oreign Policy
Reports
Austria:
The Paralysis of a Nation
* 8 ?
January 4, 1933
Vol VIII, No. 22
25f
Published Fortnightly
by the
a year
FOREIGN POLICY ASSOCIATION
INCORPORATED
EIGHTEEN EAST FORTY-FIRST STREET
NEW YORK, N.Y
Austria: The Paralysis of a Nation
by
Vera Micheles Dean
with the aid of the Research Staff of the Foreign Policy Association
This report is based on a study which the author made in Austria last
summer under a grant from the Oberlaender Trust of the Carl Schurz
Memorial Foundation.
The world crisis, like an epidemic, has
struck most severely where it has encoun¬
tered least resistance. Nowhere in Europe,
perhaps, have its ravages been more serious
than in Austria, whose economic system,
shattered by the peace settlement and only
indirectly benefited by the post-war boom,
has suffered gradual paralysis since 1928.
Nor has Austria’s plight failed to affect its
neighbors. For Austria, despite its shrunken
resources, remains the nerve-center of the
Danubian region, as was clearly demon¬
strated in May 1931 when the collapse of the
Vienna Creditanstalt precipitated a financial
crisis in the Succession States, and had grave
repercussions in Germany. Until workable
remedies are found for Austria’s difficulties,
Central and Eastern Europe cannot hope to
regain even a measure of economic stability.
When Austria, despairing of international
assistance, attempted to improve its situation
by signing the Vienna protocol of March 19,
1931 which provided for a customs union
with Germany, France and the Little Entente
vigorously protested on the ground that the
protocol constituted a violation of the status
quo and a step toward Anschluss .* Follow¬
ing prolonged negotiations between Euro¬
pean chancelleries, the League Council, by a
resolution adopted on May 19, requested the
Permanent Court of International Justice to
give an advisory opinion on the question
whether the proposed customs union was
compatible with Article 88 of the treaty of
Saint-Germain and the Geneva Protocol
No. I of October 4, 1922.’
1. For a discussion of the terms of the Vienna protocol and
of the protests which it aroused, cf. Vera M. Dean, “European
Efforts for Economic Collaboration," Foreign Policy Reports,
Vol. VII, No. 12, August 19, 1931. The term Anschluss is used
to describe political union between Germany and Austria.
2. Article 88 of the treaty of Saint-Germain reads as follows:
“The independence of Austria is inalienable otherwise than
with the consent of the Council of the League of Nations. Con¬
sequently Austria undertakes in the absence of the consent of
said Council to abstain from any act which might directly or
indirectly or by any means whatever compromise her indepen¬
dence, particularly, and until her admission to membership of
In an advisory opinion delivered on Sep¬
tember 5, 1931 the Court, by eight votes to
seven, declared that, while the Vienna proto¬
col did not constitute an act alienating Aus¬
tria’s independence and was not, perhaps,
inconsistent with Article 88 of the treaty of
Saint-Germain, it was calculated to threaten
the country’s economic independence and was
consequently incompatible with the Geneva
protocol of 1922.’ In a dissenting opinion the
seven other judges held that the Geneva pro¬
tocol imposed on Austria no new obligations
distinct from those of the treaty of Saint-
Germain, and that if the Vienna instrument
was compatible with that treaty, it could
not be incompatible with the Geneva proto¬
col. 4 The fact that the Court divided along
political lines—judges from France, Italy,
the Little Entente and Latin America voting
against the Vienna protocol, while judges
from countries which had no direct interest
in the dispute voted in its favor—was criti¬
cized in many quarters as indicating a re¬
grettable, if not unnatural, susceptibility of
the Court to national influences.
The Austrian government, however, had
already discounted the effect of the majority
opinion. At a meeting of the Commission of
Enquiry for European Union on Septem-
the League of Nations, by participation in the affairs of another
Power.”
The Geneva Protocol No. I—one of three instruments signed
on October 4. 1922 which provided for the financial reconstruc¬
tion of Austria under the auspices of the League of Nations—
contained the following provision: Austria “undertakes, in
accordance with the terms of Article 88 of the Treaty of Saint-
Germain, not to alienate its independence; it will abstain from
any negotiations or from any economic or financial engage¬
ment calculated directly or Indirectly to compromise this in¬
dependence. This undertaking shall not prevent Austria from
maintaining, subject to the provisions of the Treaty of Saint-
Germain, her freedom in the matter of customs tariffs and
commercial or financial agreements, and in general, in all
matters relating to her economic regime or her commercial re¬
lations, provided always that she shall not violate her economic
Independence by granting to any State a special regime or ex¬
clusive advantages calculated to threaten this independence.*’
League of Nations. The Financial Reconstruction of Austria ,
General Survey and Principal Documents (Geneva, 1926), P-^ 137.
3. Permanent Court of International Justice, Cusf077is Regime
between Germany and Austria (Protocol of March 19, 1931),
Series A/B, No. 41, Advisory Opinion, September 6, 1931, p. 62.
4. Ibid., p. 74.
Foreign Policy Reports, Vol. VIII, No. 22, January 4, 1933
Published by-weekly by the FOREIGN POLICY ASSOCIATION, Incorporated, 18 East 41st Street, New York. N. Y., U. S. A.
Jambs G. McDonald, Chairman ; Raymond Leslie Buell, Research Director and Editor; William T. Stone. Washington Repre¬
sentative; Helen Temly, Assistant Editor; Elizabeth Battebham, Secretary of the Research Department. Research Associates:
T > A.. Bisson, Vera Micheles Dean, Mabel S. Ingalls, Helen H. Moorhead, Ona K. D. Ringwood, Maxwell S. Stewart, M. S.
Whbtheimrb John C. dkWildb, Wilbob L. Williams. Subscription Rates: $5.00 a year; to F. P. A. members $3.00; single copies
25 cents. Entered as second-class matter on March 31, 1931 at the post office at New York, N. Y., under the Act of March 3, 1879.
January 4, 1933
257
ber 3 Dr. Schober, the Austrian Foreign
Minister, declared that his government had
realized “from the events of the past few
months” that “the application of the proposed
customs union might raise obstacles to con¬
fident cooperation between European states”
and that, under the circumstances, it did not
intend to pursue this project. Dr. Schober,
however, stressed Austria’s economic plight,
and made a strong plea for European coop¬
eration which, he said, “must now become a
reality” and achieve positive results, adding
that Austria would give “loyal and serious
consideration” to any proposal for concerted
action. 5
That Austria would once more be forced
to seek international assistance had already
been indicated by a note which it addressed
to the Secretary-General of the League of
Nations on August 7, 1931, requesting the
League Council to examine its economic and
financial difficulties. The Council, on Sep¬
tember 4, transmitted this request to the
League Financial Committee which con¬
ferred with leading Austrian and League of¬
ficials, and with its own representative, M.
Rost van Tonningen, who had meanwhile
visited Vienna. Following these discussions
Karl Buresch, the Austrian Chancellor, sub¬
mitted a program of reforms which his gov¬
ernment was ready to undertake with respect
to readjustment of the budget, reorganiza¬
tion of the Federal Railways, and settlement
of the difficulties of the Creditanstalt, pro¬
vided it could obtain financial aid. The
Financial Committee, when referring this
program to the Council, pointed out that
credits totaling 250,000,000 schillings were
essential for the reconstruction of Austrian
finances." Of the credits which the Com¬
mittee had urged for Austria, 190,000,000
schillings had already been secured in the
form of a 100,000,000-schilling credit granted
by the Bank of England in May, following
the collapse of the Creditanstalt, and a 90,-
000,000-schilling credit extended by the Bank
for International Settlements in September,
leaving a balance of 60,000,000 schillings.
In a report presented to the Council in March
1932, however, the Financial Comittee de¬
scribed Austria’s situation as “urgent,” and
strongly recommended the extension of
credits totaling 100,000,000 schillings. 6 7
6. League of Nations, Commission of Enquiry for European
Union, Minutes of the Fourth Session of the Commission, Sep¬
tember 3 to 5, 1931. C.681.M.287., Geneva, October 30, 1931, p.
8. A similar statement was made by the German Foreign Min¬
ister, Dr. Curtius.
G. League of Nations, Financial Committee, Report to the
Council. A.55(b)., Geneva, September 19, 1931, p. 4.
At par the Austrian schilling is worth 14.07 cents, and is
officially so quoted by the Austrian government. On foreign
markets, in private Austrian clearings and on the “black
bourse” in Vienna, however, the schilling has been quoted
during the past year at a rate between 20 and 25 per cent
higher than par. Cf. p. 260.
7. League of Nations, Financial Committee, Report of the
Council on the Work of the Forty-fifth Session of the Cam-
THE TARDIEU PLAN FOR
A DANUBIAN UNION
It was generally recognized that France,
alone of the European countries, was in a
position to grant these credits, and specula¬
tion was rife in Austria regarding the politi¬
cal terms which the French government
might exact in return for financial assis¬
tance. France, however, contemplated a
different solution of Austria’s problems. In
a note of March 2 addressed to Great Brit¬
ain, Germany and Italy, the Tardieu govern¬
ment suggested that Austria, Hungary,
Czechoslovakia, Rumania and Yugoslavia
should form a Danubian union based on a
system of preferential agreements and im¬
port quotas. 8 The French project caused
profound apprehension both in Berlin and
Vienna, where it was viewed as a political
scheme designed to detach Austria from Ger¬
many, and subject it to French financial con¬
trol. At the four-power conference sum¬
moned by Great Britain in London on April 5
to consider the plight of the Danubian
countries, Germany insisted that it should be
admitted to the proposed union—a position
in which it was supported by Italy." The
conflict of interests proved insurmountable,
and the London conference closed on April 8
without reaching any solution.
When the League Council met on May 19
the Tardieu government, which had recently
been defeated at the polls by the Left parties,
appeared more willing to consider some form
of aid for Austria, but continued to argue
that such aid should be linked to a general
scheme of Danubian rehabilitation. 18 Failing
to obtain either financial assistance or new
outlets for its exports, Austria declared a
transfer moratorium on July 15. On the
same day the League Council approved the
Lausanne protocol by which France, Great
Britain, Italy, Czechoslovakia, Belgium, Hol¬
land and Switzerland, recognizing Austria’s
financial dilemma, agreed to guarantee a
twenty-year loan of 300,000,000 schillings. 11
Further hope of assistance was held out
by a special committee appointed by the
Lausanne conference on July 9, 12 which met
at Stresa on September 5-20 to consider
measures which might overcome transfer
difficulties in Central and Eastern Europe,
revive trade in that region, and alleviate the
crisis suffered by the agrarian countries.
This committee, however, was concerned pri-
mittce (Pams, March 3 to 24 , 1932), C.328.M.199., Geneva,
March 29, 1932, p. 8.
8. L’Europe Nouvelle, April 2, 1932, p. 445.
9. New York Times, April 7, 1932.
10. rbid.. May 22, 1932.
11- For a discussion of the Lausanne loan, cf. p. 262.
12. Final -let of the Lousanne Conference, Lausanne, July
9, 1932 (London, H. M. Stationery Office, Cmd. 4126), Misc.
No. 7 (1932) ; resolution relating’ to Central and Eastern
Europe, p. 14.
258
Austria: the Paralysis op a Nation
marily with agrarian problems, and devoted
most of its time to consideration of prefer¬
ences for agricultural products and the crea¬
tion of a fund for the “revalorization” of
cereals. In closing, the committee declared
that “the particularly important problem of
Austria, whose exports are not mainly agri¬
cultural and who has to cope with particu¬
larly serious marketing difficulties,” would
form the subject of subsequent discussions.”
AUSTRIA’S ECONOMIC PROBLEMS
The difficulties which Austria has experi¬
enced since it became an independent state
may be traced in part to certain weaknesses
inherent in its economic system, and in part
to obstacles encountered on world markets.
Austria, which once occupied a privileged
position in the Hapsburg empire, where it
enjoyed a free-trade market for its luxury
goods, receiving in return Czech raw ma¬
terials and Hungarian agricultural products,
soon discovered that its exports, blocked by
the tariffs of the Succession States, were in¬
sufficient to pay for imports of food, coal and
other necessities. These chronic difficulties
which the government, with League assis¬
tance, attempted to meet by foreign borrow¬
ing, made Austria particularly vulnerable to
the effects of the world crisis, which practi¬
cally throttled its foreign trade and com¬
pletely disorganized its finances.
One of Austria’s most serious problems is
that, while over 40 per cent of its population
is engaged in agriculture, it must continue to
import large quantities of basic foodstuffs.
Despite government subsidies and increasing
resort to agrarian protectionism, agriculture
furnishes only 44 per cent of the corn, 46
per cent of the wheat, 60 per cent of the
sugar, 80 per cent of the rye and a relatively
small percentage of the meat required by the
country. Practically the only products in
which Austria has achieved self-sufficiency
are milk and potatoes, both of which have
begun to be exported.” Of Austria’s total
agricultural imports, nearly 50 per cent have
been supplied since the war by the Succes¬
sion States.”
Immediately after the w T ar Austria was
inclined to foster industry at the expense of
agriculture, and placed relatively few re¬
strictions on imports, in the hope that the
Succession States would reciprocate by ad¬
mitting its manufactured goods. The high
tariffs erected by its neighbors, however, and
the increasing demand of Austrian agricul¬
ture for protection against foreign competi¬
tion, caused gradual abandonment of this
13. League of Nations, Commission of Enquiry for European
Union, Report by the Stresa Conference for the Economio
Restoration of Central and Eastern Europe. C.666.M.321.,
Geneva, September 24, 1332, p. 21.
14. Dr. Engelbert Dollfuss, "Austria,” League of Nations,
Economic Committee, The Agricultural Crisis (Geneva, 1931),
Vol. I, p. 91; Oesterreichisches Kuratorium fiir Wirtschaftlich-
keit, Entwicklung und Rationalisierung der Oesterreichischen
Landwirtschaft (Vienna, Agrarverlag, 1931), p. 113.
15. Leo Gerstner and Ekkehard Hauer, Das Erisenproblem
Oesterreichs (Vienna, Verlag von Carl Gerold’s Sohn, 1932),
p. 27.
policy. The decline of agricultural prices
which began in 1929 and which, while im¬
proving Austria’s position as an importer of
foodstuffs, reacted disastrously on Austrian
farming, strengthened the movement for
agrarian protectionism. The expiration in
June 1931 of the Austro-Yugoslav commer¬
cial treaty of 1925, whose comparatively lib¬
eral provisions had been extended to other
countries by the most-favored-nation clause,
furnished an opportunity for drastic upward
revision of duties on agricultural products,
notably grain, flour and lard.”
Confronted by a rapid decline in exports,
Austria on April 30, 1932 prohibited the im¬
portation without special authorization of a
number of agricultural products, including
cattle, pigs, calves, poultry, meat and sau¬
sages, oranges and luxury fruits, wines, but¬
ter, cheese and condensed milk.” These pro¬
hibitions, which were designed both to
conserve the country’s reserves of foreign
exchange and to retaliate for the rising
tariffs of the Succession States, struck a
heavy blow at Hungary, Yugoslavia and Ru¬
mania which had continued to regard
Austria as their principal market. The situ¬
ation was not improved by the expiration in
June of the Austro-Hungarian commercial
treaty concluded in 1926. A temporary pro¬
longation of this treaty was allowed to run
out on July 15, when Austria issued addi¬
tional import prohibitions covering flour,
fresh vegetables, preserves and many kinds
of fruits.” As a result, Hungary’s perishable
foodstuffs were barred from Austria at the
height of the farming season, and the Vien¬
nese consumer was forced to pay high prices
for domestic produce of indifferent quality.
A new commercial treaty between the two
countries finally came into force on Jan¬
uary 1,1933.
The import restrictions introduced during
the past year have served to maintain Aus¬
trian agricultural prices at levels generally
higher than those of neighboring countries.
The benefit of these prices, however, has been
reaped largely by the middleman and not by
the peasant, whose earnings are often barely
16. The Economist (London), July 25, 1931, p. 175; United
States Department of Commerce, Commerce Reports, August 2.
1931, p. 312.
17. League of Nations, Financial Position of Austria in the
Second Quarter of 19S2. Third Quarterly Report by M. Rost
van Tonningen, Representative in Austria of the League Finan¬
cial Committee. C.568.M.278., Geneva, August 15, 1932, p. 19-29.
18. Ibid., p. 21; The Economist (London), July 23, 1932.
p. 173.
January 4, 1933
259
sufficient to pay his taxes. The resentment
aroused in 1931 by seizures of cattle and
other farming’ property in payment of taxa¬
tion or mortgage arrears called attention to
the plight of the village,” 1 and the authorities
have since been reluctant to press for collec¬
tion of peasant debts. Agricultural prices,
moreover, even with the protection of tariffs
and import prohibitions, have declined more
rapidly than industrial prices, with the result
that the farmer has been obliged to curtail,
or even discontinue, his purchases of man¬
ufactured goods.
THE CRISIS IN INDUSTRY
This shrinkage in domestic purchasing
capacity has proved disastrous for Austrian
industry, which had never become completely
adjusted to the loss of the vast free trade
market it had enjoyed in the Hapsburg em¬
pire. In its struggle for existence Austrian
industry is handicapped both by its charac¬
ter and its high cost of production. Austria
has always specialized in the manufacture
of luxury articles—clothing, porcelain, leath¬
er goods — which do not lend themselves
easily to standardized production and find no
ready purchasers in a period of depression.
The prohibition in 1932 of many imports
which compete with domestic products, such
as motor-cars, shoes, cotton textiles and coal,
temporarily improved the condition of these
industries in Austria, 10 but the gain cannot
be regarded as permanent. Protectionism,
moreover, is a double-edged weapon for
Austrian industry, which must continue to
import its principal raw materials.
Various factors have made it difficult for
industry to reduce its cost of production to a
level at which it could compete successfully
with Germany or Czechoslovakia. Chief
among these are the relative inefficiency of
labor, mounting taxes necessitated by in¬
creased public expenditure, and the rising
cost of social insurance, which now forms an
integral part of Austrian economy. It is
estimated that during the period 1925-1929
average wages increased by 24 per cent, and
the cost of social benefits rose from 258,000,-
000 to 383.000,000 schillings, of which nearly
200,000,000 were paid by employers. The
rise of wages and social benefits was reflected
in the cost of industrial production, which
increased by 12.5 per cent during the same
period. Competent observers believe that,
under these circumstances, Austrian industry
was on the whole operating at a loss even
before it had experienced the impact of the
world crisis.
The principal difficulty faced by industry,
19. The Economist (London), November 14, 1931, p. 908.
20. League of Nations, Financial Position of Austria in the
Last Quarter of 19SI, First Quarterly Report by M. Rost van
Tonningen, C.34.M.18., Geneva, January 12, 1932, p. 11.
however, is lack of capital. The public has
never shown much interest in industrial in¬
vestments, and nearly all industries have
consequently been financed by a few banks,
of which the Creditanstalt was the most im¬
portant. Following its merger in 1929 with
the Boden-Creditanstalt, an institution then
on the point of collapse, the Creditanstalt
acquired control of over 60 per cent of the
country’s industry. The magnitude and va¬
riety of these enterprises made it well-nigh
impossible for the Creditanstalt directors to
obtain more than a superficial knowledge of
the affairs which they financed. Moreover,
fearing that the breakdown of any one of
their undertakings might react unfavorably
on the bank’s credit, the directors frequently
continued to finance economically unsound
plants which would otherwise have gone to
the wall. The eagerness of foreign bankers,
especially British and American, to invest
money in Austria without thorough investi¬
gation also proved demoralizing, as the
Creditanstalt found it difficult to resist its
clients’ demands for foreign credits when
these were so easily available. Industrial
managers, meanwhile, knowing that credits
would not be refused, made little effort to
modernize their plants or adjust them to re¬
stricted markets. Weakened by its heavy
commitments to industry and by financial
mismanagement, the Creditanstalt was
forced to close its doors in May 1931, when
the depreciation of domestic securities, re¬
sulting from the world crisis, and the with¬
drawal of many foreign short-term credits
which followed the announcement of an
Austro-German customs union drastically
reduced its assets.
The government, fearing that the collapse
of the principal Austrian bank would provoke
panic at home and abroad, guaranteed prac¬
tically all the liabilities of the Creditanstalt,
totaling 1,400,000,000 schillings, including the
claims of foreign creditors which amounted
to 420,000,000“ As a result of pressure by
foreign creditors, the reorganization of the
Creditanstalt was entrusted to Dr. van Hen-
gel, former managing director of the Amster¬
dam Bank who, after acting as adviser from
May to September 1931, was appointed gen¬
eral manager in February 1932. Dr. van
Hengel at first proposed to release the Credit¬
anstalt from all obligations by converting its
total debt to foreign creditors and the major
portion of its indebtedness to the National
Bank into a state debt to be repaid over a
period of years. The government, however,
declared that such a measure would wreck
the budget, and refused to shoulder this
22. The claims of foreign creditors originally totaled about
500,000,000 schillings, but were reduced to 420,000,000 schill¬
ings by the fall of the pound sterling. "Der Creditan-
stalts-Plan,” Frankfurter Zeitung, November 30, 1932.
260
Austria: the Paralysis of a Nation
burden. 28 Prolonged negotiations with the
foreign creditors of the Creditanstalt were
finally concluded in November 1932, when
the following settlement was reached: of
the 420,000,000 schillings owed the creditors,
70,000,000 were written off; 140,000,000 will
be refunded out of Creditanstalt assets
abroad, which will be taken over by a neutral
holding company; 70,000,000 will be covered
by shares of the Creditanstalt when it has
been reorganized f and 140,000,000 will be
paid by the Austrian government in seven
annuities of 20,000,000 schillings each. 28 This
settlement is regarded by impartial observers
as extremely favorable to Austria, and should
facilitate financial readjustment.
The difficulties of the Creditanstalt have
had serious repercussions on both industry
and banking. Pending reorganization of the
bank, the industries which it formerly con¬
trolled, including such important enterprises
as the Steyr motor works and the Danube
Shipping Company, must literally live from
hand to mouth, since no further credits are
available. Dr. van Hengel has urged the
liquidation of all unproductive or uneconomi-
cally managed plants, and complete reor¬
ganization of others. This policy, however,
is opposed both by the government, which
fears further loss of confidence, and the So¬
cial Democrats, who object to the extensive
dismissal of workers.
The position of Vienna’s other banks has
also been shaken by the withdrawal of de¬
posits and foreign short-term credits which
followed the breakdown of the Creditanstalt.
Despite their handicaps, the Viennese banks
—the Creditanstalt excepted—have suc¬
ceeded in repaying 70 per cent of the 420,-
000,000 schillings which together they owed
foreign creditors.
AUSTRIA’S DEPENDENCE
ON FOREIGN TRADE
It is doubtful that the country’s economic
situation can show tangible improvement
without a revival of foreign trade which, in
turn, must wait on European recovery. Of
Austria’s total exports, 35 per cent normally
go to the Danubian countries, whose purchas¬
ing capacity has been drastically curtailed by
the decline in agricultural prices, and 18 per
cent to Germany, whose credit situation has
been severely affected by the financial
23. League of Nations, Financial Position of Austria in the
First Quarter of 1932, Second Quarterly Report by M. Rost van
Tonningen, C.388.M.218.. Geneva, May 2, 1932, p. 7; ibid.,
Fuiancial Position of Austria in the Second Quarter of 1932,
cited, p. 8; The Economist (London), current issues; “Ein Ver-
fassungskonflikt um die Credit-Anstalt,” Der deutsche Yolks-
wirt, October 7, 1932, p. 7; “Budget und Credit-Anstalt,” ibid.,
October 28, 1932, p. 99.
24. It is expected that 49 per cent of the shares of the re¬
organized Creditanstalt will be held by foreign creditors, and
51 per cent by the Austrian government.
25. TValther Federn, “Credit-Anstalt-Regelung,” Der oester-
reichische Volk-sicirt, November 19, 1932, p. 181; “Credit-Anstalt
Sanierung?” Der deutsche Volkswirt, November 25, 1932, p.
223; The Economist (London), November 26, 1932, p. 984.
crisis. 27 Austrian exports, moreover, have
been practically throttled by the import pro¬
hibitions and foreign exchange restrictions
now in force throughout Central and East¬
ern Europe, declining by almost one-half
'during the first six months of 1932 as com¬
pared with the same period in 1931. Im¬
ports, nevertheless, declined more rapidly
than exports, with the result that Austria
enjoyed a more favorable balance of trade
than in the previous year. This balance,
however, was achieved at the expense of the
country’s standard of living, and was due
largely to the introduction of import pro¬
hibitions and foreign exchange restrictions. 28
Of these two measures, the second was
probably the most effective in limiting im¬
ports.™ Fearing the loss of its already de¬
pleted reserves of foreign exchange, which
had declined from $89,200,000 at the be¬
ginning of 1931 to $28,300,000 by October
of that year,” the Austrian government
introduced stringent foreign exchange regu¬
lations in the autumn of 1931. 31 These
regulations provided, in substance, that the
Austrian National Bank alone could buy and
sell foreign exchange. Payment for all ex¬
ports was to be made, not in Austrian
schillings, but in foreign currency, and every
exporter was to turn a portion of this cur¬
rency—at one time 25 per cent—over to the
National Bank, receiving in return schillings
at the official rate, which was from 20 to 25
per cent lower than that quoted on foreign
markets or the illegal “black bourse” in
Vienna.” Similarly every importer who, by
the exchange restrictions of neighboring
countries is obliged to pay foreign currency
for his imports, was to apply to the National
Bank for the necessary exchange. The bank,
however, granted only a small percentage of
the importers’ demands, and until July 1932,
when Austria declared a transfer moratori¬
um, used its foreign exchange chiefly for
service on foreign loans.”
27. “Der Aussenhande! der Donaustaaten,” Frankfurter
Zeitung, April 15 f 1932.
28. League of Nations, Financial Position of Austria in the
Second Quarter of 1932, cited, p. 17. The following table shows
the comparative value of Austrian foreign trade during the
nrst six monuis oi ana iso-.
Exports Imports Excess of Imports
(in schtlltnys)
1921 . 670,200.000 1,106.100,000 435,900,000
1932 . 390,000,000 758,600,000 368,600,000
Ibid., p. 37.
29. For a discussion of import prohibitions affecting agri¬
cultural and industrial products, cf. p. 258-9.
30. League of Nations, Commission of Enquiry for European
Union, Report bp the Strcsa Conference, cited, p. 31. These
figures were originally given in Swiss francs and converted into
dollars at the rate of 19.22 & cents.
31. League of Nations, Financial Position of Austria in the
Last Quarter of 1931, cited, p. 10. The first decree, published
on October 9, 1931. was found not to have been sufficiently
drastic, and was supplemented by decrees issued on October
16, November 18 and December 23, 1931.
32. Cf. p. 257, footnote 6.
33. League of Nations, Financial Position of Austria in the
First Quarter of 1932, cited, p.12-13; The Economist (London),
October 17. 1931, p. 710; Ibid., October 24, 1931, p. 758. Of
the total foreign exchange allocated by the Austrian National
Bank during the period October 10, 1931 (when exchange re-
January 4, 1933
261
Both government control of foreign ex¬
change and official quotation of the schilling
at a fictitious rate were attacked by Austrian
industrialists and economists on the ground
that they seriously hampered exports. The
government was urged to abolish exchange
restrictions without waiting for parallel ac¬
tion by Austria’s neighbors, and to stabilize
the schilling at its depreciated value.** Simi¬
lar recommendations were made in the Lau¬
sanne protocol of July 15, 1932 which, as a
condition of an international loan to Austria,
provided that
“Austrian monetary policy will aim at the
abolition as soon as possible, subject to the nec¬
essary safeguards, of the difference between the
internal and external value of the schilling, and,
in consequence, at the progressive removal of the
existing control over exchange transactions and
the resulting obstructions to international trade.” 35
The exigencies of foreign trade have in
practice necessitated almost total abandon¬
ment of foreign exchange control. The Na¬
tional Bank now authorizes settlement of all
export transactions by two methods: (1)
private clearings, under which Austrian ex¬
porters sell foreign exchange directly to
Austrian importers at a premium of 23 per
cent above the official quotation of the schil¬
ling; 3 * and (2) private compensation agree¬
ments, by which Austrian exporters agree to
accept schillings from their debtors instead
of the prescribed foreign currency. The com¬
pensation principle has also been embodied
in a number of clearing agreements which
Austria has concluded with neighboring
countries during the past year. Thus the
Austro-Rumanian clearing agreement, which
went into effect in July 1932, provides that
balances of Austrian schillings held by Ru¬
manians may be applied to the payment of
Austrian exports and other debts if the Aus¬
trian creditor agrees to this procedure, and
similar transactions are permitted with bal¬
ances of Rumanian lei held in Austria.* 7
These clearing agreements, designed to
maintain the volume of Austrian exports,
which now constitute practically the only
source of foreign exchange, while reducing
imports to a minimum, have for the most
strictions went Into effect) to July 23, 1932 (when the transfer
moratorium was established), 232.500,000 schillings went for
commercial purposes and 199,900,000 for loan service and other
payments of the state and provinces. Financial Position of
Austria in the First Quarter of 1932, cited, p. 9.
34. Julius Mcinl, The World Crisis and Currency Restric¬
tions (London. Hazell, Watson and Viney, 1932) ; Oscar Morgen-
stern, “Die Angleichung von innerem und ausserem Geldwert,”
Wiener Wirtschafts-Woche , August 1, 1932; ibid., “Der Weg
zu freier Schilling-Kursgestaltung,** Neues Wiener Tagblatt,
September 10, 1932.
35. League of Nations, Austrian Protocol, C.539.M.270.,
Geneva. July 15, 1932, p. 2. For a discussion of the Lausanne
loan, cf. p. 262.
36. The Economist (London), November 26, 1932, p, 983.
37. League of Nations, Financial Position of Austria in the
Second Quarter of 1932, cited, p. 14. Austria has concluded
clearing agreements, differing somewhat in their terms, with
Czechoslovakia, France, Germany, Hungary, Italy, Yugoslavia,
the Netherlands, Sweden and Switzerland. For a summary of
some of these agreements, cf. ibid., p. 15-17.
part proved unworkable and may soon be
abandoned. No attempt is made in these
agreements to distinguish between various
categories of imports, and it has consequently
been almost impossible to bar imports con¬
sidered unnecessary. Many Austrian expor¬
ters, moreover, have been reluctant to accept
schillings instead of the foreign exchange
which they either need for the purchase of
raw materials abroad or wish to sell at a
premium to importers. 38 The Austro-Hun¬
garian agreement is the only one which has
functioned with any degree of success, chiefly
because the currencies of the two countries
have been at a somewhat corresponding dis¬
count. 38 Short-lived agreements with indi¬
vidual countries, permitting importation of
specified contingents of goods or providing
for clearing arrangements have increased
rather than alleviated the disorganization
wrought in Austria’s foreign trade by import
prohibitions and foreign exchange restric¬
tions. The uncertainty created by these
agreements, which in many cases have been
arbitrarily superimposed on the existing sys¬
tem of long-term commercial treaties, has
had a paralyzing effect on Austrian mer¬
chants. It is hoped that private clearings will
gradually eliminate the existing confusion
and revive foreign trade, thereby improving
the position of the schilling, which at present
is officially quoted at a rate 23 per cent
lower than that used in private clearings.
While the Austrian National Bank is re¬
ported to favor stabilization of the schilling
in the near future, the government fears that
such a measure would undermine the con¬
fidence of the population, which vividly re¬
calls post-war inflation.
THE TRANSFER MORATORIUM
The shortage of foreign exchange not only
forced curtailment of imports, but made it
increasingly difficult for Austria to pay in¬
terest on its foreign debt, the amount and
character of which are shown by the follow¬
ing table:
AUSTRIA’S FOREIGN DEBT, 1932 40
Public Debt
Long-term . $223,400,000
Short-term . 14,000,000
Private Debt
Long-term . 101,900,000
Short-term . 126,500,000
Total . $465,800,000
Of Austria's long-term public foreign debt,
over three-quarters has been contracted in
the United States and Great Britain. 41
38. League of Nations, Financial Position of Austria in the
First Quarter of 1932, cited, p. 12.
39. Idem., Financial Position of Ausf?*ia in the Second Quarter
of 1932, cited, p. 1C; idem.. Report by the Strcsa Conference,
cited, p. 9.
40. League of Nations, Report by the Stresa Conference,
cited, p. 7. Cf. p. 260, footnote 30.
41. Wochejibericht des Instituts fur Konj ukturfors chung
(Berlin), May 25, 1932. p. 30.
262
Austria: the Paralysis op a Nation
It has been estimated that service on for¬
eign debts for 1931-1932 would have required
transfer of 277,300,000 schillings. 41 * 1 As a re¬
sult of the decline in exports, however, Aus¬
tria not only failed to accumulate the neces¬
sary foreign exchange, but suffered an
average monthly foreign exchange deficit of
18,000,000 schillings during the first six
months of 1932.“ In a note of May 9 the
Austrian government consequently requested
the advice of the League Financial Commit¬
tee with regard to the continuance of foreign
debt service. Failing to receive an answer,
Austria on June 23 suspended transfer of
payments due at the end of that month, in¬
cluding service of the 1923 Reconstruction
loan" and the 1930 loan granted by the Bank
for International Settlements. 4 * An attempt
to regularize this situation was made by a
decree of July 15, which provided that when
foreign debt payments fall due, the Austrian
debtors shall deposit an equivalent amount of
schillings, at a rate fixed by the Austrian
National Bank, in a special fund established
with the bank for this purpose. The sums so
deposited are credited to the depositor in a
“blocked” account and, under certain condi¬
tions, may be used for the benefit of the
creditors. No penalty, however, is provided
for non-fulfilment of the provisions of this
decree, and the creditors can take no pro¬
ceedings against the debtors. If the debtor
arranges with the creditor for the discharge
of his liability in schillings, he is released
from the obligation to deposit funds with the
National Bank. 45
The fact that the 1932 loan, floated under
the auspices of the League of Nations, was
not excepted from the transfer moratorium,
aroused considerable criticism abroad. This
loan had been guaranteed by eight states, 40
and the amounts required for its service had
been made a first charge on the gross receipts
of the Austrian customs and the tobacco
monopoly. 47 The amount required for service
of the 1923 loan was estimated at 102,020,-
000 schillings in 1932, or 16.83 per cent of
the customs and the tobacco monopoly rev-
41a. League of Nations, Financial Position of Austria in the
Third Quarter of 1932, C.7S0.M.368., Geneva, November 30, 1932,
p. 15.
42. League of Nations, Financial Position of Austria in the
Second Quarter of 1932, cited, p. 10.
43. The Austrian Guaranteed Reconstruction loan (also
known as the League loan), due in 1943, was issued in 1923 at
7 per cent In the amount of approximately $126,000,000, of which
$25,000,000 was marketed in the United States by J. P. Morgan
& Co. Through sinking-fund operations, the loan as a whole
has since been cut down to less than $100,000,000, and the
American portion to about $17,000,000.
44. The Austrian Government International 7 per cent loan,
due in 1957, was issued in 1930 in the amount of approximately
$102,000,000, of which $25,000,000 was marketed in the United
States by a syndicate headed by J. P. Morgan & Co. Through
sinking-fund operations, the American portion of this loan has
been cut down to $23,700,000.
45. For the text of the July 15, 1932 decree, cf. ibid., p. 39.
46. Great Britain, France and Czechoslovakia each guaran¬
teed 24.5 per cent of the loan, Italy 22.5 per cent, Belgium and
Sweden 2 per cent each, and the Netherlands and Denmark 1
per cent each.
47. General Bond for the Austrian Government Guaranteed
Loan 1923-19 43, League of Nations. The Financial Reconstruct
enue for that year. 48 Until June 1932 the
Austrian government had deposited the total
assigned revenue to the account of the loan’s
trustees 48 in the National Bank, and out of
these funds had purchased each month the
foreign exchange needed for service of the
loan, using the balance for interest due on
the 1930 loan and for internal expenditures.
Following the establishment of the transfer
moratorium, the government discontinued
this practice: of 90,200,000 schillings repre¬
senting the total customs and tobacco re¬
ceipts for June and July, only 23,400,000
were paid into the trustees’ account, the
balance being withheld for payment of sal¬
aries and pensions. 00 The government appar¬
ently feared that, should the pledged rev¬
enues be deposited in full, the trustees, find¬
ing it practically impossible to purchase for¬
eign exchange owing to exchange restric¬
tions, would hold the total revenues until the
transfer moratorium is abandoned, thus pre¬
venting Austria from meeting many internal
obligations. While funds already in the
hands of the trustees were sufficient to meet
payments due in December 1932, the guaran¬
tor states may be faced with the necessity
of paying further service of the loan out of
their own resources, unless Austria can
meanwhile deposit the necessary sums and
resume transfer operations.
Resumption of transfers at the earliest
possible date is urged by the representative
of the League Financial Committee in Vien¬
na, who states that the financial reputation of
the 1932 loan may otherwise be impaired, and
the value of future League loans correspond¬
ingly diminished. He argues, moreover,
that the longer Austria delays transfers,
the more difficult it will be to liquidate the
arrears which have accumulated since July,
and which totaled 135,900,000 schillings at
the end of 1932.”
THE LAUSANNE LOAN
The Austrian government, however, be¬
lieves that it can undertake no further trans¬
fers unless it receives substantial financial
assistance from abroad. Some measure of
assistance was extended by the Lausanne pro¬
tocol, which the Council of the League of
Nations approved on July 15, 1932, after the
League Financial Committee had repeatedly
described Austria’s situation as “urgent.””
By the terms of this protocol, 62a Great Brit¬
ain, France, Italy, Czechoslovakia, Belgium,
tion of Austria, General Survey and Principal Documents
(Geneva, 1926), p. 154. 160.
4S. League of Nations, Financial Position of Austria in the
First Quarter of 1932, cited, p. 24.
49. The trustees of the 1923 loan are Messrs. Janssen.
Wallenberg and Jay.
50. League of Nations, Financial Position of Austria in the
Second Quarter of 1932, cited, p. 8-9.
51. Idem., Financial Position of Austria in the Third Quarter
of 1932, cited, p. 10.
52. Cf. League of Nations, Financial Committee, Report to
the Council on the Work of the Forty-fifth Session of the Com¬
mittee, cited, p. 4.
52a. League of Nations, The Austrian Protocol, cited.
January 4, 1933
263
Holland and Switzerland 03 agreed to guar¬
antee a new twenty-year loan which Aus¬
tria is to obtain in foreign currencies, to
the maximum amount of 300,000,000 schil¬
lings. This loan is to be secured by customs
and tobacco receipts, subject to the prior
claims of the 1923 and 1930 loans. The pro¬
ceeds of the loan are to be credited to a
special account in the Austrian National
Bank, which the Austrian government is to
administer in cooperation with the represen¬
tative of the League Financial Committee.
The Lausanne loan, unlike that of 1923, is
designed less to rehabilitate Austrian econ¬
omy than to facilitate repayment of the coun¬
try’s most pressing financial obligations.
The protocol provides that 100,000,000 schil¬
lings—the share of the loan to be guaran¬
teed by Great Britain—shall be used to repay
the advance made by the Bank of England
in 1931, while the balance of the loan, con¬
verted into schillings, shall be set aside for
repayment of the floating debt of the state
and the Federal Railways. It is generally
believed, however, that this balance will be
applied to the payment of the 90,000,000
schilling credit granted by the Bank for In¬
ternational Settlements in 1931 and of ar¬
rears on foreign debts accumulated since
July 1932, so that little or no money will ac¬
tually be left for liquidation of Austria’s
internal indebtedness."
The conditions attached to the Lausanne
loan are more onerous than those of the loan
granted in 1923. The Austrian government
promises to restore and maintain the equi¬
librium of the federal budget by "further
permanent economies”; to carry out “with¬
out delay” the program of reforms submitted
in May 1932 by Dr. Herold, its Swiss rail¬
way adviser; 00 to adjust the value of the
schilling and remove foreign exchange re¬
strictions ; M and to settle all outstanding ques¬
tions concerning the Creditanstalt. Provin¬
cial and municipal budgets must also be bal¬
anced, and no private firms or individuals
can incur foreign debts of more than 1,000,-
000 schillings without the permission of the
Austrian National Bank.
Most humiliating of all for Austrian pub¬
lic opinion, the Lausanne protocol states that
the new loan is granted on the basis of the
Geneva protocol of 1922, in which Austria
undertook to abstain from any negotiations
or any economic engagement calculated to
compromise its independence—thus prolong¬
ing until 1953 an obligation which, according
to the Geneva instrument, would have been
terminated in 1943. The Lausanne protocol,
53. The Lausanne protocol is open to adhesion by other
states; Sweden, Denmark and Spain have expressed a desire
to participate in the Lausanne loan.
B4. Cf. Franz Klein, “Oesterreich umsonst,” Der deutsche
Volkswirt, July 22, 1932, p. 1418.
55. Cf. p. 265.
56. Cf. p. 261.
moreover, contains a clause which the Aus¬
trian press regards as unusually significant:
all decisions adopted by the League Council
in virtue of the protocol are to be taken by a
majority vote, and any dispute as to its in¬
terpretation is to be settled by the Council in
a similar manner. 07 This clause, according to
Austrian commentators, not only prevents
Germany from effectively opposing applica¬
tion of the protocol by withholding its vote,
but removes interpretation of that instru¬
ment from the jurisdiction of the World
Court, placing it definitely in the hands of
the League Council, which is a political
rather than a legal body. 08 When the Coun¬
cil aproved the Lausanne protocol on July 15
the German delegate abstained from voting,
on the ground that the loan agreement was
based on the Geneva protocol of 1922, and
that his government, then not a member of
the League of Nations, had not participated
in the original agreement. He added that
Germany was of the opinion that political
conditions should not be attached to schemes
for financial assistance."
The relatively small amount of the loan,
and the conditions on which it was granted,
aroused vigorous criticism in Austria, espe¬
cially on the part of Social Democrats and
Pan-Germans. After prolonged and bitter
debates, in which both the government and
the opposition indulged in considerable log¬
rolling, the Lausanne protocol was ratified
by the lower house of the Austrian parlia¬
ment on August 17 by a vote of 81 to 80."
Rejected by the upper house two days later,
the protocol was once more approved in the
lower house on August 23, after the leader
of the Pan-German party had accused the
government of “selling Austria into slavery
to France.” 01 Ratification, however, was
granted only on condition that certain points
of the protocol, notably the clause regarding
majority vote by the League Council, should
be clarified in subsequent negotiations,_ and
that the protocol should then be re-submitted
to parliament. Before the Lausanne agree¬
ment can go into effect, it must also be rati¬
fied by the parliaments of the guarantor
states.
The terms of the Lausanne protocol have
once more emphasized Austria’s dependence
57. The Geneva Protocols No. II and III which provided for
the extension of the 1923 loan stated that, in the event of
any difference as to their interpretation, “the parties will ac¬
cept the opinion of the Council of the League of Nations.” It
was generally understood that any decision adopted by the
League Council under the terras of these protocols would re¬
quire unanimity.
58. Klein, “Oesterreich umsonst,” cited.
59. Journal de Gen&ve, July 17, 1932; “Les Travaux de
Geneve.” he Temps (Paris). July 17, 1932.
60. New York Times and New York Herald Tribune, August
18, 1932. For a detailed account of the debates, cf. Neue
Frcie Presse (Vienna).
61. New York Times, August 24. 1932. The Austrian Parlia¬
ment consists of two houses—the Nationalrat (lower house)
and the Bundesrat (upper house). According to the Austrian
constitution, a measure approved by the Nationalrat but re¬
jected by the Bundesrat must be re-submitted to tee former, and
becomes law if approved a second time.
264
Austria: the Paralysis op a Nation
on foreign assistance. The Austrians, who
before the war lived to a large extent at the
expense of other nationalities in the Haps-
burg empire, have found it difficult to adjust
themselves to the situation created by the
treaty of Saint-Germain. Divided on many
other issues, they are unanimous in attribut¬
ing their present plight to the peace settle¬
ment, and argue that the powers which im¬
posed this settlement are bound to make
adequate provision for Austria’s existence.
Instead of undertaking thoroughgoing re¬
forms, the Austrian government has conse¬
quently acquired the habit of appealing to
the League of Nations for aid and advice
in moments of crisis. As Austria has
assumed fresh political and economic obli¬
gations in return for financial assistance, it
has been forced to accept a growing measure
of foreign supervision, with the result that it
now has as many foreign advisers as a back¬
ward Oriental country—including a League
representative, M. Rost van Tonningen, at
the Ministry of Finance;“ a Belgian adviser,
M. Frere, in the National Bank; 83 a Dutch
adviser, Dr. van Hengel, in the Creditan¬
stalt; 84 and a Swiss adviser, Dr. Herold, for
the Federal Railways. 85 These advisers, all
paid by the Austrian government, are
charged with the task of recommending re¬
forms designed to effect economies in their
respective fields. Their work, however, is
seriously hampered by the fact that the gov¬
ernment is reluctant to assume responsibility
for unpopular reforms, such as reduction of
unemployment benefits. Furthermore, it is
charged, that the advisers are more inter¬
ested in satisfying the demands of Austria’s
foreign creditors than in rehabilitating the
country’s economy, and the high salaries
which they receive have been the object of
bitter attack. 88 These criticisms furnish fuel
to the Austrian nationalists, who advocate
repudiation of all foreign indebtedness and
termination of Austria’s financial “slavery.”
62. M. van Tonningen. who serves as a representative of the
League Financial Committee, was appointed in September 1931,
following an inquiry by the Committee into Austria’s financial
situation. League of Nations, Financial Positioni of Austria in
the Last Quarter of 1931, cited, p. 2. He is responsible to the
League Council, which may remove him. The expenses of the
representative and of his office must be approved by the
Council and defrayed by Austria. League of Nations, Tha
Austrian Protocol, cited. Annex III, p. 6.
63. By Article 7 of the Lausanne protocol, the Austrian
government undertook to request the League Council for the
nomination of an adviser to the National Bank, and the
Council named M. Frere for that post on July 15, 1932. The
bank adviser, like the League representative, is responsible to
and removable by the Council, which may terminate his ap¬
pointment when it decides that his services are no longer re¬
quired. League of Nations, The Austrian Protocol, cited, Annex
III, p. 6.
64. Cf. p. 259.
65. Dr. Herold was appointed adviser for the Federal Rail¬
ways in January 1932, in accordance with the Austrian govern¬
ment’s pledge, given the League of Nations in September 1931,
to undertake railway reforms.
66. It is reported that, before assuming the office of general
manager of the Creditanstalt, Dr. van Ilengel demanded the
conclusion of a three-year contract calling for an annual salary
of $110,000 and payment of a retainer of $12,000 in gold bars.
THE FEDERAL BUDGET
Responsible Austrian leaders, however,
realize that certain reforms are imperative
if the country is to escape bankruptcy. The
most pressing internal problem has been that
of the federal budget, which in 1931 closed
with a deficit of over 300,000,000 schillings,
but which the government hopes to balance
in 1932 by effecting various “permanent
economies.”* 7 These economies, in the opin¬
ion both of foreign advisers and of many
Austrian experts, may best be effected by a
reform of unemployment insurance and a re¬
organization of the Federal Railways, which
ai'e regarded as the principal drains on the
budget.
Unemployment, a chronic phenomenon in
Austria since the war, has risen steeply dur¬
ing the past two years, and in the winter of
1931 it was estimated that every twelfth
Austrian was out of work, with nearly 400,-
000 receiving unemployment benefits, while
some 16,000 were thrown entirely on their
own resources. 88 Contributions by workers
and employers have not been sufficient to
meet the mounting cost of unemployment
benefits, 88 with the result that the federal
government has been obliged to cover the
deficit in 1931-1932 by advances which total
126,500,000 schillings, and which will be met
by a “crisis” supplement to the sales tax.
Downward revision of unemployment bene¬
fits, which now range from 14 to 21 schillings
a week, has been advocated as the only
method of checking this increase in federal
expenditure. The Social Democrats, how¬
ever, oppose any reduction in unemployment
benefits, the cost of which, in their opinion,
should be covered by an increase in the in¬
come tax and a cut in army and police ap¬
propriations.™ Reduction at the present time,
moreover, would prove particularly onerous
for the unemployed, as the cost of living
has risen steadily owing to import re¬
strictions. Nor do public works or settle¬
ment of the unemployed in agricultural com¬
munities offer a solution of unemployment,
in view of Austria’s lack of capital and the
scarcity of unused arable land.
The situation of the Federal Railways is
also alarming. The railways show an annual
deficit, which in 1931 amounted to 83,100,000
schillings, and which must be met by the
state. This deficit is due only in part to the
decline in traffic receipts. The chief diffi¬
culties may be traced to two causes—ineffi¬
cient and bureaucratic administration, in-
67. The Economist (London), November 26, 1932, p. 983.
GS. The Economist (London), February 3, 1932, p. 354;
Ocstcrreichisches Jahrbuch 1931, Vienna, Manzsche Verlags-
und Universitats Buchhandlung, 1932, p. 173.
69. Unemployment benefits are paid out of a fund, 50 per
cent of which is normally contributed by employers and 50
per cent by workers and employees, the federal government
furnishing only one-third of the cost of administering unem¬
ployment insurance.
70. Social Democratic Party. Der Weg aus dem Elend
(Vienna. Volksbuchhandlung, 1931), p. 31.
January 4, 1933
265
volving unnecessary expenditure and red
tape, and the high cost of pensions paid to
employees whom the railways were forced
to dismiss after the breakup of the Hapsburg
empire. In a report presented in May 1932
Dr. Herold outlined a program of reforms
which would transfer certain financial bur¬
dens from the budget of the railways to state
and local budgets, and would reduce expendi¬
ture by methods ranging from the extension
of the eight-hour day to savings in purchase
of materials. The principal economies, how¬
ever, would be effected by a further reduc¬
tion of the staff and a decrease in pensions."
While the Austrian government, by the Lau¬
sanne protocol, is pledged to carry out this
program “without delay,” the Social Demo¬
crats oppose any measures which threaten to
increase unemployment or lower the stand¬
ard of living of railway workers.
THE POLITICAL OUTLOOK
All efforts at internal reform are seriously
hampered by the political deadlock which has
existed in Austria since the war.” Power is
almost evenly divided between the conserva¬
tive and Catholic Christian Socialists, en¬
trenched in the provinces, who dominate the
federal government where they represent the
interests of the peasants and the “big bour¬
geoisie,” and the Social Democrats, who rule
Vienna, and whose adherents are principally
workers and intellectuals.” A varying degree
of influence is exercised by other political
groups—the Pan-Germans, who recruit their
followers among civil employees and the pro¬
vincial bourgeoisie, and devote their efforts
to the cause of Austro-German union; the
Economic party formed by the late Dr. Scho-
ber, which rallies moderate bourgeois ele¬
ments opposed to reaction; the Landbund, a
peasant group interested solely in the ad¬
vancement of agriculture; and the Heimat-
bund, organized in 1930, which represents
the Heimwehr, a reactionary bourgeois mili¬
tia financed by big industry, commerce and
banking, and reported to be on good terms
with the German Stahlhelm. The real
struggle, nevertheless, has been waged be¬
tween the bourgeois state and socialism, be¬
tween the provinces and “Red Vienna,”
which contains nearly one-third of the coun¬
try’s population.
Recently, however, the power of both
Christian Socialists and Social Democrats
has been challenged by Hitlerism, which
threatens to absorb the smaller conservative
parties. The Austrian Hitlerites, as yet un¬
represented in the lower house of Parliament,
made striking gains in the provincial elec¬
tions of April 24, 1932,” and are rapidly win¬
ning the support of the lower bourgeoisie
and the unemployed youth of all classes. The
71. League of Nations, Financial Position of Austria in the
Second Quarter of 1932, cited, p. 3 and 5-7.
72. For works on Austria’s political history, cf. Otto Bauer,
Die oesterreichische Revolution (Vienna, Volksbuchhandlung,
1923) : Malbone W. Graham, New Governments of Central
Europe (New York, Holt, 1923) ; Charles Eisenmann, Dix ans
d y Histoire Constitutionelle Autrichienne (Paris, Giard, 1928);
B. Mirkine-Guetzevich and Andre Tibal, L’Autriche (Paris, Dela-
grave, 1932).
73. Of 165 deputies elected in November 1930 to the lower
house of the Austrian Parliament, 72 were Social Democrats,
66 were Christian Socialists, 10 belonged to the Economic party
(including 8 Pan-Germans), 8 to the Heimatbund, and 9 to the
Landbund. Guetzevich and Tibal, L'Autriche, cited, p. 57.
75. New Yorlc Times, May 1, 1932.
Hitlerite program, which is even vaguer and
more heterogeneous than that of the German
Nazis, is bitterly anti-Semitic and is directed
primarily against socialism. The three-
cornered struggle between Christian So¬
cialists, Social Democrats and Hitlerites,
which is expected to play a decisive part in
the next parliamentary elections, is all the
more serious because of the existence of
three party militias—the Heimwehr, the So¬
cialist Schutzbund and the Hitlerite Heimat-
schutz, which have already engaged in occa¬
sional clashes.- Many observers believe that
Hitlerite success at the polls might temporar¬
ily unite Christian Socialists and Social
Democrats in a coalition government, such
as existed in the early days of the republic,™
and might facilitate concerted action on some
of the country’s pressing problems. The di¬
vergent policies of the two parties, however,
make such a coalition problematical.
The Christian Socialists have on the whole
supported the Austrian republic as estab¬
lished by the constitution of 1920, and have
given little open encouragement to Hapsburg
restoration. By subsidies and tariff meas¬
ures they have vigorously encouraged agri¬
culture, often at the expense of industry.
With the aid of the smaller conservative
groups, the Christian Socialists have suc¬
ceeded in controlling every cabinet since
1921. The fact that the party has tolerated,
if not actually supported, the activities of the
reactionary Heimwehr, however, has recent¬
ly alienated its moderate elements, and the
Christian Socialists must now decide whether
they will continue to exist as a bourgeois
party, or will outbid the Hitlerites by defin¬
itely swinging over to reaction. The death
in August 1932 of Mgr. Ignaz Seipel, the
most distinguished figure in Austria’s post¬
war politics, deprived the party of leader¬
ship at a critical moment. Dr. Victor Kien-
boeck, an authority on financial matters, who
was appointed president of the Austrian Na¬
tional Bank in February 1932, has been
prominently mentioned as Mgr. Seipel’s sue-
76. The Renner cabinet (February 1919-June 1920) consisted
of 6 Social Democrats, 5 Christian Socialists and 4 non-party
members, while the Mayr cabinet (October 1920-June 1921) was
composed of 6 Social Democrats, 7 Christian Socialists and
one Pan-German. Guetzevich and Tibal, L’Autriche, cited, p.
7 and 11.
266
Austria: the Paralysis of a Nation
cessor. While Dr. Kienboeck commands gen¬
eral respect, many observers believe that he
lacks the political experience necessary to
unite the party on a workable program.
The Social Democrats, led by Otto Bauer
and Karl Renner, are perhaps the most radi¬
cal and active socialist party in Europe. The
Social Democratic program, which advocates
gradual socialization to be effected by legal
means, is frankly opposed to communism,
and has been described as Austro-Marxism.
By their achievements in housing and social
welfare, the Social Democrats have won tan¬
gible advantages for the workers without as
yet resorting to revolutionary tactics or
thoroughgoing socialization. The prospects of
the Social Democrats, however, are distinctly
limited by the fact that they enjoy little fol¬
lowing outside of Vienna and other industrial
centers, and have as yet failed to win the
support of the peasants.
HAS AUSTRIA A FUTURE?
Even if the Social Democrats, considered
by many observers the ablest party in Aus¬
tria, should eventually gain control of the
federal government, it is doubtful that they
could materially improve the economic situ¬
ation unless the country’s natural resources
are increased or its foreign markets ex¬
panded. The world crisis, by creating fresh
obstacles to Austrian trade, has strengthened
the conviction that Austria is unable to exist
as an independent economic unit, and that
only a customs union with one or more states
offers a chance of survival. No agreement
has been reached, however, as to the states
with which it would be desirable to conclude
such a union. While Austrian economists
almost unanimously believe that salvation
can be achieved only by union with Ger¬
many, the fiasco of the Vienna protocol and
the conditions attached to the Lausanne loan
preclude this development in the near future.
Moreover, while both Christian Socialists
and Social Democrats continue to pay lip-
service to Austro-German collaboration, they
feel little enthusiasm for economic rap¬
prochement with the Reich as long as na¬
tionalism and Fascism are in the ascendant
in Germany.
The French plan for a Danubian union
has met with scant sympathy in Austria,
where it is regarded as an impracticable
scheme devised solely to consolidate France’s
political control over Central and Eastern
Europe. Austrian economists argue that the
relative importance of inter-Danubian trade
has steadily declined since 1923, owing
largely to the disastrous effect of the com¬
mercial policies followed by the Danubian
countries and to the far-reaching agrarian
crisis, and that a preferential system, such
as that proposed by France, would not alle¬
viate the situation unless agricultural prices
rise, and trade and exchange restrictions are
abandoned.”
The solution of Austria’s economic diffi¬
culties which has won most favor among
Austrian industrialists and business men is
77. Cf. also “The Danubian Problem/* Tl\e Economist (Lon¬
don), May 14, 1932, p. 1061.
the formation of an industrial middle-Euro-
pean bloc composed of Germany, Austria and
possibly Czechoslovakia, which could trade
on a preferential basis with an agrarian bloc
consisting of Hungary, Rumania and Yugo¬
slavia. This proposal, which has many ad¬
herents in Germany, is supported by the
argument that German trade with the Danu¬
bian countries has made striking gains since
1924,” and that only a preferential system
which includes Germany would bring real
improvement in the Danubian region.” The
formation of an industrial Mitteleuropa,
however, is at present hampered by France’s
opposition to German participation in any
tariff arrangement with Austria. Yet France
can offer Austria no tangible inducements
to abandon its orientation toward Germany,
as it takes less than three per cent of Aus¬
trian exports, and has been reluctant to lend
Austria money without political conditions
and international guarantee.
Under the circumstances, Austria’s future
does not lend itself to happy augury. The
limitation of its natural resources and its
peculiar dependence on foreign trade must
block recovery as long as Europe remains
shackled by tariffs and exchange restric¬
tions. Nor can foreign loans, which merely
postpone the inevitable reckoning, offer a
sound solution of its problems. Revision of
the peace treaties, which might perhaps en¬
large Austria’s internal market, is not only
impracticable in a period of sharpened na¬
tionalism, but perhaps even undesirable.
Economic self-sufficiency, while not incon¬
ceivable as a last resort, could be achieved
only by reducing the Austrian standard of
living below the subsistence level. Austria’s
only hope is that its principal customers will
be driven by sheer necessity to readjust their
tariffs and abandon exchange restrictions,
and that Vienna may then again become the
middleman of Central and Eastern Europe—
a function for which it is admirably equipped
by its geographical position.
78. “The Danubian Problem. IL The Effect of Prefer¬
ences." ibid.. May 21, 1932, p. 1122.
79. G. E. R. Gedve. “The French Schemes for Danubian
Europe," The Contemporary Review, May 1932, p. 660.