK Zones, and the related finishing capacity is concentrated in the Soviet Zone.
Barter trade provides the raw materials to support textile production at only around
45% of single-shift capacity. Even in the important industry of timber-derived prod-
ucts, which Austria's forests adequately supply and in which finished-product capacity
also is largely in non-Soviet Zones, output is being handicapped by a variety of deter-
rents; these factors similarly affect the capacity in building materials, leather, chemi-
cals, and specialty products.
The present industrial capacity, which is far from being utilized, reflects in
many ways German efforts, beginning with the 1938 Anschluss, to develop Austria as a
war industry hinterland. Existing facilities were expanded; mass production methods
were widely introduced; new plants and entirely new industries were established.
Capacity of pig iron was quadrupled, ingot and finished steel doubled. Extensive anti-
friction-bearing and motor production was developed. New industry included aircraft,
a fixation plant capable of providing more nitrogen fertilizer than Austria ever used
before, an aluminum plant which is rated as the continent's largest but is dependent on
foreign raw materials, and the German-built synthetic fiber plant which Austria's lack
of natural fibers makes important.
The non-Soviet zones include, in addition to pig iron and crude steel capacity,
all of the hydroelectric power, the new antifriction-bearing factory which is important
as the largest in Central Europe outside Germany, and the nitrogen, synthetic fiber, and
aluminum plants. On the other hand, the Soviet zone around Vienna contains the
railroad equipment, heavy and light electrical equipment, machine tool, automotive
and related industries-all of these expanded and increased in efficiency by the Ger-
mans. More than thirty-two chemical concerns in this area also are under Soviet
control. This compartmentalization is an all-around loss which reduces Soviet exploi-
tation but which is decidedly detrimental to the Austrian national economy.
 The actual potential of Austrian industry cannot be gauged by pre-Anschluss
characteristics and currently cannot be assessed with accuracy. On the one hand, the
new industrial capabilities will require development abroad of new supplies of raw
materials and of markets; on the other hand, Austria can produce important new
industrial wares for home consumption and for sale abroad in exchange for the needed
raw materials. Obviously, the situation remains in the realm of theory until, as has
already been indicated, the future relationship of the USSR to Austrian economy has
been established.
d. Finance.
At the time when the Allies entered Austria, rigid German controls had kept
official prices and wages at about 1938 levels, although the total monetary circulation
had risen over seven-fold by the end of German occupation. The pressure of surplus
money found its outlet on the free and black markets. Despite the currency conversion
of December 1945 (which included conversion of reichsmarks into Austrian national
schillings) and attendant blocking measures on deposits, the volume of notes and other
means of payment remained high because of the heavy burden of occupation costs.
As the note circulation continued to rise, and because the Austrian wage and price level
was considerably below the world level, the Government decided to allow prices and
wages to rise piecemeal, with prices kept always a little in advance of wages in order not
to discourage business activity. In general, official prices in the summer of 1947 were
double the prewar level, while wages had not kept up with the advance; the real cost of
living was more than double because most Austrians were forced to supplement official
rations by black market purchases at prices ten to fifty times higher than the official
rates. Moreover, in view of the differential between official and black market prices,
producers were reluctant to sell at authorized rates, and industrial goods were chan-
neled into the black market.
The gradual increase in price and wage levels-accompanied by continuous
low levels of production-prompted the Government to prepare a second currency con-
version. Political agitation, however, forced the Government to defer conversion while
permitting in August 1947 general price and wage increases to approximately 350% of
prewar levels, with the proviso that wage and price regulations be strictly enforced.
This readjustment in the price-wage structure did not solve the problem of excessive
purchasing power, and confidence in the currency was shaken by the rumors of
conversion.
A second currency conversion was promulgated in December 1947. In general
terms, the reform provided for conversion at the rate of one new Austrian schilling for
three of the old, except that individual holdings up to 150 schillings were exchanged on
a one-to-one basis. Of the bank deposits dating from before the first currency reform,
60% were wiped out and the remaining 40% converted into 2% Government bonds; bank
deposits made since that date and not later than 12 November 1947 remained unim-
paired but will be drawn on gradually at the new rate of conversion. Allied bank
deposits were exempted from the reform measure, but the Soviet element, with large
schilling holdings not on deposit in Austrian banks, extracted favorable monetary
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concessions from the Austrian Government in exchange for approval of the law. The
Soviet element received a larger conversion of their holdings and the settlement of a
so-called loan involving six hundred million reichsmarks which had been advanced to
the Austrian Government in 1945, a short time after the Soviets had themselves con-
fiscated it from Austrian banks. It is estimated that such concessions will give the
USSR control of from about one-fifth to one-fourth of the total new currency circula-
tion of about three billion schillings.
The Austrian budget consists of two parts-an ordinary budget for normal
national expenditures, and an extraordinary budget covering reconstruction and occu-
pation costs. The Government has kept the budget in a strong position and no infla-
tionary tendencies have been apparent. Although a deficit appeared in 1946 and 1947,
the unbalance was largely the result of occupation costs. The ordinary budget for
1948 anticipates total expenditures of 5,091 million schillings ($509.1 million) with
total receipts of 5,092 million schillings ($509.2 million). An additional expenditure
of approximately 600 million schillings ($60 million) is planned for reconstruction.
Comparison of the current ordinary and extraordinary budgets with the 1947 budgets
shows an increase of approximately 2,500 million schillings ($250 million). Although
a deficit appears even before occupation costs, the Government hopes to reduce this by
extra revenues, savings on expenditures, and payments from cash on hand.
The major expenditures on the ordinary budget are for pensions, grants to
provinces, normal reconstruction, and education. Austria has not been required to
meet payments for national defense or for the external debt (calculated in 1937 at $210
million). The largest single receipts are derived from tobacco taxes, which pay approx-
imately one-third of Austria's public revenues. Tax levels are high, and taxes are col-
lected satisfactorily except, of course, in the case of Soviet-seized firms.
The extraordinary budget has been met by foreign aid in the case of reconstruc-
tion, but it has been necessary to increase note circulation in order to cover occupation
costs. However, occupation costs, which earlier ran higher than 230% of the Federal
Budget, have been steadily reduced since the middle of 1946 and now amount to only
12y2%. The US has further lightened this burden by renouncing its allocated share
and returning that amount in dollars to the Austrian treasury.
The status of the Austrian National Bank and other financial institutions is
obscured by unresolved problems carried over from German domination and the extent
to which Austria may regain control of assets seized by the USSR. Many assets of
banks and insurance companies are in the form of German bonds of doubtful value.
Viennese firms which previously served as creditors to the entire Balkan area are
deprived of this source of foreign exchange, and many former assets are probably lost
to them. Among the assets of the National Bank are a nominal amount of gold, exclu-
sive of $26 million recently transferred to Austria as a part of an anticipated share of
$35 million from the German "gold pot." In addition, the National Bank has free
foreign exchange assets of over 35 million schillings ($3.5 million), and other miscellane-
ous assets of approximately 6 million schillings ($600,000).
 e. International Trade.
As has already been indicated, Austria's foreign trade is presently hindered in
a great variety of ways. This circumstance should not obscure the fact that in the
prewar period, the Austrian Government was capable of a gradual reduction in its
unfavorable balance of trade, which had resulted in a deficit of over 1 billion schillings
annually in the 1920's. A skillful policy of trade agreements, foreign exchange control,
import quotas, and a general policy of deflation by 1937 reduced the commodities trade
deficit to the point where it was more than made up by the invisible items of receipts
from tourists, transit trade, and banking and insurance services. The sale abroad of
electricity also contributed to the achievement of this favorable balance. Before World
War II, nearly a third of Austria's imports consisted of foodstuffs (primarily grain), and
live animals; about one-half consisted of semifinished products and raw materials,
of which the chief item was coal. About one-third of Austria's exports were raw mate-
rials and semifinished products, particularly pulp and timber, and two-thirds were
finished products, such as high grade iron and steel, textiles, paper, and engineering
products.
Austria's prewar pattern of trade was determined by its position as an area
normally deficient in food, a position which caused the nation to export up to 407o of
its industrial output. Chief trade partners in 1937 were:,
COUNTRY
Germany
PERCENT
OF IMPORTS
16.0
PERCENT
OF EXPORTS
14.8
Czechoslovakia
11.0
7.2
Hungary
9.0
9.2
Yugoslavia
7.9
5.5
Rumania
6.0
5.6
US
6.0
2.5
Italy
5.5
14.2
Poland
4.6
4.9
UK
4.5
5.4
Switzerland
3.2
5.1
The present meager foreign trade does not yet reflect the expanded industrial
capacity, which is not being fully utilized and for which export markets must be devel-
oped. In the year 1947 Austria imported approximately $138 million worth of food and
other relief and $152 million worth of agricultural and industrial goods. Against this,
its commercial exports are not expected to total more than $83 million. The deficit of
over $200 million was largely offset by US and British grants, aid through UNRRA, and
US Army relief. US payments for occupation costs, an Export-Import Bank loan, and
e prisoner-of-war payments covered the remaining deficit. The greatest single contribu-
tor has been the US; total US aid from the summer of 1945 to the end of 1947 amounted
to approximately $277 million.
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The present pattern of foreign trade, which cannot be considered conclusive
because of the relatively small volume of trade so far developed, differs considerably
from that of 1937. While the distribution of trade has not yet crystallized, large relief
grants and credits have caused trade to swing toward the West. Since 1946 Switzer-
land, Czechoslovakia, and Italy have been leading trade partners, followed by other
western European countries. Since January 1946 trade agreements have been con-
cluded with Poland, the Netherlands, Switzerland, Hungary, Belgium (and Luxem-
bourg), France, Norway, and Bulgaria. Arrangements now exist for limited trade on
a commercial basis between Austria and the combined US-UK Zone in Germany.
Estimated Balance of Payments for 1948'
(millions of dollars)
Payments Food 173
Agriculture 30
Medicine 4
Coal 72
Industry general 128
Waterways and street railways 1
Construction machinery 1
Rehabilitation of tourist trade 2
Hydroelectro development 15
Railroad system 7
Interest on foreign debt 0.3
Amortization of OMGUS debt 4
Other current obligations 5
Tobacco 6
Receipts Commercial exports (including electricity) 125
Transit revenues 15
Licenses, etc. 1
Tourist trade 3
Occupation costs 20
Export-Import credits 30
Commercial credits 38
Miscellaneous 7'
WAA credits 5
' This estimate Includes an increase to 1800 calories and a slightly increased level of economic
activity.
 Although the immediate outlook is poor, there is a reasonable prospect that
under favorable conditions Austria would be able to balance its exports against its
imports within a few years. A prerequisite for economic recovery and trade revival
is a reasonable solution of the problem of German assets. Given rehabilitation and
restored control of industrial capacity, Austria's natural resources and increased indus-
trial potential are sufficient to support foreign trade above the prewar level. However,
new markets will have to be developed for Austria's exportable commodities, and a
general European economic revival is necessary to hasten any revival of Austria's for-
eign trade. Pre-Anschluss trade was divided among countries of both Eastern and
Western Europe. Among the chief partners in 1937, trade with present Soviet satellite
states amounted to 38% of imports and 32% of exports; with Western European coun-
tries the trade was 35%v of imports and 42%o of exports. The postwar decline in trade
with the Balkan countries has been largely due to economic conditions in this area.
Provided the immediate shortages of food and coal are solved, Austrian industry can
contribute substantially to the recovery of Europe as a whole.
Regardless of these constructive possibilities, the present grave deficit in bal-
ance of payments will continue for at least four years. The projected termination of
large reconstructive expenditures and any appreciable upswing in exports cannot be
reflected until after that time.
The deficit of $204 million must be met by additional relief assistance and
credits.
Austria maintains its economic life only by transfusion of economic energy from
the Western democracies. Western subsidies are maintaining the economy on a sub-
sistence level and are bolstering it against complete Soviet economic domination. The
USSR, from an existing major foothold, seeks to bring the remainder of the Austrian
economy under Soviet control. The critical short-term situation heavily overshadows
the longer-term possibility that, given both a re-establishment of Austrian political and
economic autonomy and a general European politico-economic improvement, the coun-
try's expanded and more diversified economic potential will be capable of a more sound
and stable economy than that of the prewar period. As an optimum, the Austrian
economy cannot be expected to stand on its own feet in less than four years.
 SECTION III
FOREIGN AFFAIRS
1. GENESIS OF PRESENT FOREIGN POLICY.
Between the breakdown of the Hapsburg Monarchy in 1918 and the Anschluss with
Germany in 1938, Austria's foreign policy was generally dictated by two circumstances:
(a) its inability to protect its territorial integrity, and (b) its dependence on the Western
Powers (France, England, and Italy) for economic support. This was particularly clear
during the first years of the Republic, when Austria's desperate economic position made.
the country dependent on outside help. In order to obtain such assistance, the Gov-
ernment was compelled to adopt foreign and domestic policies imposed on it by the
Allies. Austria was, for example, prevented from uniting with Germany, although
virtually all groups in the country (except the monarchists and the large industrialists)
initially favored such a union. In this way, the Government was forced to adopt the
policy of Austrian independence in order to secure credits and relatively favorable peace
terms. Moreover, Austria's need for diplomatic support and economic assistance was
particularly urgent in view of its cool relations with certain neighboring countries,
involving boundary disputes with Czechoslovakia, Yugoslavia, Hungary, and Italy.
The conditions attached to the League of Nations loan in 1922 were popularly
regarded as incompatible with Austrian sovereignty. A further loan in 1932, the year
following the abortive project of customs union with Germany, imposed even stronger
League control over Austria's financial and economic policies.
Meanwhile some right-wing elements (notably the Heimwehr) had sought sup-
port from Italy. As the reactionary forces within the Heimwehr gained strength, the
link with Italy became stronger. After Germany swung into the Nazi camp, France and
the Little Entente (Czechoslovakia, Yugoslavia, and Rumania) placed fewer blocks in
the way of active cooperation of right-wing elements in Austria with Italy, even though
parliamentary democracy was sacrificed in the process, on the grounds that this coop-
eration would block an Anschluss with Germany. Therefore, when Italy joined hands
with Germany, Austria's independence lost its last champion and Austria fell almost
by default to Germany.
2. NATURE OF PRESENT FOREIGN POLICY.
To an even greater extent than during the period which followed the Hapsburg
collapse in 1918, Austria today, as an occupied nation, is dependent on foreign powers.
This dependence has been increased by the basic conflict between aims of the Western
occupation powers (US, UK, and France) and the USSR, to a point where the domestic
scene is dominated by the divergent policies and actions of the four powers in
occupation.
Caught in this power conflict, the Austrian Government, after the free national
elections in November 1945, sought the active support of the Western Allies and, con-
 currently, attempted to remain on friendly terms with the USSR. This western orien-
tation was in part a natural consequence of long historical ties with the West, shared
by both major political parties. In addition to ideological considerations, responsible
leaders of both major parties realized that only from the West could Austria obtain
immediate relief and loans and credits necessary to rehabilitate the nation's economy.
Austria's dependence on the West has subsequently increased as: (a) the USSR has
pursued a more oppressive economic policy in its zone of occupation; and (b) Austria's
territorial integrity has been challenged by a Soviet-supported Yugoslav claim to south-
ern Carinthia.
In the conduct of foreign affairs, the Austrian Government has entered into diplo-
matic relations with a large number of states, and now has foreign missions in nineteen
countries.
Soviet policy is designed to force Austria into the satellite orbit through economic
and political pressure. Because of the weakness of the Austrian Communist Party, the
USSR has sought to force changes in the composition and orientation of the Austrian
Government, primarily through prolonged delay on the Austrian treaty and, concur-
rently, through economic penetration. Soviet demands for "German assets" alone
involve a claim which is valued in excess of 700 million dollars. Soviet leaders probably
reason that Austria can be made to accept Soviet economic domination through a
treaty which would permit the USSR to continue operating these properties outside
the jurisdiction of Austrian laws. The USSR has also apparently calculated that, in
the absence of a treaty which meets Soviet specifications, continued hunger, unrest,
economic stagnation, and general discouragement will tend to create a situation
wherein an offer of food, free Danube navigation, and trade opportunities could be
exchanged for Austria's accession to the Soviet orbit.
It is possible that certain long-term considerations may lead the USSR to make
some concessions in its economic demands on Austria.' The Kremlin has an obvious
interest in the withdrawal of the occupation forces of the Western Allies from Austria.
Soviet leaders may reason that with complete quadripartite troop withdrawal, they
would be able to exert increased pressure on the present Government through internal
economic controls and political subversion, supplemented perhaps by threats of border
aggression from Yugoslavia and Hungary. Soviet representatives have already blocked
proposals to permit the Austrian police to carry adequate arms.
While the USSR would be capable of communizing its zone of occupation by vio-
lence or by a forced partition of the country, it has not embarked on such a program,
nor are such moves likely in the near future. From the Soviet point of view, a putsch
or a forced partition would seem undesirable because it would: (a) forfeit western Aus-
tria to the US, UK, and France, thereby delaying and perhaps damaging Soviet chances
of absorbing all of Austria; (b) as a further evidence of Soviet expansionism, unneces-
? Current Soviet tactics at the London negotiations on the Austrian treaty have followed this pat-
tern, and suggest that the USSR now favors conclusion of a treaty.
 sarily antagonize the US; (c) prolong Western occupation in a strategically important
area of Europe; and (d) deprive Soviet-operated industries in eastern Austria of valu-
able sources of raw materials and semifinished goods from the western zones of Austria.
The Austrian Government realizes that internal recovery will be almost impossible
so long as the country is subjected to the uncertainties and burdens of quadripartite
occupation. It is largely for this reason that Austrians desire a treaty. During and
after the meeting of the Council of Foreign Ministers in Moscow (March - April 1947),
a few prominent members of the conservative People's Party felt that tactical conces-
sions should be made to the USSR as a possible means of obtaining Soviet agreement
to a treaty. These individuals have subsequently changed their views with the result
that the Government, solidly supported by both major parties, is now on record as
opposing any treaty which violates Austrian sovereignty or which might prejudice Aus-
tria's economic recovery.
4. PRESENT RELATIONS WITH THE WESTERN OCCUPATION POWERS (US, UK, AND FRANCE).
The Western occupation powers are agreed on the basic principle that Austria must
be re-established as a democratic and independent state, and that an Austrian treaty
should be completed as soon as possible to attain this objective. The US and UK have
extended economic aid in pursuance of this policy. The French, however, have been
unable to extend similar financial support to Austria. They have, on the contrary, not
only exploited their zone of occupation for their own immediate purposes, but have
also laid claim to German assets.
Austrian political leaders in both the People's Party and the Socialist Party recog-
nize that, harassed by Soviet pressure tactics, Austria is dependent politically as well
as economically on the West. The Government, therefore, has been led to seek the
close cooperation and assistance of the Western Powers.
a. Soviet Satellites.
Except in the case of Yugoslavia, Austria has been able to maintain reasonably
satisfactory relations with the Soviet Satellites in the Danube Basin and in Eastern
Europe. The Government has entered into trade agreements with all of these Satel-
lites; the volume of trade, however, has been restricted because of economic conditions.
US credits have enabled Austria to expand its trade, particularly with Poland, where
Austria has obtained badly needed supplies of coal for US dollars. Barring Soviet inter-
ference, it is probable that Austria's trade with the Soviet Satellites will continue to
increase.
Relations with Yugoslavia are strained because of the undisguised hostility of
the Tito Government. Backed by the USSR, the Yugoslavs demand $150 million in
reparations and a substantial cession of territory in southern Carinthia. These de-
mands are opposed by the Western powers and by the Government. It is entirely possi-
ble that, following the withdrawal of the occupation powers, the Yugoslavs will foment
border disturbances.
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b. Italy.
The status of South Tyrol, an historical source of controversy between Italy and
Austria, was settled by agreement between the two powers in September 1946. Austria
agreed to renounce its claims to the area, and Italy agreed to grant the area - which
has a German-speaking majority-a large degree of administrative and cultural
autonomy. This settlement constituted a serious setback to Austrian aspirations.
Subsequent negotiations to implement this agreement have not satisfied the German-
speaking population, which considers that its rights are not adequately guaranteed.
Local agitation continues to be a source of irritation between the two countries.
c. International Organizations.
Austria desires to join the United Nations, primarily as a means of gaining
increased international support and assistance. Although the USSR has blocked Aus-
trian admission to the UN itself, the country has joined several other international
agencies, including the Universal Postal Union (UPU), the International Telecommuni-
cations Union (ITU), the Food and Agriculture Organization (FAO), the United Nations
Educational, Scientific and Cultural Organization (UNESCO), and the International
Labor Office (ILO).
 After World War I, Austria's military establishment was regulated by treaty provi-
sion which limited Army strength to 30,000. During the 1930's the Austrians adhered
to the treaty provisions.. In the early 1920's the Federal police, the gendarmerie, and
the customs service began to take on a more military aspect. During 1935 and 1936,
preparatory military training of all male pupils was introduced in higher elementary
schools, and in April 1936 general compulsory service was adopted. After the Anschluss
(March 1938), Austria's army of 58,000 was pressed, as individuals, into the German
servjce.
Austria does not presently possess any armed forces; its 26,000 police are inade-
quately equipped and armed. The eventual pattern of Austria's national defense policy
will be largely conditioned by the terms of the Austrian treaty. The four occupying
powers have agreed that the size of the future Austrian Army should be limited to
53,000 and the Air Force to 5,000, with a ceiling of 90 planes. Austrian leaders have
not shown any interest in building up a strong military force, and it seems clear that
they recognize that in the future, as in the past, Austria's territorial integrity and
political independence can be assured only by international guarantees, backed by the
active support of one or more major powers.
a. USSR.
On 1 April 1948, Soviet occupational forces totaled 45,000, most of which are
in ground and air combat units. These troops, together with Soviet forces in Hungary,
are subordinate to Headquarters, Central Group of Forces. Both the Soviet divisions
now located in Austria are mobile, one being mechanized and the other provided with
as much motor transportation as a normal US infantry division and, as a consequence
of anti-American indoctrination and rigorous combat training, are considered battle-
worthy. The Soviet Air Force maintains 450 operational tactical aircraft (March 1948).
b. France.
Occupational forces total 5,000 (1 April 1948). All units are committed to
occupation missions. There are no French Air Force units in Austria.
c. Great Britain.
Total occupational forces number 10,000 (1 April 1948). Occupational duties
all but preclude military training. There are no operational Royal Air Force units in
Austria.
 Austria's relation to US security lies in: (a) its position, second only to Germany,
as a critical point of contact in Central Europe between the Western Allies and the
USSR; (b) its support of US objectives in Western Europe; (c) its pivotal position in
the rail and water transportation network of Central Europe; and (d) its strategic
location along the northern border of Italy, flanking Germany and Czechoslovakia, and
bordering on the Balkans.
Under present circumstances, Austria constitutes an economic liability to the US,
and its military capacity is so small as to be of little importance. It is, however, of great
strategic importance to prevent Austria from falling completely under Communist
control. A Soviet acquisition of Austria would enable the USSR to consolidate the
entire Danube Basin and to increase greatly its pressure on Italy and, to a lesser extent,
on Germany and Switzerland. Equally important, a loss of Austria to the USSR would
seriously demoralize pro-Western elements throughout Europe because such a develop-
ment would signify (a) the subjugation of an almost unanimously anti-Communist
people, and (b) the repudiation of the Allied commitment to re-establish a free and inde-
pendent Austria.
The present coalition government, although subject to serious internal strains,
represents 95 percent of the population and is united in its determination to resist
absorption by the USSR. Meanwhile, the country suffers from a highly unbalanced
economy and the efforts of the USSR to absorb Austria in the spreading circumference
of Soviet economic authority. At present, Western subsidies are maintaining the
economy on a subsistence level and are bolstering it against complete Soviet domination.
 between opposing political cliques.
Austria's economic prospects are precarious.
PROBABLE FUTURE DEVELOPMENTS AFFECTING US SECURITY
No significant change in the status of Austria is in prospect in the near future. A
treaty which would terminate quadripartite occupation is impossible of fulfillment so
long as the present East-West deadlock continues. The USSR is unwilling to make
concessions which would prevent it from gaining eventual control over the country
through a combination of political, economic, and military pressures. The US, UK, and
France are equally unwilling to conclude a treaty which would expose Austria to such
tactics.
While the USSR would be capable of communizing its zone of occupation by vio-
lence or by a forced partition of the country, it has not embarked on such a program,
nor are such moves likely in the near future. From the Soviet point of view a putsch
or a forced partition would seem undesirable because it would: (a) forfeit western Aus-
tria to the US, UK, and France, thereby delaying and perhaps damaging Soviet chances
of absorbing all of Austria; (b) as a further evidence of Soviet expansionism, unneces-
sarily antagonize the US; (c) prolong Western occupation in a strategically important
area of Europe; and (d) deprive Soviet-operated industries in eastern Austria of valu-
able sources of raw materials and semifinished goods in the western zones of Austria.
It is probable, however, that a prolonged stalemate on the Austrian treaty will cause
the USSR to consolidate its position in eastern Austria in order to force changes in the
present government.
In the immediate future, Austria's political prospects depend upon its ability to
survive quadripartite occupation intact, and upon the conclusion of a treaty which
will permit it to resist absorption by the USSR. Austria's long-term political prospects
as an independent democratic state depend chiefly on the degree to which the national
economy is restored and stabilized and the extent to which Austria can be successfully
integrated into the economy of Western Europe. Both major political parties, the
People's Party and the Socialist Party, are pro-Western and are strongly entrenched
both in their long political tradition and in the social structure of the nation. It is
expected that these two parties will continue for several years to cooperate in a coalition
government. The long-term stability of such democratic coalition will, however, be
subject to serious strains arising from: (a) a basic divergence of aims between the two
parties aside from their common opposition to the USSR; and (b) the fact that tradi-
tional ideological differences may be unduly intensified owing to personality conflicts
maintaining the economy on a subsistence level and are bolstering it against complete
Soviet domination. The critical short-term situation heavily overshadows the longer-
term possibility that, given both a re-establishment of Austrian political and economic
autonomy and a general European politico-economic improvement, the country's ex-
panded and more diversified economic potential will be capable of a more sound and
stable economy than that enjoyed during the prewar period.
 the country is above 3,000 feet in altitude; much of it is even higher.
there are three main regions running from west to east.
Situated in the heart of south-central Europe, Austria has an area of 32,369 square
miles, and is slightly smaller than the state of Maine. The geographical significance
of the country lies in the fact that it is a commercial and cultural center for central
Europe and the Danube Valley and a communications crossroads: north and south,
between Germany-Czechoslovakia and Italy - Trieste, and west and east, between Ger-
many-Western Europe and the Danube Valley and the Balkans. The frontiers of Aus-
tria consist of Germany (490 miles), Czechoslovakia (434 miles), Italy (252 miles),
Hungary (230 miles), Yugoslavia (195 miles), Switzerland (101 miles), and Lichtenstein
(23 miles).
In topography and climate, Austria has great diversity. More than 60% of
The Alpine Region covers Tyrol, Vorarlberg, western Carinthia, the southern half
of Salzburg, and northern Styria. The Eastern Alps, comprising this region, have an
average altitude here of six to 12,000 feet. The northern slopes are cut by the valleys
of the rivers Inn and Salzach; in northern Styria the ranges are cut by the rivers
Enns and Upper Mur. This mountainous interior causes severe climatic conditions in
this area, great seasonal extremes of temperature accentuated in the enclosed valleys.
The whole region has generally a heavy rainfall, evenly distributed throughout the
year.
The Danube Valley, to the north of the Alpine region, includes most of northern
Austria (Upper and Lower Austria) and consists for the main part of an undulating
plateau rising to the Bohemian plain in the north; the central part is hemmed in on the
south by the Alps. This valley, broad in the district of Linz, narrows between Grein
and Krems and broadens again eastward toward the Vienna basin. The climate is
milder than that of the Alpine Region, and temperatures are moderate. Rainfall is
good (25 to 30 inches), with no markedly dry season.
The Eastern Region lies east of the Alpine massif and south of the Danube Valley,
covering eastern and southern Styria, the southern part of Lower Austria and the whole
of the Burgenland. Here the eastern foothills of the Alpine group gradually merge into
the flat fringes of the Hungarian plain. This region contains the most extensively
level areas in Austria. It is well watered by the rivers Leitha, Raab, and Mur. Near
the Neuseidler See, on the Hungarian border, the land becomes low and marshy. This
region has hot summers and cold winters. The low rainfall of the region, with the
maximum in the summer, is well compensated by the ample mountain rivers flowing
eastward.
Nearly the whole of Austria belongs to the Danube watershed; only Vorarlberg
lies in the Rhine country. The Danube enters Austria at Passau, on the Bavarian
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frontier, continues past Linz and Vienna, and exits at Bratislava on the Czechoslovakian
border. The length of the Danube through Austrian territory is approximately 220
miles. The chief tributaries are the Inn and Enns rivers. The southeastern slopes
of the Alps feed the only other important rivers in Austria, the Drau in Carinthia and
the Mur in Styria.
 Austria normally provides facilities for a considerable amount of transit traffic,
thereby earning a significant portion of the foreign exchange necessary to finance its
purchases abroad. To restore these services, Austria is counting heavily on unimpeded
access to the port of Trieste, free navigation of the Danube, and advantageous railway
rates between Austria and the Baltic ports. No real revival of the Austrian transpor-
tation system can be effected under the present four-power occupation.
The Danube is the only river of commercial importance in Austria, but for all
practical purposes river navigation is at a complete standstill, because of disagreement
between the USSR and the other Allies on the subject of opening the river either to
internal or international traffic. Furthermore, the principal river transport company
is unable to operate because of disagreement as to ownership of the ships and installa-
tions: the USSR is in possession of the docks and half the fleet, while the other half is
held inoperative in the US Zone to prevent possible Soviet seizure.
Normally, Austria depends on Danube traffic more for foreign trade than for purely
domestic trade. For approximately 250 days per year, river craft of 1,000 tons can ply
upstream to Vienna, loaded to 70% of maximum capacity, and further upstream
to Regensburg with 60%. Intermittent movement of traffic is usually possible
during the freezing period. Near Nussdorf, a Danube canal branches off through
Vienna and rejoins the river below Vienna at Albern. Vienna is the chief Austrian
Danube port, but Linz and Korneuburg also have winter harbors, oil depots, shipbuild-
ing yards, railroad connections, and transshipment installations. War damage was
particularly heavy around Vienna and at present only the port of Albern is undamaged.
Austria never possessed an elaborate highway network. Good roads were com-
paratively few and had been built primarily for tourist traffic. Although the Germans
undertook to improve Austrian roads and bring them up to German standards, the
outbreak of war prevented any appreciable improvement. Autobahns crisscrossing
Austria had been planned but never got beyond initial construction stages; 300 miles of
right-of-way, 70 feet wide, were obtained by Nazi construction firms. Of the section
that was actually constructed, about 50% exists in the Soviet zone of occupation.
This section, and the land beneath, has been claimed by the USSR as a "German exter-
nal asset" under the Potsdam Agreement.
The chief arteries of traffic are those that join Vienna with the provinces. By
1937, the total length of Austrian roads was approximately 86,000 kilometers, of which
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54% was suitable for motor traffic. In 1945, at the end of German occupation,
roads were considerably damaged by bomb craters and had deteriorated for lack of
maintenance. Most bridges on the main routes had been destroyed. An extensive
program of patching and restoring bridges was undertaken, and by the middle of 1946
almost all highways were again open to traffic. Roads of lesser importance, however,
are still deteriorating because of an over-all labor shortage.
Austrian roads are divided into federal provincial, district, and communal. Fed-
eral highways, the most important, are used for international traffic. Roads from
east to west lead outside and over the Alps; the continuation of these roads from Vienna
to the north and northeast are outside the frontiers of Austria. Work has begun on
a new Budapest-Vienna road. Other roads lead south from Vienna through Carinthia
and into Italy.
Austrian railroads have been state owned since 1923 and form the backbone of the
transportation system. Prior to the Anschluss, the Austrian railway system, which in
extent was roughly equivalent to the railroads in the New England states, enjoyed an
international reputation for efficiency of operation. It was an important international
network linking Italy, Germany, and the Balkans. Because of its importance it was
the target of continued air attacks during the war, and at the end of hostilities the
system was paralyzed. Large railroad yards were destroyed, including the Linz classi-
fication yard, the largest rail terminal installation in southeastern Europe. Consid-
erable recovery has been effected, and sufficient facilities are now available to handle
all traffic in sight, provided sufficient fuel and maintenance parts can be obtained.
Total trackage in 1946 was 6,748 kilometers as compared with 6,700 in 1937.
Present state-owned and operated trackage is 5,990 kilometers, and the remainder,
though privately owned, is state operated. As the great portion of rail lines are moun-
tain lines, difficulties have long been encountered on the heavily graded sections which
are operated by steam. For this reason, and in view of Austria's abundant hydro-
power and deficiency in coal, electrification of the railroads was undertaken. By 1937,
15 percent of the total length had been electrified, and these sections carried nearly
one-fourth of total traffic. Most of the electrified sections are in the western zones.
Roughly 1,000 steam locomotives at present are running in Austria but it is not known
how many will be left the country by the occupying forces. The USSR, which controls
the important Floridsdorf locomotive factory, is shipping out of the country locomotives
ordered by the Austrian Government and for which Austrian raw materials were fur-
nished. Early in December 1947 the USSR ordered the Federal Railways to deliver 75
locomotives to the Yugoslavia state railways. The matter has been referred to the
Allied Council in spite of the Soviet attitude that it should be considered only by Soviet
officials and Austrians. Still another uncertainty for the Austrian rail system is the
future of Austrian freight cars which were part of the German freight pool; provisional
arrangements had been made by Austria for distinctive marking of these freight cars,
but these arrangements have not been accepted by many other countries.
 4. AvIATIox.
Aviation and aviation facilities within Austria are controlled by the occupying
forces. The nation has neither an air force nor any commercial aviation company.
The four-power agreement on the Economic Air Disarmament of Austria is still being
implemented by the Air Directorate of the Allied Council, and air installations in all
zones are subject to quadripartite inspection for demilitarization. The disposition of
surplus airfields is determined by'the commander of each zone, and his recommenda-
tions for their disposal are submitted to the Allied Council for approval. By the middle
of 1947, a total of 21 airfields had been returned to the Austrian economy - primarily
for conversion to agricultural purposes. The dissolution of aeronautical organizations
within Austria is controlled in each zone by the respective air division of the occupying
power.
Civil and military aircraft of the four occupying powers operate fully over their
own zones, but over other zones only within established corridors. The USSR clearly
desires to restrict air traffic of other occupying powers and has refused any proposal
for free transit and technical stops throughout Austria. An agreement, reached in the
summer of 1945, assigned the Tulln Airport (northwest of Vienna) to the US and the
Schwechat Airport (southeast of Vienna) to the UK and France. Corridors were estab-
lished for flights to these fields from Linz and Klagenfurt in which corridors the aircraft
of the occupying powers were permitted flights without the rendering of prior notice.
For air routes from Vienna to Budapest and Prague, other corridors were established
and schedules for flights over these routes are forwarded twice a month. Special and
urgent missions are cleared with Soviet officials by passing them a copy of the flight
plan two hours in advance.
Air transportation within Austria is effected almost entirely by military aircraft,
although Pan American Airways operates to Vienna (Tulln Airport). In the late sum-
mer of 1947, the USSR sought to supplement the existing agreement with restrictive
clauses, which would limit uncleared aircraft flying into Vienna to courier service and
transport of supplies. Tactical or commercial aircraft would require specific flight-by-
flight clearances from the commander whose zone is being overflown. The Soviets
further announced that PAA flights over the Prague-Vienna corridor could not be on
a daily basis. Strong tripartite opposition and General Keyes' decision to send through
daily PAA flights as "urgent missions" have not as yet resulted in a modification of the
Soviet proposal.
A Civil Aviation Department in the Austrian Government was authorized by the
Allied Council in August 1947 after long delay by Soviet officials. Since the agreement,
however, the formation of the Department has been obstructed by the USSR, which
demanded exhausting clearance of personnel and insisted that establishment of airport
facilities is premature.
At the present time, telephone and telegraph services extend to all parts of Austria,
and zonal boundaries of the occupation forces do not interfere with this service. With
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the exceptions of radio activities, international telecommunication services, and facili-
ties in use by the military forces of the occupying powers, the Director General of the
Austrian Post and Telegraph Administration has full freedom to decide upon and to
apply whatever measures are necessary to post activities and services. The civilian
telephone and telegraph system was damaged very little as a result of the war and is
adequate to meet the economic requirements of the country. Service has been extended
to all countries of the world (except Japan, Spain, and Germany) by means of transit
switching of circuits through neighboring countries, but international telephone and
telegraph service is limited to non-transactional traffic. The provision to bordering
countries of transit circuits across Austria yields the Austrian Government a portion
of its revenue.
 APPENDIX C
POPULATION CHARACTERISTICS
Austria has a population of 6,573,000, exclusive of displaced persons and refugees.
This figure is 286,000 less than that of 1939. Although the population is still centered
in the Vienna area, the population of the city of Vienna is 336,000 less than the' 1939
figure of 1,929,976. The number of Austrian prisoners-of-war is uncertain and contro-
versial, but current repatriations may return 50,000 - 55,000 from the Soviet Union and
10,000 from Yugoslavia. Another 75,000 prisoners are believed missing.
In November 1947 there were within Austria an estimated 310,000 displaced persons
and refugees. In addition, there were (a) 188,000 Reich Germans and "ethnical" Ger-
mans from Czechoslovakia, Hungary, Rumania, and Poland who, under the Potsdam
Agreement, are to be transferred to Germany,* (b) 51,000 South Tyrolians who came
to Austria following the Hitler-Mussolini pact of 1939, and (c) 43,000 persons of various
nationalities, who do not fit into any of the above categories. These displaced persons
and refugees consist mainly of former slave laborers, refugees from areas under control
of the Soviet Army, persons considered politically undesirable in the countries of their
origin, and Jews.
Although the bulk of Austria's inhabitants belong to the Bavarian-Austrian branch
of the German people, exclusive national characteristics make the Austrian very differ-
ent from the German. Centuries of Hapsburg rule over Slavic, Italian, Magyar, Flem-
ish, and Germanic people left an imprint on the Austrian character. There are two
small foreign elements living permanently on Austrian soil. In the province of
Carinthia there are Slovene colonies in the south and east; in the Burgenland there
are groups of Croats and Magyars. The Jewish population at the close of 1946 was
estimated at 38,000, including 30,000 displaced persons. In 1947 a considerable number
of Jewish refugees moved through Austria and into Italy; this has resulted in a net
decrease in the number of Jewish refugees within Austria.
Recognized churches include Catholic, Lutheran, Jewish, and Greek Orthodox.
Historically, the force of the Roman Catholic Church has had great effect on Austria
and it is still of paramount importance. According to prewar statistics, the population
by religious faith is 91 % Roman Catholic, 4% Protestant, 2?fo Jewish, and 3?fo belonging
to other faiths.
Supervision of education is shared by the Federal and provincial governments.
Schooling is compulsory for all children between the ages of 6 and 14. Universities
offering liberal arts courses are located at Vienna, Innsbruck, and Graz. There are
engineering schools at Vienna and Graz; a mining school at Leoben; and a commercial
college, an agricultural and forestry school, an art school, a veterinary college, and a
? From this total, an estimated 70,000 persons, primarily of German extraction, have already
been absorbed into the Austrian community. These individuals have received Austrian residence
permits which in most cases will lead to Austrian citizenship.
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medical college, all in Vienna. At present, as in the past, students from many of the
other Central European countries are enrolled in Austrian universities. Although
schools are crowded and teachers perform heavy schedules, practically all qualified
persons desiring to attend educational institutions are receiving instruction. Teaching
staffs are being screened under the denazification laws.
The Austrian worker is vitally interested and active in both trade unionism and
politics. The two, intertwined, form a vital part of his life. His newspaper is pub-
lished by a political party; his social and recreational life is linked with both party and
union. He votes in his union along party lines, and uses his party to further his trade
union program. The national Federation of Trade Unions, almost 90% Socialist, is
divided into sixteen trade unions although the Federation considers itself composed of
individuals and not unions. The stronger trade unions arrange their own affairs; the
weaker ones lean on the Federation. The Metal Workers' and Miners' Union and the
Construction and Woodworkers' Union are the organizations of major strength.
 1918
12 November
1919
16 February
14 March
April
10 November
1920
10 October
15 December
1922
18 September
4 October
1926
28 October
1927
9 June
15 July
1928
31 January
Establishment of a provisional government, followed by a period of
confusion and disorders, chiefly caused by attempts of more extreme
leftist elements to gain control.
Election of constituent assembly, Social Democrats 72 seats, Christian
Socialists 69, German Nationalists 24. -
Constitution adopted.
Demonstrations and Communist efforts to make Austria Soviet state.
Social Democrats nearly split but leadership of Otto Bauer prevails,
and crises overcome.
Treaty of St. Germain signed between Austria and the Allies.
Severe inflation, suffering among workers, and considerable weakening
of Social Democrats as consequence.
Adoption of a new constitution creating a federal state and a two-
chamber legislature.
Carinthia plebiscite in favor of Austria.
Austria becomes a member of the League of Nations.
Financial Committee of League recommends: guarantee of Austrian
independence; credit of 520 million crowns; financial reform; creation
of a special League Committee of Control.
Geneva Protocol signed (recommendations incorporated).
Nationairat confirms Austria's entry into the League of Nations.
Vienna general strike, burning of Palace of Justice, rioting and blood-
shed. Growing antagonisms between Social Democrats and Christian
Socialists, and their armed organizations, the Schutzbund and the
Heimwehr, respectively.
The Conference of Ambassadors suspends all military control of
Austria.
1929
8 December The revised constitution is adopted.
D-1
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1930
6 February
1931
22 March
1932
13 May
1933
4 March
1934
11 February
30 April
25 July
30 July
1936
1 April
1937
1938
24 February
Treaty of friendship, conciliation, and arbitration between Italy and
Austria signed in Rome.
Elections, in which Social Democrats get 72 (not a majority) and
Christian Socialists 66 seats.
Austrian and German Governments declare simultaneously their in-
tention of concluding a Customs' Union (prevented by Allies).
Collapse of the Credit-Anstalt, one of the major commercial banks;
followed by general financial collapse.
Federal Government sends a note to the League, announcing the in-
solvency of Austria and asking for advice.
The new Dollfuss Cabinet, formed on 24 April, has a majority of only
one vote by means of a coalition of the Christian-Social Party, the
Heimatblock of Rintelen, and the Landbund of Winkler. The German
Nationalists and the Socialists are in opposition.
Signature of Lausanne Protocol-credit of 300 million schillings.
Austria acknowledges the Geneva Protocol (4 October 1922) and re-
nounces Anschluss for the term of the loan (20 years).
Suspension by Dollfuss of parliamentary government, followed by
Nazi demonstration and riot in Vienna.
Austrian Nazi Party dissolved.
Social Democratic organizations destroyed by force and leaders cap-
tured or forced to flee. Dollfuss comes to terms with the Heimwehr,
now powerfully supported by Mussolini.
Rome Protocol announces economic and political cooperation between
Italy, Austria, and Hungary.
Dollfuss dictatorship under the new "corporative" constitution.
Murder of Dollfuss by Nazis and attempted Nazi coup.
Schuschnigg cabinet formed.
Federal law establishing general compulsory military service.
Balance of international payments achieved.
Schuschnigg, in face of Nazi threat, attempts belatedly to rally sup-
port of Social Democrats, and announces plebiscite on Austrian inde-
pendence. Nazis plunge country into chaos.
 11-14 March Seyss-Inquart becomes Chancellor, German army begins invasion of
Austria, and Hitler arrives in Vienna. Anschluss accomplished.
1943
5 January London Agreement of nonrecognition of forced property transfers
signed by Soviets and other United Nations.
1 November Moscow Agreement on a free and independent Austria.
"The Governments of the United Kingdom, the Soviet Union and
the United States of America are agreed that Austria, the first free
country to fall a victim to Hitlerite aggression shall be liberated from
German domination.
"They regard the annexation imposed on Austria by Germany on
March 15, 1938, as null and void. They consider themselves as in no
way bound by any changes effected in Austria since that date. They
declare that they wish to see reestablished a free and independent
Austria and thereby to open the way for the Austrian people them-
selves, as well as those neighboring states which will be faced with
similar problems, to find that political and economic security which is
the only basis for lasting peace.
"Austria is reminded, however, that she has a responsibility, which
she cannot evade, for participation in the war at the side of Hitlerite
Germany, and that in the final settlement, account will inevitably be
taken of her own contribution to her liberation."
1945
11 February Yalta Agreement. The US, UK, and USSR agree to assist.
"... the peoples liberated from the domination of Nazi Germany and
the peoples of the former Axis satellite states of Europe to solve by
democratic means their pressing political and economic problems.
"The establishment of order in Europe and the rebuilding of national
economic life must be achieved by processes which will enable the
liberated peoples to destroy the last vestiges of Nazism and Fascism
and to create democratic institutions of their own choice ..."
13 April Vienna falls to the USSR.
29 April USSR selects Dr. Karl Renner as Head of provisional Austrian Gov-
ernment.
13 May Constitution-transitional law passed by provisional government un-
der Soviet sponsorship.
4 July First Control Agreement for Austria signed by European Advisory
Commission and agreement on zonal boundaries signed 9 July.
1 August Potsdam Agreement regarding Soviet rights to "appropriate" external
German assets.
"Reparation claims of the USSR shall be met by removals from
the Zone of Germany occupied by the USSR and from appropriate
German external assets.
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"The Governments of the United Kingdom and the United States of
America renounce their claims in respect of reparations to shares of
German enterprises which are located in the eastern zone of occupa-
tion in Germany as well as to German foreign assets in Bulgaria, Fin-
land, Hungary, Rumania, and Eastern Austria." ?
20 October Powers of Austrian provisional Government extended to all of 'Austria.
25 November Austrian national election reviewed but not supervised by occupying
powers; seats in Parliament obtained: People's Party 85; Socialist Party
30 November Allied Council approves Austrian law on currency conversion. This
program called for the giving of 900 million schillings to the Soviet
element as contrasted with 200 million to each of the other Allies. It
represented a compromise in the interests of prompt action, achieved
after considerable conflict with the Soviet authorities over matters of
technique and of principle.
1946
9 January De jure recognition of Austrian Government by occupying powers.
9 April USSR states that land taken under Potsdam is extraterritorial.
31 May Italian-Austrian agreement on South Tyrol. '
28 June USSR signs second control agreement, thus losing effective veto power
except for constitutional measures. t
6 July USSR publishes Order 17 (predated to June 27) declaring that German
assets in the Soviet zone have passed into possession of USSR.
26 July USSR arrests two People's Party members of Nationairat. Passage of
Nationalization Law.
9 August Regarding the Nationalization Law, Kurasov reserves right to take in-
dependent action with respect to German property in eastern Austria
and to take action necessary to protect Soviet interests.
4 October USSR reserves right not to put into effect in Soviet zone laws which
become effective in spite of Soviet objections.
25 October USSR changes remark of 4 October to read, "if they suppress Soviet
interests contrary to ... the Control Agreement." Soviet actions
from July to October, obstructing Austrian legislation and preventing
free development of Austrian economic program, show lack of inten-
tion of abiding by the Second Control Agreement.
1947
8 April Moscow CFM meeting ends without agreement on Austrian treaty; the
CFM agrees to establish a treaty commission in Vienna.
20 May USSR states that Austrian law applies to German assets except for
dividends, profits, and products.
 15 August USSR refuses to permit US inspection and supervision of relief in
eastern Austria.
21 August Soviet statement that German State property in Austria is a German
asset. Thus, all State property created as the results of German in-
vestment, roads, bridges, forests, etc., would be claimed by the USSR.
 DEUTSCH, Julius
Place of birth: Lackenbach, Burgenland.
Date of birth: 2 February 1884.
Education: Attended the Universities of Vienna, Berlin, Zurich, and Paris, study-
ing jurisprudence, economics, and philosophy.
Occupation: In charge of Socialist Party press and publicity.
Political
Affiliation: Socialist Party.
Religion: Jewish descent.
Remarks: Has had a broad military background during and after World War I.
Escaped to Czechoslovakia in 1934.
From 1936-38 he was a General in the Spanish Republican Army and,
at the time of Franco's victory in 1939, he fled to France.
From 1941-45, he was in the US working for the Office of War Infor-
mation.
Since his return to Austria in 1946, he has become director of the So-
cialist Party publishing firm, Vorwaerts, A.G. He is one of the "big
three" in the Party (Deutsch, Schaerf, Helmer), and is reportedly in-
terested in the post of Foreign Minister, should the Socialists come to
power. He is pro-US, and opposes the Communists as well as the
policies of the USSR.
FIGL, Leopold
Place of birth: Rust in Tullnerfeld, Lower Austria.
Date of birth: 2 October 1902.
Education: Degree of Engineer from the Vienna Agricultural Academy.
Occupation: Chancellor of Austria (and Federal Minister of Foreign Affairs);
Executive Chairman of the People's Party.
Political
Affiliation: People's Party.
Religion: Catholic.
Remarks: Active in the Lower Austrian Bauernbund. In November 1934 ap-
pointed to the Federal Economic Council.
Requested by Schuschnigg in 1938 to organize a plebiscite which was
to obviate the Anschluss. After the Anschluss he was placed in con-
centration camps from which he was released in 1943.
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SECRET
Rearrested in 1944, he was scheduled for trial on charges of treason,
but was freed by the Soviet Army in April 1945. Although not cordial
with the Socialists, he has been able to cooperate with them in the
present coalition Government.
Anti-Communist and opposed to the USSR, he relies heavily on US
support internationally and, rather naively, seeks US support for his
party internally. He is inclined to steer the People's Party on a mid-
dle course between the right-wing industrial elements (Raab) and
liberal elements (Krauland, Gruber, Graf). He is not a powerful
leader.
GRUBER, Karl
Place of birth: Innsbruck, Tyrol. -
Date of birth: 3 May 1909.
Education: Federal Institute for Electrical Engineering, Innsbruck; Doctorate of
Laws, University of Vienna.
Occupation: Federal Minister without Portfolio, in charge of Foreign Affairs.
Political
Affiliation: People's Party.
Religion: Catholic.
Remarks: Until 1938, served in Ministry of Social Welfare.
From 1939-44 he worked as an engineer with the AEG (Aligemeine
Elektrizitaets-Gesellschaft), traveling freely between Vienna and
Berlin.
In 1944 he organized an Austrian- resistance movement and main-
tained contact with Allied Forces through Switzerland.
A representative of the liberal wing in the People's Party, he is strongly
anti-Communist and anti-Soviet. He is outspoken and aggressive.
His main concern revolves around the conclusion of an Austrian
treaty which will preserve Austrian independence and which will
terminate present quadripartite occupation. He was at one time
eager to make considerable tactical concessions to the USSR in order
to obtain Soviet agreement to an Austrian treaty, but has since de-
clared such a course impossible. He has always been a supporter of
US policies.
HELMER, Oskar
Place of birth: Wiener Neustadt, Lower Austria.
Date of birth: 16 November 1887.
Education: Studied book-printer's trade; spent journeyman's years traveling in
Germany, Holland, Italy, France, and Switzerland.
 Occupation: Minister of the Interior; Vice President of Executive Committee of
Socialist Party; and Provincial Party leader of Lower Austria.
Political
Affiliation: Socialist Party.
Religion: Catholic.
Remarks: Worked as newspaper editor and subsequently served in the Austrian
Army.
Served for 13 years as Deputy Governor of the province of Lower
Austria, and as a member of the Executive Committee of the Socialist
Party.
Imprisoned for a year (1934-35) and arrested periodically by the Nazis
from 1938-45.
As Minister of the Interior, he has considerably reduced Communist
influence in the Austrian police, and has successfully resisted strong
Soviet pressure to increase Communist representation in the police.
A conservative, he is one of the "big three" in the Socialist Party
(Deutsch, Schaerf, Helmer).
Political
Affiliation:
Religion:
Remarks:
RENNER, Karl
Place of birth: Unter-Tannowitz, Moravia.
Date of birth: 14 December 1870.
Education: Doctor of Law, University of Vienna.
Occupation: Federal President of Austria.
Socialist Party.
Catholic.
Regarded as Austria's most distinguished political figure with a na-
tional and international reputation.
Following World War I he became Chancellor of Austria and as such,
Chairman of the Austrian Delegation to the Peace Conference at St.
Germain.
A strong advocate of union with Germany, he remained active in
politics until the dissolution of Parliament under Dollfuss in 1933,
when he withdrew from political life.
Following the liberation of Austria, Renner formed the Provisional
Government; he himself served as Chancellor.
Following the national elections of 25 November 1945 he was elevated
to President of the Austrian Republic.
Having renounced the Anschluss idea, Renner is working for an inde-
pendent Austria whose position might become similar to that of
Switzerland.
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SECRET
While friendly to the US and UK, he is not openly unfriendly to the
USSR. He is largely inactive in politics.
SCHAERF, Adolf
Place of birth: Nikolsburg, Bohemia.
Date of birth:
Education:
Occupation:
Political
Affiliation:
Remarks:
20 April 1890.
Doctor of Laws and Political Science, University of Vienna.
Vice Chancellor of Austria.
Socialist Party.
Served as a first lieutenant in the Austro-Hungarian Army on the
Italian front from 1915-1918.
He served as secretary of the Social Democratic Party until 1934, when
he was imprisoned by Dollfuss for a short time.
After his release he took up the practice of law again and defended
opponents of the Dollfuss-Schuschnigg regimes.
He was imprisoned twice by the Nazis.
During the war he was an underground liaison man for the Socialists.
Vice Chancellor of Austria and Chairman of the Socialist Party, he is
a member of the dominant conservative clique of his party (Deutsch,
Schaerf, Helmer), and opposes Communism and the USSR.
People's Party leaders consider Schaerf as one of the few Socialists
consistently loyal to inter-party agreements.
 1 INNERS STAOT 6 MARIAHILF
2 BRIGITTENAU 7 FONFHAU$
3 AISERGRUND 8 MARGARETEN
4 JOSEFSTADT 9 WIEDEN
5 NEUBAU 10 UNDSTRASSE
LEGEND
International Boundary, 1937
--- Landergrenze
- - - - Bezirksgrenze (Inset)
I I Principal Railroad
Principal Highway (Inset)
ZONES OF OCCUPATION
Soviet
American
British
French
Joint Occupation
Declassified and Approved For Release 2013/01/30 : CIA-RDP78-01617AO01500080001-6
MUJ I KIM. LUINtJ Ur UuCUPATION
 Declassified and A roved For Release 2013/01/30 : CIA-RDP78-01617A001500080001-6
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