BRITISH PARTICIPATION IN THE EFFORT

TO RECONSTRUCT AUSTRIA
1919-1926
By

©Edward X. Clinton

July 1994
Revised
July 2009

30 North LaSalle Street

Suite 3400
Chicago, IL 60602
eclinton@aol.com
 World War I ended in 1918 when the Allied powers, including Great Britain,

France, Italy and the United States defeated Germany and Austria-Hungary. Because

they had won the war, the Allies dictated the terms of the peace treaties, which

reshaped the borders of Germany and Austria-Hungary. The peace treaties reduced the

size of the German Empire by requiring it to cede territories to Poland and France and

divided Austria-Hungary into several states, which included Austria, Hungary,

Czechoslovakia, Yugoslavia and Bulgaria.

In the period after the war, the new states which had constituted Austria-Hungary

faced many organizational and economic difficulties. This essay will focus on the

organizational problems which confronted the Austrian Republic and the response of

other European countries, and specifically Great Britain, to those problems. In 1919, for

example, the Austrian Republic encountered severe economic problems, caused in part

by inadequate supplies of food and coal. The Austrian economy also suffered from an

extremely high rate of inflation. These economic problems were in part responsible for

a period of severe political instability which the Austrian government found impossible to

solve. Throughout the period 1919 to 1922 the Austrians sought to obtain international

financial assistance to combat Austria's financial problems.

Between 1919 and 1926, the British experimented with several policies that they

hoped would encourage the development of an independent Austrian state. As I shall

explain, in the early period, the British encouraged international emergency loans to

Austria as well as efforts by British capitalists to acquire shipping and railway

companies in Central Europe. The British later shifted to a policy of international

responsibility. Under this policy, the British Government supported the creation of a
financial reconstruction plan, under the auspices of the League of Nations, for Austria.

Austria accepted the plan, which operated from October 1922 until July 1926. As we

shall see, however, the League plan successfully stabilized Austria's finances but it did

not solve the underlying economic problems.1

I. The Food and Coal Supply Problems of the Austrian Republic in 1919 and
1920.
As I noted above, during the period immediately after World War I Austria's

economy suffered from severe shortages of food and coal, high unemployment and

unchecked inflation.2 The food shortages existed despite the efforts of the Allied Relief

Commission, which had been responsible for Austrian Relief from the November 1918

Armistice until August 15, 1919. The director of the Allied Relief Commission, Herbert

Hoover, estimated that the Commission spent approximately $100,000,000 for

provisions for Austria during that period.3

Most of the food supplies for Austria were paid for with loans from the United

States because the Austrian Government could not pay for the supplies. Hoover had

arranged a loan from American banks of $45,000,000 to the Allies.4 The Allies loaned

that money to Austria for payment for food supplies. By Hoover's calculations Britain

1 For stabilization of other European Countries see Charles S. Maier, Recasting

Bourgeois Europe: Stabilization in France, Germany and Italy in the Decade after
World War I, Princeton University Press, Princeton New Jersey (1975).
2 There are numerous British assessments of Austria's economic problems in
Documents on British Foreign Policy, 1919-1939, First Series, edited by E.L. Woodward,
J.P.T. Bury, Rohan Butler, W.N. Medlicott, Douglas Dakin and M.E. Lambert (hereinafter
cited as DBFP). See especially, vol. 6, No. 25 and No. 112, vol. 12, No. 265, and vol.
24, No. 94, No. 99, and No. 215. These documents are discussed below in Part I.
3 Herbert Hoover, The Memoirs of Herbert Hoover: Volume 1, Years of Adventure,
1874-1920. pp. 395, New York, Macmillan, 1952.
4 See id. at 393.
loaned Austria $15,709,631, France loaned $5,500,000 and Italy $1,000,000.5 The U.S.

loan was never repaid by Austria.6

By their accounting, the Allies loaned Austria $48,000,000 for food supplies

during 1919. This amount had been secured by interests in certain Austrian assets.7

The Allied relief effort concluded in September 1919.8 After the Allied Relief

Commission was disbanded, the Commission on Reparations was responsible for

making sure that there were adequate food supplies in Austria.9

The efforts of the Allied Relief Commission did not fully solve the substantial

shortage of food in Vienna in 1919. On June 3, 1919, Sir Francis Oppenheimer, a

veteran British diplomat who had recently visited Vienna reported that: "[t]he new

Austria, which is neither politically nor economically the heir of the late Austrian empire,

is economically and financially bankrupt unless assisted from without; it is on the verge

of famine, its working classes are demoralized, the Government is powerless and

compelled to pay the idlers substantial wages."10 On June 20, Oppenheimer warned

that "[t]he want of food is little short of a real famine--at least in Vienna."11

The shortage of food was accompanied by a severe coal shortage. In June

5 See id. at 395.

6 See id. at 393.
7 DBFP, vol. 2, No. 27, Notes from a Meeting of the Supreme Council on
November 20, 1919, Appendix E, p. 370.
8 DBFP, vol. 1, No. 13, Notes of a Meeting of the Heads of Delegations of the Five
Great Powers, Paris, July 17, 1919, p. 118.
9 N. Almond & R. H. Lutz, The Treaty of St. Germain: A Documentary History of Its
Territorial and Political Clauses, Hoover War Library Publication No. 5., (1935) Stanford
University Press, Stanford California, Doc. 56, Clemenceau to Renner, July 17, 1919,
pp. 107-08.
10 DBFP, Vol. 6, No. 25, Enclosure 1, June 3, 1919, Memorandum by Sir Francis
Oppenheimer relative to the situation in Austria.
11 Id. Vol. 6, No. 25, Enclosure 2, June 20, 1919, Memorandum prepared at the
request of the Chancellor of the Exchequer relative to the situation in Austria.
1919, Oppenheimer estimated that Austria had perhaps received one third of the coal it

required in 1919.12 In July 1919, Colonel Cuninghame, A British military officer stationed

in Vienna, stated that "[s]o bad is the coal supply now that the electric trams and electric

lighting institutions have only reserves for a few days."13

Austria's difficulties in securing supplies of food and coal became a matter of

great concern to the Allies. In July, 1919, the Supreme Council of the Allies discussed

Austria's food supply problems with Hoover.14 The British representative, Lord Balfour,

stated that "[t]he main point was that it was desirable to set up Austria economically.

She could not be left to starve. Food must be advanced to her either on such securities

as existed, or she must be put in a way to earn money."15 Balfour also recognized that

Austria could not afford to pay reparations to the Allies.16 He stated: "Mr. Hoover's

proposal was first to encourage the Austrians by a promise [of further food supplies],

and secondly, to tell the Reparation Committee to think first of making Austria a paying

concern before getting money out of her. This appeared to him [Balfour] to be the most

statesmanlike method. If a man were kept alive by charity, he could not be asked to pay

his debts."17

On September 17, 1919, at a meeting of the Committee on Organization of the

12 DBFP vol. 6 No. 25 at 51 n. 8. Memorandum prepared at the request of the

Chancellor of the Exchequer relative to the situation in Austria.
13 DBFP Vol 6 No. 70 at 107, July 29, 1919, Letter from Colonel Sir. T. Cuninghame
(Vienna) to Colonel Twiss (Paris).
14 DBFP vol. 1 No. 13. Minutes of the Meeting of the Supreme Council on July 17,
1919 p. 118.
15 Id. at 118.
16 Id.
17 Id., p. 118-19. The Reparation Committee was responsible for obtaining
reparations from the governments of Germany and Austria. This committee had control
over the all of the assets of both countries.
Reparation Commission, representatives of the Allied governments again expressed

their concern that Austria's supplies of food and coal would soon be exhausted.18 The

representative of the United States stated that "Austrian stocks would be exhausted by

the beginning of December."19 In October, Colonel Cuninghame reported that "[t]he City

[Vienna] is without coal, with only 5 1/2 days of grain, and without prospect of any sugar,

meat or fats. Nothing will better the situation except early and drastic action by the

Entente [the Allies] to relieve the immediate situation."20

The food shortage did not abate during the Autumn of 1919. At a November 20,

1919 meeting of the Supreme Council of the Allies, the French delegate, Louis

Loucheur, stated that "[g]rain was already scarce in Vienna and within three weeks it

would be completely lacking."21 The British delegate to the meeting reported that there

was only a one week supply of flour in Vienna.22

The autumn of 1919 saw no relief in the coal shortage either. In January 1920,

the British Ambassador to Austria, Francis Lindley wrote that: "[the] [c]oal shortage is

now distinctly more critical than at any previous time. All passenger traffic has been

stopped, for last 10 days in Austria and electric light and tramways in Vienna may cease

altogether in next few days unless coal delivery increases."23

The Austrians had previously attempted to solve the coal shortage by inserting a

18 DBFP, Vol. 6, No. 181, at 240, Record of a Meeting in Paris on September 17,
1919, of the Committee on Organization of the Reparation Commission.
19 Id. at 240.
20 DBFP, Vol. 6 No. 219 at 299, Letter from Sir T. Cuninghame to Mr. Oliphant [of
the Foreign Office].
21 DBFP, vol. 2 No. 27 Meeting of the Supreme Council on November 20, 1919 at
359.
22 DBFP, vol. 2 No. 27 Meeting of the Supreme Council on November 20, 1919 at
361.
23 DBFP vol. 6, No. 405, p. 549, January 1, 1920, Lindley to Earl Curzon.
clause into the Peace Treaty. In August, 1919, the Austrians requested that Poland and

Czechoslovakia be required "to supply Austria with the same amount of coal that Austria

received from the areas ceded to [those] States before the dismemberment of the

Austro-Hungarian monarchy."24 After the proposal was rejected by Poland and

Czechoslovakia, the Supreme Council inserted several clauses into the Peace Treaty

which provided for an exchange of raw materials between the states. In the interim the

Reparations Commission would have authority to manage the trade.25 This decision by

the Supreme Council did not solve the coal shortage because the Reparations

Committee itself had not been organized and its members were occupied with other

problems.26

Observers in Vienna believed that both the food and coal shortages were caused

in part by the hostility of Austria's neighbors towards Austria and in part by

organizational difficulties encountered by the new states. In a November 1919 report to

the Supreme Council, the Austrian sub-commission of the Reparations Commission

blamed the food shortage in part on "the failure of the neighboring states to deliver

foodstuffs contracted for by Austria."27 The Sub-Commission reported that the Serbian

government had refused to perform its contract to supply food to Austria unless the

24 DBFP vol. 1 No. 44, Notes of a Meeting of the Heads of Delegations of the Five
Great Powers held on August, 27, 1919, p. 554.
25 Id. at 554-555.
26 DBFP, vol. 2, No. 27, Appendix E, Committee on the Organization of the
Reparations Commission to the Supreme Council ("CORC"), November 14, 1919, p.
369-71. In November 1919, the Reparations Committee had not been established.
CORC had been occupied with drafting a plan for an emergency loan to Austria.
27 DBFP, vol. 2 No. 27, November 20, 1919 Meeting of the Supreme Council at 371
n. 9.
Austrians agreed to pay a 40% export tax.28

The British diplomats believed that the coal shortage was partly the result of the

creation by neighboring states of customs barriers on Austria's main trade routes. In

October 1919, Colonel Cuninghame argued that the coal shortage was due to a

"blockade carried out by the neighboring States against Austria."29 The British also felt

that the coal shortage was caused by the reluctance of Austria's neighbors to return

Austrian railcars. In his October 1919 letter, Colonel Cuninghame wrote that: [t]he

Austrians have sent rolling stock into Bohemia [under the] terms of the original coal

contracts. The Czechs have retained these, and the Austrians have no more, so cannot

carry coal from elsewhere."30 In November, 1919, the newly appointed British Minister

to Vienna, Francis Lindley, reported that the coal shortage was due to the hostility of

Austria's neighbors.31 Lindley wrote that:

While it is obvious that these States [Austria's neighbors] have most serious
internal difficulties to contend with, it is equally clear to any impartial observer
that they make no serious efforts to meet their engagements. The whole attitude
of the Czecho-Slovak authorities, both in the matter of transit traffic and frontier
regulations, is as harassing to Austria as can well be imagined and, so long as
this attitude is maintained, no material relief can be expected either from Poland
or Czechoslovakia.32
The British also recognized that the shortages of coal and food had been caused

by organizational difficulties associated with the dissolution of the Empire. In June

1919, Oppenheimer recognized that before the empire had been dissolved, Vienna had

28 Id. at 371, n. 9.
29 DBFP, vol. 6 No. 219 at 298. Letter from Sir T. Cuninghame to Mr. Oliphant.
30 DBFP, vol. 6 No. 219 at 298, Letter from Colonel Sir T. Cuninghame to Mr.
Oliphant (of the Foreign Office).
31 DBFP, vol. 6, No. 252 Lindley to Earl Curzon, November 4, 1919, p. 328.
32 Id. p. 328.
been the "traffic centre of roads, rails and waterways."33 After the war, the imperial trade

routes had been disrupted by the new borders (and tariffs) of Austria's neighboring

states. In his January 1920 letter, Lindley argued that the coal shortage had been

caused by the mismanagement of the railways.34 This mismanagement was the result

of the creation of new borders and the hostility of Austria's neighbors towards Austria

discussed above.

I. A. The Concerns of the British Diplomats.

The severe shortages of coal and food supplies in Vienna were of great concern

to the British. British diplomats believed that unless Austria developed into a stable and

independent state it might attempt a union with Germany, or Anschluss. The British also

believed that if Austria's economic troubles became much worse it would experience a

Communist revolution.

British diplomats who were aware of Austria's economic troubles in 1919 and

1920 understood that the political movement to unify with Germany, or Anschluss, was

very popular. In his Memorandum relative to the situation in Austria, Oppenheimer

explained that the Anschluss movement was supported by certain segments of the

population, including the Social Democratic party. He also reported that "[s]ome of the

intelligent industrials also support this policy of fusion with Germany because they

regard Germany as their most natural market."35 Oppenheimer insisted that "[t]he

majority of the people never desired the fusion with Germany provided there was any

33 DBFP vol 6 No. 25, June 3, 1919, Memorandum by Sir Francis Oppenheimer
relative to the situation in Austria, p. 42.
34 DBFP vol 6, No. 405, January 1, 1920, Lindley to Earl Curzon, p. 549.
35 DBFP, vol. 6, No. 25, Enclosure 1, Memorandum by Sir Francis Oppenheimer
relative to the situation in Austria, p. 43.
other escape from utter collapse."36 Oppenheimer was confident that the Anschluss

movement would wither if Austria became "self-supporting economically and

financially."37

The British hoped to prevent an Anschluss. As the British diplomats saw it,

German control of Austria would reduce British trade and influence in Central Europe.

In June 1919, Oppenheimer argued that if unification occurred, Austria "would become

the jumping-off ground from where Germany would prepare a new attempt to satisfy her

'Drang nach dem Osten.'"38 According to Oppenheimer, the unification would also

create a German block bordering on Italy and would "present a new danger to Czecho-

Slovakia."39 Oppenheimer believed that "there is little doubt that the Germans [in

Czechoslovakia] would make a determined effort to join Germany once the fusion

between new Austria and Germany [had] shown the way."40 A Senior British diplomat in

the Foreign Office, C. Howard Smith, agreed with Oppenheimer that the union of Austria

with Germany would place the Czech republic in jeopardy.41

The British also thought that the shortages of food and coal in Vienna might

possibly provoke a communist, or Bolshevik, revolution.42 In April 1919, Lord Acton

36 Id.
37 Id., p. 41.
38 DBFP vol. 6, No. 25, Enclosure 1, Memorandum by Sir Francis Oppenheimer
relative to the situation in Austria, June 3, 1919, p. 44.
39 Id. at 44.
40 Id. at 45.
41 DBFP vol. 6, No. 112, Foreign Office Memorandum, August 15, 1919, p. 155.
42 Gyorgy Ranki, Economy and Foreign Policy: The Struggle of the Great Powers
for Hegemony in the Danube Valley, 1919-1939, East European Monographs, Boulder,
Columbia University Press (1983), p. 7. According to Ranki, during this period the Allied
Powers hoped that stable independent republics like Austria would help contain the
Bolshevik revolution. A Communist revolution, in their view, would destabilize Central
Europe and create a security risk for the Allies. Id.
informed Lord Curzon that "[t]he present situation in Austria and Vienna is such that the

entire country is becoming imbued with Bolshevik ideas. . . ."43 Colonel Cuninghame

believed that there had been a substantial danger of a Bolshevik outbreak in Austria

while the Bolshevik Bela Kun had been in power in Hungary in early 1919.44 After Bela

Kun fell from power, Cuninghame believed that the communist movement had become

"innocuous."45 Oppenheimer agreed. He did not consider communism to be as serious

a threat to the Austrian Republic as the Anschluss movement. In his June 1919

memorandum, Oppenheimer maintained that "[a]s long as there is hope that the Allies

will save the country from utter ruin, Bolshevism has little chance of success--though

outbreaks might occur in certain districts of Vienna."46 In the autumn of 1919 Colonel

Cuninghame became more concerned about the Bolshevik threat. In October, he wrote

that "[i]n Vienna the Communist groups are preparing again to take advantage of the

unrest which will accompany any duration of the present misery when the cold weather

comes."47

The food and coal supply crisis also motivated Oppenheimer to propose a

comprehensive outline for the economic reconstruction of Austria. Oppenheimer first

43 British Documents on Foreign Affairs, eds. Kenneth Bourne, D. Cameron Watt,

Part II, Series F, Europe 1919-1939, ed. Christopher Seton Watson, Volume 1, Central
Europe 1919-1922, University Publications of America (1990), Document 8, Lord Acton
to Earl Curzon, April 15, 1919.
44 DBFP vol. 6, No. 147, August 28, 1919 Letter from Colonel Sir T. Cuninghame
(Vienna) to Sir. R. Graham, p. 193-94.
45 DBFP vol. 6, No. 147, August 28, 1919 Letter from Colonel Sir T. Cuninghame
(Vienna) to Sir. R. Graham, p. 194.
46 DBFP, vol. 6, No. 25, Enclosure 1, Memorandum by Sir Francis Oppenheimer
relative to the situation in Austria p. 43.
47 DBFP, vol. 6, No. 219, Letter from Colonel Sir. T. Cuninghame (Vienna) to Mr.
Oliphant., p. 299. During the period 1919-1926 the Austrian communist movement
made no major effort to seize power. The British monitored the activities of the
communists closely throughout the period.
discussed the proposed terms of the Austrian Peace Treaty. The draft peace treaty

treated Austria like Germany. Austria would have to pay substantial reparations to the

victorious Allies.48 Oppenheimer believed that the draft Peace Treaty's terms were too

harsh. In his Memoirs he stated: "[i]t seemed to me incomprehensible that Austria

should be presented with a miniature German Peace Treaty when there were such

glaring fundamental differences in their respective situations, economical and

political."49 In his Memorandum Oppenheimer argued that Austria could not be

expected to pay reparations because Austria was "economically and financially bankrupt

unless assisted from without."50 He further argued that "[i]f any sum is at all demanded

by way of raparation [sic], payment of the first installment should be remitted to a date

sufficiently remote not to impede Austria's industrial recovery."51

Oppenheimer argued that the Allies should provide substantial loans to Austria to

allow the purchase of supplies of food and coal. He wrote: "[l]iberal Credits will have to

be granted for the feeding of Austria. Unless Austria can thus be fed from without,

chaos must supervene--a chaos which would eventually endanger the whole of Central

Europe, because Bolshevism would no longer be confined within the borders of

48 See David Thomson, Europe Since Napoleon, Penguin Books, New York (1966),
p. 628 (The Treaty of St. Germain was modeled closely on the Treaty of Versailles).
The Allies conceived of the reparations as a means to recoup the costs they had
incurred in waging World War I. Reparations are equivalent to damages awarded in a
civil lawsuit. The reparations sought from Germany and Austria were also in part
punitive. The Allies hoped to deter others from waging war. See Gordon A. Craig,
Germany 1866-1945, Oxford University Press, Oxford England (1981) pp. 436-37
(discussing reparations).
49 Oppenheimer, Stranger Within, Autobiographical Pages, Faber & Faber London
(1960), p. 372.
50 DBFP, vol. 6, No. 25, Enclosure 1, Memorandum by Sir Francis Oppenheimer
relative to the situation in Austria, June 3, 1919, p. 40.
51 Id., p. 46.
Hungary."52 According to Oppenheimer, "[f]urther credits will be required for the supply

of raw materials if Austria is to be saved by the Allies."53 Oppenheimer hoped that the

proceeds of the loans could be used to purchase coal and other raw materials, which

would be used by local industries.

To insure the proper use of the loans, Oppenheimer believed that the Allies

should obtain control of "Austrian public financial and economic institutions" until the

Austrian economy was stable.54 This control would be necessary because the "present

Government, deprived of its army, lacks the authority to carry out any real reforms."55

He also recommended that the Allies set up a new note-issuing bank to replace the

defunct Austro-Hungarian bank.

Oppenheimer also sought to improve the conditions of trade in Central Europe.

He proposed that "a close economic intercourse be established among at least the

majority of the States embracing parts of the late Austrian Empire."56 Oppenheimer

reflected that:

The best chance perhaps of an Austrian recovery arises, however, out of the
position which Vienna occupied in the old Empire as the clearinghouse for its
various parts. If a similar position (even on a reduced scale) can be secured for
Vienna, both the new Austria and Vienna can be saved. . . . This presupposes
some close economic intercourse between the new States--a task which with
their prestige the Allies can accomplish, and which need not necessarily take the
form of a Customs' Union. The various parts of the old Empire were
interdependent . . . and, similarly, the new States will be interdependent.57
Oppenheimer's "Memorandum to the Chancellor of the Exchequer" reveals that

he believed that the British could profit by the reconstruction of Austria, and by the

52 Id., p. 45.
53 Id., p. 45.
54 DBFP vol. 6, No. 25.
55 Id., p. 47.
56 Id., p. 42.
57 Id., p. 46-47.
creation of "close economic intercourse between the successor states." He hoped that

the four large Danube shipping companies could be combined, perhaps under British

control.58 Oppenheimer hoped that British capital would participate in the establishment

of the new Austrian note-issuing bank or acquire the entire bank.59 Oppenheimer also

warned the Chancellor of the Exchequer that other governments would attempt to

secure advantages in Austria if the British did not. He commented: "[i]t can hardly be in

the interest of the Allies to allow these plums to fall into the lap of our enemies."60

The British Government was unwilling to embark on Oppenheimer's broad

reconstruction plan. After receiving Oppenheimer's report, the British Treasury replied

that it was impossible for the British to consider a loan to Austria independently of the

Allies.61 The Treasury concluded that the issue of whether to grant a reconstruction

loan would be referred to the peace delegation. The Treasury also noted that British

resources were scarce and that "any assistance which could be given, even in

conjunction with the Allies, would be very limited in amount."62 The Allies also

showed no interest in removing the reparations clauses from the Peace Treaty. The

reparation clauses remained in the final version of the Treaty.63

The British and the other Allies did, however, attempt to solve the Anschluss

threat by prohibiting unification in the Peace treaty with Austria, the Treaty of St.

58 Id., Enclosure 2, June 20, 1919, Memorandum prepared at the request of the
Chancellor of the Exchequer relative to the situation in Austria., p. 52.
59 Id., p. 51. If British capitalists were able to acquire Austria's note-issuing bank, it
would give them enormous influence in Austria's government and in its commercial
affairs.
60 Id., p. 49.
61 DBFP vol. 6, No. 112, Foreign Office Memorandum [prepared by C. Howard
Smith], August 15, 1919, p. 154.
62 Id., p. 154.
63 See e.g., Oppenheimer, p. 372 n.2.
Germain. Article 88 of the Treaty states:

The independence of Austria is inalienable otherwise than with the consent of the
Council of the League of Nations. Consequently, Austria undertakes in the
absence of the consent of the said Council to abstain from any act which might
directly or indirectly or by any means whatsoever compromise her independence,
particularly, and until her admission to membership of the League of Nations, by
participation in the affairs of another Power."64
In addition, in a December 1919 letter to Chancellor Renner of Austria, the Supreme

Council of the Allies stated that the Allies "will oppose all tentatives [initiatives?] of a

nature to injury Austrian integrity, or which, contrary to the stipulations of Article 88 of

the . . . Treaty, would result in compromising in any way, whatsoever, either directly or

indirectly, the political or economic independence of Austria."65 Germany was also

prohibited from seeking an Anschluss. Article 80 of the Treaty of Versailles states that

Germany agrees that Austria's independence is inalienable except with the consent of

the Council of the League of Nations.66

In the fall of 1919, as I noted above, the British chose to cooperate with the Allies

in a search for a solution to Austria's food supply problems. In November, the

Committee on Organization of the Reparation Commission ("CORC") prepared a

reconstruction proposal. The most important feature of the plan was a loan of

$100,000,000 to Austria, which CORC believed would cover the costs of food supplies

and coal for six months while the Reparations Commission could "formulate and put into

64 Almond and Lutz, Doc. 59, Territorial and Political Clauses of the Treaty signed at
St. Germain-En-Laye, September 10, 1919, p. 150 (emphasis added).
65 Almond and Lutz, Doc. 108, Clemenceau to Renner, December 16, 1919, pp.
334-35.
66 BDFA, Series F, Europe, Volume 2, Central Europe 1923-1930, Document 74,
Memorandum respecting the "Anschluss" Movement (Union of Austria and Germany),
John W. Field.
effect a programme for the economic and financial reconstruction of Austria."67 The

Committee's proposal stated that the loan would be secured "by the total assets and by

the present and future revenues, of the Austrian Republic."68 Under the plan the

Austrian Government would be required to pass a law prohibiting "the sale, transfer,

disposal, outside of Austria or to other than Austrian Nationals, of any assets of the

country, either publicly or privately owned, without the consent of the Sub-Commission

at Vienna."69 The Sub-Commission at Vienna would also be required to prepare a

financial plan to conserve Austrian assets for reparation and to assure Austria an

adequate supply of food.70 Under the terms of the proposal, the Sub-Commission would

also be required to prepare a comprehensive reconstruction plan "to the end that the

reparation contemplated by the Austrian Treaty may be forthcoming."71 Moreover, the

administration of Austrian revenues and assets would be entrusted to the Reparations

Commission.

During this period the British Foreign Office received several dramatic reports

from its diplomats in Vienna. Sir Eyre Crowe, the British delegate to a meeting of the

Supreme Council of the Allies on November 20, 1919, stated that he had received

reports from Vienna "which showed the situation to be desperate."72 The British insisted

that the United States accept responsibility for a portion of the loan. Crowe informed

the Allies that the British would not participate in the loan proposed by the CORC if the

67 DBFP, vol. 2 No. 27, Notes of a Meeting of the Supreme Council on November
20, 1919.
68 DBFP, vol. 2, No. 27, Appendix E, November 14, 1919, Committee on the
Organization of the Reparations Commission to the Supreme Council of the Allies.
69 Id., Appendix E, p. 371.
70 Id., Appendix E, p. 371.
71 Id., Appendix E, p. 371.
72 DBFP, vol. 2, No. 27, Minutes of Meeting of the Supreme Council, p. 361.
Americans would not.73 At the November 20, 1919 meeting between the allies, the

members of the Supreme Council agreed to submit the loan proposal to their respective

governments.

On December 16, 1919, Chancellor Karl Renner of Austria spoke to the Supreme

Council to request the immediate supply of additional food rations. He informed the

Council that the current rations would last only until the middle of January, 1920. He

said that: [w]e cannot wait until the provisions are shipped across the Atlantic Ocean.

Our first prayer therefore is, that the quantities needed for the taking care of the minimal

rations for the next two months be advanced us out of the stocks available in Europe."74

After Renner spoke, Georges Clemenceau, Prime Minister of France, informed him that

the Allies would soon send an emergency supply of 30,000 tons of wheat to Austria.75

This grain would be paid for from the proceeds of the $48,000,000 loan the Allies had

previously authorized based upon foreign securities belonging to the Austrian

Government. The Council informed the Chancellor that it was studying other measures

for Austria's benefit.76

As the Allies debated the plan, the British continued to insist on the support of the

United States. At a meeting of the Supreme Council on December 17, Crowe stated

that "[t]he British Government, as a matter of fact, was ready to bear its share of the

expenses involved in the economic reestablishment of Austria, but only on the formal

73 Id. at 360.
74 DBFP, vol 2, No. 40, Notes from a Meeting of the Supreme Council held on
December 16, 1919, Appendix F, p. 546.
75 Id., Notes from the Meeting of the Supreme Council on December 16, 1919, p.
537.
76 Id.
condition that America should also stand its share."77 The representative of the United

States stated that he would refer the question to his government.78 In January 1920, the

American representative later revealed that the United States would not participate

without a decision of Congress.79 Between December 1919 and April 1920 the British

and French repeatedly urged the United States to expedite Congressional approval of

the loan.80

While the Allied governments debated whether they would agree to participate in

the loan proposed by CORC the British continued to monitor the Anschluss movement.

On January 26, 1920, Lindley reported that "[a] meeting of some thousands of persons

was held yesterday by German National Party and passed a resolution calling on

Government to demand right to join Germany from Supreme Council."81 Lindley also

carefully monitored the communist movement in Austria. On January 18, he wrote that

"I venture to call most serious attention of His Majesty's Government to the results of a

Bolshevik Government securing the reins of power in Vienna. This will, in my opinion,

most probably happen if a sufficient (? supply of) flour is not secured for population."82

On January 19, Lindley informed Earl Curzon that "Vienna has become a centre of

77 DBFP, vol. 2, No. 41, Notes of a Meeting of the Supreme Council held on
December 17, 1919, p. 549.
78 Id.
79 DBFP, vol 2, No. 51, Notes of a Meeting of the Supreme Council held on January
5, 1920, p. 687.
80 DBFP vol. 6, No. 345 Viscount Grey to Earl Curzon, December 3, 1919, p. 482,
No. 355 Viscount Grey to Earl Curzon, December 5, 1919, p. 493, vol. 12 No. 72, Earl
Curzon to Mr. Lindsay (Washington), January 28, 1920, p. 101 (British loan will be on
the same conditions as the American loan).
81 DBFP, vol. 12, No. 68, Lindley to Earl Curzon, January 26, 1920, p. 97. Earl
Curzon was Britain's Secretary of State for Foreign Affairs from 1919 to 1924.
Encyclopaedia Brittanica, Micropaedia, Chicago (1987) vol. 3, p. 807.
82 DBFP, vol. 12, No. 54, Lindley to Earl Curzon, January 18, 1920.
Bolshevik intrigue."83 Lindley was convinced that "Russian money has found its way

here though there are not many Russian Bolsheviks in the town."84 Even so, Lindley

remarked that "there is little chance of organized connected Bolshevik outbreak here so

long as Bolshevik leaders are free to intrigue as they now are outside Karlstein."85

During the winter of 1920 the British continued to express their concerns that

Austria would require further assistance. In February 1920, Lord Curzon informed Sir

William Goode that "[i]t seems essential that a comprehensive scheme for the economic

reconstruction of Austria should be worked out to meet situation which will shortly arise.

What progress have Reparation Commission made towards making Austrian assets

available for reconstruction purposes?"86

In February 1920, the Allies waived their mortgage on Austrian Foreign

securities, which the Allies had held for the previous loan of $48,000,000 made to

Austria. The waiver allowed the Austrians to again mortgage the securities to raise

sufficient funds to buy food supplies for the remainder of the winter.87 The aid from the

Allies succeeded in supplying Austria's food requirements during the winter of 1919-

1920.88

In April 1920, Lindley reported that "[t]he agitation in favour of the Anschluss has

continued to grow during the last few months and has now become so strong that no

83 DBFP, vol. 12, No. 55, Lindley to Earl Curzon, January 19, 1920, p. 87.
84 Id.
85 Id., p. 88.
86 DBFP, vol. 12, No. 104, Earl Curzon to Sir. G. Graham (Paris), February 16,
1920, p. 137.
87 DBFP, vol. 12, No. 103, Sir. G. Graham to Earl Curzon, February 15, 1920, p.
135-36.
88 DBFP, vol. 2, No. 40, British Secretary's Notes of a Meeting of the Heads of
Delegations of the Five Great Powers, December 16, 1919, p. 535.
political leader opposes it openly."89 Lindley believed that "the Anschluss would sooner

or later become inevitable unless the Succession States could be persuaded to drop

their Chauvinistic tendencies and to open their frontiers to traffic with Austria."90 Lindley

also reported that the Danube river traffic had been held up by states bordering the

river. He recommended that an international commission should control the riverway.91

The Allies continued to debate the proposed loan to Austria of $100,000,000, but

the CORC's proposal was never formally adopted. Instead, the Allies continued to

provide short-term relief loans of smaller amounts to Austria.92 After Congress approved

further relief funds in the amount of $53,000,000 for European countries in April 1920,

the United States participated in the loans to Austria.93 The British, however, were

concerned that the United States had not approved sufficient funds for Austria, because

the relief credit of $50,000,000 was to be shared with Poland and Armenia.94

II. Efforts by the British to create an economic sphere of influence in Austria.

During the period from 1919 to April 1920 the British were also examining the

possibility of creating an economic sphere of interest in Austria. In his memorandum on

Austria, Oppenheimer had proposed that all Central European railway and river traffic

should be centralized in Vienna to secure the economic position of Vienna as the center

89 DBFP, vol. 12, No. 143, Memorandum on "The Anschluss Question" by Mr.
Lindley, p. 177.
90 Id.
91 DBFP, vol. 12, No. 144, Memorandum on Danube Traffic by Mr. Lindley, April 23,
1920, p. 177.
92 DBFP, vol. 12, No. 190, Foreign Office memorandum on European Relief
Credits, July 14, 1920, pp. 227-29 (discussing various loans of money and other
supplies by the Allies and neutral governments).
93 DBFP, vol. 12, No. 140, Earl Curzon to His Majesty's Representatives at Rome,
Brussels, Tokyo and Paris, p. 171-72.
94 DBFP, vol. 12, No. 104, Earl Curzon to Sir G. Graham (Paris), February 16,
1920, p. 136.
of the sphere of "close economic intercourse" in Central Europe. Oppenheimer hoped

that a British syndicate could gain control of the major Danube shipping companies and

perhaps the railroads of Central Europe.95 In his memoirs Oppenheimer explained that:

"I had hoped thus eventually to secure for Great Britain not only a means of fostering

British prestige and power, economical and political, in the riparian states of the Lower

Danube, but also a lucrative investment with greatly enhanced prospects once the canal

under construction was completed, which would establish a navigable waterway

between the Danube and the Rhine."96

The British Government expressed no formal interest in Oppenheimer's plan to

support the creation of a Danube economic syndicate. Oppenheimer also approached

the Cunard Shipping Company, which sent a commission to Austria to investigate.97

Oppenheimer did not learn whether Cunard ever pursued his proposal because he

retired from the diplomatic service soon after his return from Austria.98

The British were also considering other proposals for economic expansion into

Austria. In July 1919, a delegation of Austrian business leaders met with the British

military representative in Vienna, Colonel Cuninghame. Cuninghame's telegram states:

"[d]elegation begged financial assistance of Great Britain offered control by purchase by

Great Britain of small proportion of selected company shares with which to found British

holding syndicate in London."99 Cuninghame believed that acceptance of the proposal

would help the Austrians and would "establish a sphere of influence in Central Europe

95 DBFP vol. 6, No. 25, p. 52.

96 Oppenheimer, p. 400 (emphasis added).
97 Oppenheimer, pp. 400-01.
98 Oppenheimer, pp. 400-1.
99 DBFP, vol. 6, No. 50, Colonel Sir T. Cuninghame to Mr. Balfour, July 17, 1919, p.
84.
for British trade."100

In August 1919, Smith of the Foreign Office argued that the proposal should be

accepted because it would benefit Britain economically. Smith stated:

It would appear that this proposal offers us an excellent opportunity for

creating a very favorable market for ourselves in Austria, and this is more
important than would perhaps at first sight appear. The potentialities of
Austria itself are small, at present, but is seems almost inevitable that
Vienna must remain in the future, as in the past, the commercial and
financial capital of the congeries of States which once formed the Austro-
Hungarian Empire. . . . If we obtain a strong position in Vienna we
immediately strengthen our position in Bohemia, in Hungary and even in
Jugo-Slavia. All these countries wish to trade with us, and we shall be
able also to facilitate regular interchanges between the various States thus
helping to solve one of the great problems of Central Europe while
profiting ourselves at the same time.101

Smith predicted that "it should be possible for us to create a paramount position,

commercially and politically, in Central Europe if we once secure a firm footing at

Vienna."102 As for political benefits, Smith argued that acceptance of the proposal would

help weaken the Anschluss movement. He wrote that "[i]f Austria can rehabilitate her

trade and thus solve the problem of feeding Vienna, she will set her face sternly against

union with Germany."103 Smith also reminded his readers that "[i]f we do not accept, it

will no doubt be offered to the Americans, who are not likely to consult their Associates

before accepting it."104

In October 1919, a member of the British Relief Mission in Vienna, C. K. Butler,

urged the British Government to extend relief to Vienna. According to Butler, the relief

"would best take the form of help through a commercial syndicate which in return would

100 Id., p. 85. See also DBFP, vol. 6, Nos. 112 and 278, n.6.
101 DBFP vol. 6, No. 112, Foreign Office Memorandum, August 15, 1919, p. 154.
102 Id., p. 156.
103 Id., p. 155.
104 Id.
receive a mortgage on all real and personal estate and a control of the railways and

other undertakings belonging to the Government. By this means we should control the

key to the East."105

Lord Hardinge of the Foreign Office responded to Butler that the British

Department of Overseas Trade did not believe that Austria was a safe investment. The

British believed that many of the industries thought to be for sale "are too cheap, taken

in conjunction with what is known as to the absence of fuel which prevents industrial

working, and as to circumstances generally in Austria. As regards finance, too, there is

always the possibility of special taxation being imposed at any time."106 Lord Hardinge

was skeptical that capital could be found for loans "in view of the obvious absence of

any real security for loans or other advances."107 The British capitalists felt that "[e]ven

mortgages on real estate and control of railways and other undertakings belonging to

the State, as suggested by you, lose their value if there is uncertainty as to what may

happen to the Government."108

In 1919, several British capitalists formed the River Syndicate, Ltd. The group,

which was led by Colonel Grenfell, hoped to acquire a controlling interest in several

Danube railway and shipping companies. In 1920, British diplomats assisted the

members of the Syndicate in negotiating with Central European governments. In

January, 1920, Lindley reported that "I did my best unofficially to help Colonel Grenfell

when here and I understand agreement has been reached with Austrian interests

105 DBFP vol. 6, No. 210, Letter from Mr. Butler to Lord Hardinge, October 13, 1919,
p. 287.
106 DBFP vol. 6, No. 229, Letter from Lord Hardinge to Mr. Butler, October 25, 1919,
p. 307.
107 Id. at 308.
108 Id.
concerned as regards Danube shipping and interests in Boden[creditanstalt]."109

In February 1920, Colonel Grenfell proposed to the British diplomats that "his

group should come to an arrangement with Austrian Government, Hungarian

Government, and Serbian Government to run the whole of their railway lines in one

system in partnership with these Governments."110 Colonel Grenfell's group also hoped

that "through His Majesty's Government [they] can arrange with Reparation Commission

so that group can manage financing."111

On February 18, Sir William Goode, the British member of the Austrian Section of

the Reparations Commission, advised Curzon that "the proper procedure is for [Colonel

Grenfell's] group to be told to approach Austrian Government direct."112 Goode warned,

however, that "[i]t also seems probable that representatives of other Powers on that

Commission [the Austrian Sub-Commission] will be inclined to block an attempt to

control through solely British capital such an extended railway system or at any rate

oppose it until they have an opportunity of inciting their own nations to make counter

financial proposals."113 Additionally, Goode commented that Colonel Grenfell's proposal

was not practical but that if successful it would be to the benefit of Central Europe.114

In March 1920, Lord Curzon asked Lindley to inform Colonel Grenfell's group that

the Austrian railways were government property and were therefore under the control of

109 DBFP, vol 12, No. 70, Lindley to Earl Curzon, January 27, 1920. As discussed
above, Oppenheimer had reported that he had assisted certain officials of the Cunard
Shipping company. It is not known whether the River Syndicate Ltd. was connected
with the Cunard Shipping Company.
110 DBFP, vol 12, No. 98, Lindley to Earl Curzon, February 12, 1920, p. 131.
111 Id.
112 DBFP, vol. 12, No. 107, The Earl of Derby (Paris) to Earl Curzon, February 18,
1920, p. 139.
113 Id.
114 Id.
the Reparations Commission.115 There is no further mention of the Syndicate's effort to

purchase railway interests in the published documents. Goode's warning may have

convinced the Syndicate to abandon its plan to purchase Austrian railways.

The members of the Syndicate also made an effort to purchase interests in

several Danube shipping companies. This effort by the Syndicate also faced the

difficulty that the Reparation Commission had the right to seize the shipping companies

to pay war reparations. Unless the Reparation Commission released its liens the

Syndicate could not invest without running the risk that its investment would be used to

pay reparations.116 In February 1920, a member of the River Syndicate, Lord

Inverforth117, asked the British Government to give its formal support to the Syndicate's

proposal. The British Government agreed to "give their support and backing to the

syndicate" and to ensure that "the money invested by British subjects in these

commercial undertakings is not taken for the payment of war indemnities."118 Lord

Curzon, also promised that he would ask the Treasury if it would guarantee the

Syndicate the support of Goode, the British delegate on the Reparations Commission.

Goode's support would be very helpful to the Syndicate because the Commission had

control over all government assets of the defeated Central Powers.

In July 1920, Bridgeman, the First Secretary of the British Legation at Vienna,

reported from Vienna that members of the River Syndicate had visited Vienna and

115 DBFP vol. 12, No. 121, Earl Curzon to Lindley, March 5, 1920, p.154-55.
116 See Ranki, p. 12.
117 Lord Inverforth was the senior partner of Andrew Weir and company
Shipbuilders, a large British shipbuilding company. Who's Who of 1925, p. 612.
118 DBFP vol. 12, No. 109, Earl Curzon to Lindley, February 20, 1920, p. 141.
Budapest.119 Bridgeman reported that the Syndicate had obtained interests in several

Danube shipping companies. In fact, the Syndicate had purchased minority interests in

the Danube Steamship Company and in the Austrian and Hungarian Danube Steamship

Companies, and acquired a controlling interest in the Southern German Steamship

Co.120

Bridgeman also arranged a meeting between the members of the Syndicate and

Sir William Goode. The members of the Syndicate wished to discuss possibly

approaching other Central European steamship companies "in order to come to a

working arrangement with them about affording mutual facilities and preventing

overlapping and unnecessary competition."121 According to Bridgeman, Goode "advised

them not to send a formal letter to the Yougoslav, Bulgarian and Roumanian Steamship

Companies as they proposed, but to make the arrangements as privately as possible.

He thought that if the other Powers on the Reparations Commission got the idea that a

British Syndicate is trying to arrange a Danube Traffic Trust they would put obstacles in

the way."122

The British curtailed Goode's role in assisting the River Syndicate shortly

thereafter. In August, Lord Curzon informed Bridgeman that the Treasury had refused

to instruct Goode to support the Syndicate. Lord Curzon advised Bridgeman that "he

did not think it safe that Sir W. Goode should 'offer advice to members of the

119 DBFP, vol. 12, No. 189, Mr. Bridgeman to Earl Curzon, July 13, 1920, p. 226.
120 Id. at 226. See also Ranki, p. 12 (the Syndicate purchased 30% of the shares of
the Austrian Company).
121 Id.
122 Id.
syndicate.'"123 The British apparently realized that allowing Goode to assist the

Syndicate in its negotiations with the Austrian Section would create a conflict of interest

because Goode was also a member of the Section.

The Syndicate convinced the Reparation Commission to release its liens on the

Austrian and Hungarian Steamship companies.124 The sale of the shares of the

shipping companies to the Syndicate took effect in the autumn of 1920.

Nevertheless, other Central European Governments resisted the offers of the

River Syndicate. According to the British Minister to Yugoslavia, Sir Alban Young, the

Government of Yugoslavia sequestered the property of the Danube Steamship

Company.125 Young attributed the action to the government's hostility to Austrian and

British control of the local transport system. Young believed that Yugoslavia, which

hoped to develop its economy independently of Austria of Britain, would not be eager to

revoke the sequester.126 Young wrote "The idea of a syndicate of financiers of a

powerful nation controlling from the seats of inimically disposed races the means of

transport through the heart of the country could not fail to cause grave concern to any

state anxious to make good its slippery hold on new found opportunities for self-

expression."127 Previously, Young had written that "[t]he necessity which is natural and

inevitable of seeking a balance against the hegemony of France and England, is, it

would seem making itself more and more felt, . . ."128

123 Id., n.2, p. 226.

124 Ranki, p. 12.
125 DBFP vol. 12, No. 299, Sir Alban Young to Earl Curzon, December 23, 1920, p.
358.
126 Id., at p. 358.
127 Id. at 360.
128 Id., p. 360 n.3.
 The River Syndicate succeeded only in gaining partial control of the shipping

companies. Instead, the actual management of the Hungarian and Austrian Danube

Steamship Companies remained in the hands of the Hungarians and Austrians.129

III. The Allies formulate Their First Comprehensive Reconstruction Plan for
Austria.
In November 1920, the Austrian Section of the Reparations Commission, of

which Goode was then president, proposed a comprehensive financial reconstruction

plan.130 The Austrian Section proposed that the Allied governments loan Austria

$250,000,000 in installments over five years. The loan would be contingent upon Allied

control of Austria's public finances. This apparently meant that the Austrian Section of

the Reparations Commission would retain the supervisory authority over Austria's

finances.

Under the plan, the Allies would also fund Austria's foreign debt and the debt of

the City of Vienna. The Austrian Section additionally proposed that the Allies guarantee

an internal Austrian loan for an unspecified amount. Under the plan, the budget deficit

129 See Ranki, p. 12. During the early 1920s the British and French proposed
several other syndicates to stabilize Central European countries. The French
established a Hungarian syndicate in the early 1920s, but like the River Syndicate Ltd. it
did not prosper. See Ranki, pp. 12-17. In 1922, the British attempted to form an
international syndicate to obtain control of the Rumanian oil fields in return for
reconstruction loans. The Rumanian Government nevertheless rejected the proposal.
See DBFP vol. 24, No. 12, No. 57, and No. 145. In 1921, the British and French
Governments discussed the creation of an economic syndicate to reconstruct Russia.
The Syndicate would gain control of Russian railways and customs in exchange for
reconstruction loans. See British Cabinet Minutes, CAB 23/27, (Microfilm-University of
Chicago Library) for the Cabinet meeting on December 16, 1921. It is noteworthy that
both Britain and France advocated the use of commercial syndicates to stabilize the
new foreign states.
130 DBFP, vol. 12, No. 265, Lindley to Earl Curzon, November 3, 1920, Enclosure,
Draft Report by the Austrian Section of the Reparation Commission on the Financial and
Economic position of Austria, and Recommendations as to Measures immediately
necessary (hereinafter Draft Report), p. 321.
would be controlled and reduced by a non-partisan Budget Commission. This

commission would "effect State, Provincial and Municipal economies" and would

"rearrange the revenues of State Services in order to meet the costs involved."131

As for the economy, the plan proposed that foreign capital would manage State

monopolies and State-owned enterprises. Foreign capital would also be solicited to

develop Austria's "water power."132 The Austrian Section hoped to end chronic food

shortages by increasing agricultural production by means of a "productive credit" and

the revocation of government price subsidies.133

The Austrian Section recognized that its plan would involve an enormous total

expense for the Allied Governments. The Draft Report cautioned that: "[t]emporary

palliatives or any attempt at half-way measures will, in the opinion of the section, only

involve a loss to those undertaking them and will fail to assist towards the ultimate

solution."134 As for possible reparations, the Austrian Section insisted that "it is

impossible at present to enforce the Reparation clauses of the Treaty and the ultimate

execution of the Treaty of St. Germain as a whole must be dependent upon remedial

action of the most urgent and drastic character."135 The Austrian Section noted that the

Austrian Government had continued to print money to cover necessary expenses and

that the printing had caused the currency to depreciate substantially.136

Lindley gave his full support to the Austrian Section's plan. Lindley warned that

the emergency loans would not solve Austria's problems. He argued that: "the system

131 Id. at 322.

132 Id.
133 Id., p. 322.
134 Id., p. 321.
135 Id., p. 321.
136 Id.
of doles hitherto followed was but a palliative to the Austrian disease. . . . If the system

[of emergency loans] is continued, His Majesty's Government must realise that, as soon

as the credits are exhausted, they will almost certainly be faced with the same problem

as now confronts them."137 In Lindley's opinion, the Anschluss movement would be the

only beneficiary of continuing the emergency loans. Lindley wrote: "it is fairly certain

that a further period of uncertainty as regards the future is politically undesirable. It will

encourage the Anschluss [Union] movement and hinder in all Central Europe the

process of settling down which is the necessary preliminary to a return to normal

conditions."138

Lindley also endorsed the Austrian Section's proposal for Allied control of the

Austrian budget. He stated that: "[n]o Austrian Government can, without foreign control

and pressure, carry out the painful reforms in the Administration without which no

equilibrium in the budget is to be expected."139

Sir William Goode, one of the authors of the Austrian Section's plan, maintained

that a loan to Austria would benefit British trade. He argued that the stability of Austria

and Vienna was critical for British trade in Central Europe. Goode insisted that: "[i]f this

financial centre and trade gateway breaks up, the restoration of Central and South-

Eastern European markets will be indefinitely postponed, and the opportunity to obtain

trade formerly in German hands will be lost."140 If the reconstruction loan were granted

to Austria, Goode believed that British trade in Central Europe could be greatly

137 DBFP, vol. 12, No. 265, November 3, 1920, Lindley to Earl Curzon, p. 319.
138 Id.
139 Id.
140 DBFP vol. 12, No. 291, Memorandum by Sir William Goode on the importance to
British trade and industry of granting credits to Austria, December 13, 1920, p. 348.
increased. He argued that the loan would create jobs in the British automobile,

hardware, rubber, textile, and electrical industries. Goode believed that because Austria

lacked many necessary raw materials it would provide an excellent market for excess

raw materials from the British Empire.141

In fact, Goode argued for a quasi-Marshall plan under which the British could

grant Austria loans, under the Austrian Section's Plan, on the condition that the

proceeds were used to purchase British goods. Goode reported:

"the £820,000 raw wool credit recently approved by the Treasury out of the

existing Relief Vote is so arranged as practically to compel not only a repayment of the

credit but a re-purchase of wool to an equivalent or greater amount, to the benefit of the

United Kingdom merchant and the Colonial grower. Transactions on similar lines could

be carried out with regard to hides, cotton, copper, rubber, feathers, and other goods."142

Goode also argued that "[t]he control of the management of such existing Austrian

monopolies as tobacco, salt and timber by United Kingdom capital should also provide

new markets for United Kingdom machinery and accessories."143 Although Goode

briefly mentioned the possibility of investment in Austria by British capital, he was more

interested in appealing to a large spectrum of British economic interests. Goode may

not have believed that British capital would be willing to make a significant investment in

Austria.

III. A. The Allies Redraft the Reconstruction Plan.

At the Second Conference of Paris in January 1921, the Allies debated the merits

141 Id., p. 349.

142 Id., p. 349.
143 Id., p. 349
of the Austrian Section's reconstruction plan. The Allies were only willing to consider an

Allied loan of $40,000,000 to Austria.144 The delegates believed that this loan would

cover Austria's expenses for six months.145

Initially, the French and British diplomats expressed their concern that the

successor states were not interested in doing business with Austria. The French

delegate remarked that the Reparation Commission's proposed conference of the

successor states would possibly help solve the problem.146 Lord Curzon explained that:

"[a]t present each of the successor States raised every difficulty in the way of traffic with

one another. Both sides were to blame. The neighbouring States were no doubt

attempting to strangle Austria and she was foolish in her own policy."147

With regard to relief loans to Austria, Lord Curzon explained that Great Britain

had already granted £10,000,000. for relief in Central Europe of which £8,500,000 had

gone to Austria. Lord Curzon remarked that France and Italy had promised assistance

but up to that time had failed to actually loan any money to Austria.148 The British Prime

Minister, David Lloyd George, revealed that he would not support the reconstruction

plan proposed by the Austrian Section of the Reparations Commission because it was

too costly. Lloyd George explained that: "it was no good having a new scheme. We

had got beyond charity. The Allied Governments had advanced hundreds of millions of

francs to Austria, but he did not think that this had done any good, it had only resulted in

144 DBFP, vol. 15, No. 3, British Secretary's Notes of an Allied Conference held in
Paris on January 25, 1921, p. 22 (Comment of M. Seydoux of France).
145
146 Id., p. 21-22.
147 Id., p. 24.
148 Id., p. 24.
waste."149 Instead, Lloyd George proposed that:

The matter was rather one of business and certainly was not one for the
Reparation Commission. It should be put on a business footing, and having
done this the Allied Governments must be prepared to leave it alone. He was
prepared to consent to the grant of credits which would enable Austria to begin
once more, but these credits should not be Government credits. It was time for
the financiers to come in and discuss the question of business with the Austrians.
Financiers would be able to impose conditions which Governments could not,
and they could see to the proper enforcement of those conditions.150
Lloyd George stated that he was not certain that any reconstruction plan would work,

because Vienna's population was much too large to be supported by the tiny Austrian

State. He explained that: "[i]t was obvious that Austria as at present constituted would

go to pieces. No advances by the Allies could keep erect this unnatural structure, the

foundations of which had been knocked away from beneath--the structure would fall into

the Danube."151

The French Premier, Aristide Briand, agreed with Lloyd George that it would be

difficult to reconstruct Austria. He remarked that: "when the treaty was drawn up those

who were engaged in the work should have realised the inevitable results of what they

were doing, but the treaty was an accomplished fact and we could not allow Austria to

starve."152 Briand then proposed that another committee be established to examine

Austrian reconstruction. The British agreed provided that any proposal by the

committee would not involve government loans.153

The Committee ordered to draft the new reconstruction plan offered its report to

149 Id., at 25.

150 Id., p. 25.
151 Id., p. 26.
152 Id., p. 26. Briand was being sarcastic because Lloyd George was one of the
principal architects of the Peace Treaties, together with President Wilson and Prime
Minister Clemenceau.
153 Id., p. 27.
the Supreme Council of the Allies on January 29, 1921.154 The Committee made

several recommendations for assistance to Austria. Most important of these was the

Committee's recommendation that the Allies release their liens on the assets of the

Austrian Government.155 The Allies had asserted these liens to obtain repayment for the

costs incurred by the occupation army, previous relief loans, and eventual reparations.

The Committee believed that a private banker would be unwilling to loan money to

Austria if he was aware that Austria would have to satisfy the Allied liens before private

loans would be repaid.156 The Committee noted that the United States would have to

agree to release its liens on Austrian assets as well.

The Committee believed that the Austrian government would be required to

undertake substantial budget and financial reforms to survive. According to the

Committee, the Austrian Government would be required to lay off at a minimum 60,000

excess bureaucrats and 20,000 railway employees. Austria would also have to stop

printing money if it ever hoped to reach financial stability. The Committee also

recommended leasing the Austrian tobacco and sale monopolies to private capitalists in

the hopes of raising some revenues.157

To solve Austria's problems the Committee recommended that the Austrians and

the Allies appoint "a small board of expert financial advisers." The Board members

would be appointed by the Austrian Government with the approval of the Allies. The

Board of Advisers would supervise the efforts by the Austrians to reduce wasteful

154 DBFP, vol. 15, No. 12, British Secretary's Notes of an Allied Conference held in
Paris on January 29, 1921.
155 Id., Appendix 5, Report of the Committee on Austria, p. 120.
156 Id., p. 121.
157 Id., p. 122-23.
expenditures.158 Under the plan, the Board would also have the authority to prevent the

Austrian Government from printing money to cover expenses.

In addition to its proposals for financial reconstruction, the Committee also

proposed that the Allies establish an industrial, commercial, and banking company to

promote economic development in Austria. This company would sell its shares to

commercial interests throughout Europe.159 The Committee hoped that the syndicate

could "carry on industrial and commercial operations of the widest character, as well as

acting as a bank and financial house."160

The Committee also proposed that the Allies take an active part in an upcoming

conference of the successor states to discuss Central European trade policies. The

Committee stated: "owing to various circumstances, including of course the state of

Austria's currency, the successor States have thought it necessary to safeguard

themselves by imposing prohibitions and restrictions which have undoubtedly

aggravated Austria's economic difficulties." It was hoped that the Allies would persuade

Austria's neighbors to reduce their tariffs. The Committee hoped that the Central

European states could trade with as few tariffs as possible.161 The Paris Committee's

proposal resembled Oppenheimer's plan for the creation of "close economic

intercourse" between the successor states.

The Committee's proposal that the successor states hold a Conference to reduce

tariffs was adopted. The Conference of the Allies and the successor states was held at

158 Id., at 123.

159 Id., p. 123.
160 DBFP vol. 15, No. 12, p. 116 (Remarks of Louis Loucheur the French member of
the Committee of the Supreme Council to consider Austrian reconstruction).
161 DBFP vol. 15, No. 12. Appendix 5, Report of the Committee on Austria, p. 122.
Porto Rosa in October 1921. The Conference failed to produce any meaningful

reduction in Central European tariffs.162 According to Ranki, the Conference failed

because the Italian Government tried to persuade the successor states to make Italy

their primary trading partner. Neither the Danube states nor the British and French were

willing to agree to the proposal.163

The Committee also proposed that Austria participate in a League of Nations

economic reconstruction plan.164 The Allies referred to this plan as the Ter Meulen

scheme, because it had been proposed by M.C.E. Ter Meulen, who was the

representative of the Netherlands on the Finance Committee of the League of

Nations.165 The purpose of the plan was to make it possible for "impoverished nations"

to obtain private loans for the purchase of food and raw materials. A government, such

as Austria, that wished to participate in the plan would notify a League Commission of

the securities which it could offer for private credit. The League Commission would then

determine the value of loans that could be secured on the government assets. The

participating government would then be authorized by the League Commission to

prepare interest bearing bonds for use as payment for goods or other supplies. The

bonds could then, in theory, be exchanged directly for foodstuffs or raw materials. The

theory behind the plan was that by providing an independent audit of the securities of

the participating government, the plan might induce foreign merchants to give credit to

162 DBFP vol. 27, No. 98, Akers-Douglas to Chamberlain, April 15, 1925, p. 147.
163 Ranki, pp. 26-7.
164 DBFP, vol. 15, No. 12, Appendix 5, Report of the Committee on Austria, p. 122.
165 DBFP, vol. 22, No. 13, Memorandum by the Foreign Office, January 21, 1921,
n.7, p. 23.
impoverished governments.166 The Committee was not satisfied with its own

reconstruction plan. Its report to the Supreme Council implied that Austrian

reconstruction would require substantial government action. The Report states: "[i]t

may be found that the evils from which Austria suffers are so acute and deep-seated

that they cannot be effectively cured without a degree of assistance from other

Governments which we are not authorized to consider."167

Despite the reservations of the Committee, the British supported the revised

reconstruction plan. They believed that it could assist Austrian reconstruction without

putting British government assets at risk.168 Accordingly, the British vowed to release

their liens on Austrian Government assets, provided that the other Allies did the same.169

At the conference, the Supreme Council of the Allies approved the plan in principle.170

III. B. The Austrians strongly criticize the Allies' Reconstruction

Plan.
The Austrians were highly critical of the Supreme Council's reconstruction plan

because it depended entirely on private financiers. At the third Conference of London,

held by the Supreme Council of the Allies in March 1921, the Austrian delegation led by

Austria's Chancellor, Dr. Michael Mayr, harshly criticized the Allied reconstruction

166 DBFP, vol. 15, No. 12, Appendix 5, Report of the Committee on Austria, p. 123-
24. The problem with the League of Nations plan was that if an issuing government,
such as Austria, defaulted on the bonds the merchant would bear the entire loss. This
consideration might make merchants unwilling to participate in the plan. See also,
DBFP, vol. 15, No. 64, British Secretary's Notes of a Meeting of Allied Financial Experts,
March 14, 1921, London, p. 438-40 (under the plan, trustees would exercise control
over Austria's budget).
167 Id., p. 124.
168 Arnold J. Toynbee. Survey of International Affairs 1920-1923. Oxford University
Press, London (1923) pp. 45-7. Also see DBFP vol. 24, No. 110, Treasury to Foreign
Office, July 10, 1922, p. 273-74.
169 DBFP, vol. 15, No. 12, British Secretary's Notes of an Allied Conference held in
Paris on January 29, 1921 (Comments by Lord Curzon) p. 116.
170 Id., No. 12, p. 117.
plan.171 At the initial meeting of the Conference, Dr. Mayr first noted that Austria

continued to suffer from substantial shortages of food and coal. He blamed the

shortages on the "present system of embargoes and tariffs set up by the succession

States . . . ."172 The Chancellor also claimed that the coal shortage reduced Austria's

industrial output.173

Chancellor Mayr further explained to the Allies that "it has already become clear

that this scheme [the Allied plan] can only accomplish its end, i.e., the economic

reconstruction of Austria, when it becomes part of a more comprehensive Government

action . . . ."174 Mayr complained that "[a]ny scheme on the part of private banks would

require considerable time for its organization, for the investigation of the securities, as

well as the agreement in regard to the conditions of the loan. The private action would

not only not come in time, but would perhaps not be on a large enough scale."175

Indeed, one Austrian delegate estimated Austria's financial needs at $55,000,000 for the

year.176

As Dr. Mayr explained, the Austrians also "feared that the banks would not be

giving credit to Austria on the basis of normal, but rather of very unfavorable conditions,

owing to the difficult position of the country."177 The Austrians also believed that Allied

171 DBFP, vol. 15, No. 61, British Secretary's Notes of an Allied Conference held in
St. James's Palace, S.W., on March 12, 1921.
172 Id., p. 412.
173 Id., p. 413.
174 Id., p. 414.
175 Id., p. 414.
176 DBFP, vol. 15, No. 62, British Secretary's Notes of a Meeting of Financial
Experts, held in the Board Room, Treasury, on March 12, 1921, p. 416.
177 Id., p. 414.
government control of Austria's budget would be preferable to private control.178 One

Austrian delegate explained that private control would create political problems for the

Austrian government because the Austrian Parliament was concerned that private loans

would only be granted under harsh conditions.179

The Austrians were also concerned that the Allies could not guarantee that all the

governments with liens on Austrian assets would release the liens. At one of the

meetings of the Conference, Mayr asked the Allies when they would release the liens.180

Mayr then asked the British, French, and Italian Governments, whose representatives

were in attendance, if they would release their liens on Austrian assets if the other

governments did not.181

The objections of the Austrian delegation to the Allied reconstruction plan fell on

deaf ears. At the first meeting of the Conference, Lloyd George explained that the Allies

themselves had limited resources. Lloyd George maintained that the Allies realized the

extent of Austria's difficulties but that the Allies had few assets to devote to Austrian

assistance. He explained: "All our countries are very overburdened with the gigantic

charges of the war and with the economic troubles that have resulted directly from its

devastation . . . ."182

At the end of the Conference, the Allies remained unwilling to provide direct

financial assistance to Austria. As for the possible release of liens on assets, the

178 Id.
179 Id., p. 421.
180 DBFP, vol. 15, No. 63, British Secretary's notes of a Meeting of Financial Experts
held in the Board Room, Treasury, on March 14, 1921, p. 428.
181 Id.
182 DBFP, vol. 15, No. 61, British Secretary's Notes of an Allied Conference held in
St. James Place, March 12, 1921, p. 415.
Austrians were informed that "the Governments of Great Britain, france, Italy and Japan

have decided to release for a period of years, . . . their liens under the treaty of Saint-

Germain in respect of claims against the Austrian Government for the cost of armies of

occupation, for relief credit bonds, and reparations, provided other interested

Governments will agree to similar postponement."183 Under the revised plan, the

Finance Committee of the League of Nations would "determine the gold value of the

security [the Austrian Government assets] which it could, under the Ter Meulen scheme,

approve against the security of such assets which the Austrian Government would then

be free to pledge." According to the plan, the assets would be administered under the

control of the Finance Committee. The Committee would then issue bonds which would

be held by lenders to Austria.184 The Allies hoped that the plan would solve Austria's

economic problems without requiring the Allies to provide any further direct assistance

to Austria.

IV. The Allies' Effort to obtain the Release of the Liens on Austrian Assets.
During 1921 and the first six months of 1922 the British led the effort by the Allies

to persuade other governments holding liens to release them.185 The British were

concerned because the Italian Government had delayed releasing its liens on Austrian

assets.186 The British also encouraged the United States to release its liens on Austrian

assets. In July 1921, the United States replied that it could not release the liens without

183 DBFP, vol. 15, No. 68, Appendix, Statement handed to the Austrian Delegation
by the Chancellor of the Exchequer at the Meeting on March 17, 1921, p. 446.
184 Id., p. 447.
185 See DBFP, vol. 22, No. 62, Earl Curzon to Mr. Barclay (Stockholm), March 24,
1921, p. 91 (urging the Swedish, Danish, Netherlands and Swiss Governments to
participate in the Allied plan).
186 DBFP, vol. 22, No. 197, Earl Curzon to Lord Hardinge (Paris), Enclosure,
Memorandum by Sir B. Blackett (Treasury), p. 248-50.
authorization from Congress.187 Curzon ordered the British Minister in Washington D.C.

to place continued pressure on the United States Government. Curzon wrote: "[d]elay

is a serious feature of the situation: for it is impossible to say how long Austria can

continue unaided without a complete collapse. . . . Please therefore impress on United

States Government importance of securing grant by Congress at earliest possible

date."188

While the Allies sought to obtain the release of the liens, several pro-Anschluss

plebiscites occurred in Austria. In April 1921, Lindley reported that 98% of the voters in

a plebiscite held in the Tyrol province had supported the Anschluss.189 In a May

plebiscite in Salzburg, 99% of the voters supported the Anschluss.190

The Austrians sought to use the plebiscites to convince the Allies to provide an

international loan. In April 1921, Georg Franckenstein, Austria's Ambassador to Britain,

informed the Foreign Office that if Austria received aid from the Allies in the near future

the Anschluss movement would lose support.191 In May, Dr. Mayr informed Lindley that

he would only be able to prevent future plebiscites if the Allies granted Austria a

reconstruction loan.192 At that time, the British could not support a private loan to Austria

because the United States and Italian Governments had not released their liens on

Austrian assets.

187 DBFP, vol. 22, No. 215, Sir. A. Geddes (Washington) to the Marquess Curzon of
Kedleston, July 6, 1921, p. 271.
188 DBFP, vol. 22, No. 236, The Marquess Curzon of Kedleston to Sir. A. Geddes,
July 19, 1921, p. 289.
189 DBFP, vol. 22, No. 122, Lindley to Earl Curzon, April 28, 1921, p. 150.
190 DBFP, vol. 22, No. 161, Lindley to Earl Curzon, May 31, 1921, p. 195, n. 1.
191 BDFA, Part II, Series F, Europe, Volume 1, Central Europe 1919-1922, Document
172, Note by Baron Franckenstein to Earl Curzon, April 20, 1921.
192 DBFP vol. 22, No. 152, Lindley to Earl Curzon, May 25, 1921, p. 183.
 In the April dispatch, Lindley also reported that a bill had been introduced in the

Austrian parliament which provided that a plebiscite would be held "on the question

whether the Government should appeal, under article 88 of the Treaty of Saint-Germain,

to the League of Nations to be allowed to join Germany."193 The Foreign Office

instructed Lindley to inform Dr. Mayr that if an Anschluss occurred the British

Government "could not of course be expected to continue in their policy of foregoing

any of their claims under the Treaty of St. Germain."194

In August 1921, Lindley reported that the delay in putting the Allied scheme into

effect had not helped matters in Austria. Lindley wrote: "Exchange was over 4,000

[Kronen] to £ on Saturday and something should be done to restore confidence."195

At the Third Conference of Paris, held in August 1921, the Allies sought to

resolve the delays in implementing the Allied plan by passing a resolution calling on the

United States, Serbia and Romania to promptly release their liens on Austrian assets.196

During the autumn of 1921, the British provided temporary financial assistance to

the Austrian Government. In October 1921, the British and French Governments

advanced £500,000 to the Austrian Government. The British required the Austrians to

agree to use the funds solely for the purchase of food supplies.197

The British also approached the J.P. Morgan Bank of the United States and

urged it to make a loan to Austria, which was to be secured by a lien on the Gobelin

193 DBFP, vol. 22, No. 122, Mr. Lindley to Earl Curzon, April 28, 1921, p. 151.
194 DBFP, vol. 22, No. 134, Earl Curzon to Mr. Lindley, May 10, 1921, p. 166.
195 DBFP, vol. 22, No. 259, Lindley to the Marquess Curzon of Kedleston, August 8,
1921, p. 317.
196 DBFP, vol. 15, No. 103, British Secretary's Notes of An Allied Conference held at
the Quai d'Orsay, Paris, August 13, 1921, p. 717-18.
197 DBFP, vol 22, No. 384, Curzon to M. Cheetham (Paris), October 14, 1921,
Enclosure, Curzon to Keeling (Vienna), pp. 443-44.
tapestries.198 The Morgan Bank was hesitant to grant the loan except at the request of

the Allied Governments.199 Curzon requested Balfour to ask the United States

Government to encourage the Morgan Bank to make the loan to Austria.200 Curzon

expressed his frustration that the United States Government had not in an entire year

released its liens on Austrian assets.201

The British continued to lobby the United States to release its liens. In December

1921, Balfour approached the Secretary of State of the United States only to learn that

the Secretary of State could not guarantee Congressional approval of the release of the

liens. Instead he could only state that the United States would "regard favorably" a loan

by the Morgan Bank.202

In February 1922, the British loaned approximately £2,000,000 to Austria. The

security for the loan consisted of certain Gobelin tapestries owned by the Austrian

Government.203 The British also informed the Austrians that they would appoint G.M.

Young to be the "special representative in Vienna for the purpose of advising and co-

operating with the Austrian government as to the expenditure to be defrayed from the

proceeds of this loan."204 This provision of the agreement meant that Young would have

control over the proceeds of the loan.

In March, the Austrian Government announced several reforms designed to

reduce its budget deficit, including new taxes and reductions of civil service

198 DBFP, vol. 22, No. 586, Curzon to Balfour, December 23, 1921, pp. 639-40.
199 Id., n. 2, p. 639.
200 Id., p. 640.
201 Id., p. 640.
202 DBFP, vol. 22, No. 596, Balfour to Curzon, December 30, 1921, pp. 647-48.
203 DBFP, vol. 24, No. 28, Curzon to the Austrian Minister, February 10, 1921, p.
148.
204 Id.
personnel.205 The British were not fully satisfied. Young informed the Austrian

Chancellor, Johannes Schober, "that until he was satisfied that financial reforms already

announced would be introduced and vigorously executed, he would not consent to any

issue out of British credit."206 When a political crisis threatened to topple the Austrian

Government, Young informed Schober that he (Schober) could inform his party that

Young would not release any of the proceeds of the loan unless Schober remained

Chancellor. Young also requested Schober to personally supervise the preparation of

the budget and the reduction of the bureaucracy.207 In May, Young released one half of

the British loan to support the value of the Austrian Crown.208 The British had believed

that the steady drop in value of the Crown had to be halted to restore Austria to financial

stability and to increase the confidence of the Austrians.209

During 1921-22 the British and the French experienced continuing difficulties in

implementing the Supreme Council's reconstruction plan, which depended on all Allies

releasing their liens on Austrian assets. In April 1922, the United States Congress

approved the release of the liens. However, the United States Government did not

implement the plan because it was waiting for other countries to release their liens.210

205 DBFP, vol. 24, No. 35, Akers-Douglas to Curzon, March 3, 1922, p. 162.
206 DBFP, vol. 24, No. 37, Akers-Douglas to Curzon, March 10, 1922, p. 164.
Johannes Schober, the former imperial President of the Police, had replaced Dr. Mayr in
June 1921, partly as a result of the plebiscites favoring the Anschluss. BDFA, Part II,
Series F, Europe, Volume 1, Central Europe 1911-1922, Document 200, Lindley to Earl
Curzon, July 10, 1921.
207 DBFP, vol. 24, No. 42, Enclosure I, Young to the Treasury, March 15, 1922, p.
170.
208 DBFP, vol. 24, No. 59 Waterlow to Gregory, May 3, 1922, n. 2, p. 199.
209 DBFP, vol. 24, No. 94, Akers-Douglas to Balfour, Enclosure, Confidential
Supplement to the Annual Report on the Industrial and Commercial Situation in Austria,
June 30, 1922 by O.S. Phillpotts, p. 247-49 (hereinafter Confidential Supplement).
210 DBFP, vol. 24, No. 49, Lord Hardinge to Earl Curzon, April 4, 1922, n. 10, p. 184.
 The Italian government was uncooperative. Although the Italian delegate to the

Supreme Council had promised that Italy would release its liens, the Italians soon

began to waffle. In June 1921, the Italian Government stated that because it had

borne much of the expense of the Allied occupation army it would not release its liens

on Austrian assets without compensation.211 The British believed that any concession

by the other Allies to the Italians would convince the United States and other neutral

governments that the Austrian bailout plan was politically motivated. The British

believed that the United States and other neutral governments would not participate in a

plan that they believed was motivated by political and not humanitarian concerns.212

In June 1922, the Italian delegate to the Reparation Commission informed the

Allies that "the Italian government have never yet agreed to the suspension of their

liens, but only to the postponement of reparation payments."213 The Roumanian

Government was also uncooperative in the lien release effort.214

IV. A. The Austrian Financial Crisis During the Summer of 1922.

In June 1922, while the lien release plan was foundering, the British attempted to

secure private financing for Austria. The British encouraged the J.P. Morgan Bank to

loan Austria an unspecified amount with the Austrian customs revenues as security.

Before it would agree, the Morgan Bank asked G.M. Young, the Second Secretary in the

211 DBFP vol. 22, No. 207, Lord Hardinge (Paris) to the Marquess Curzon of
Kedleston, July 1, 1921, p. 262-63.
212 DBFP vol. 22, No. 197, Earl Curzon to Lord Hardinge (Paris), June 25, 1921,
Enclosure, Memorandum by Sir B. Blackett (Treasury), p. 249-50.
213 DBFP, vol. 24, No. 93, M. Cheetham (Paris) to Balfour, June 24, 1922, p. 243;
vol. 24, No. 5, British Secretary's Notes of a Conversation held in the Prime Minister's
Room, House of Commons (between representatives of the British and Italian
Governments), p.62-63 (comment by Lord Balfour).
214 DBFP, vol. 24, No. 99, Akers-Douglas to Balfour, Enclosure, Memorandum sent
to J.P. Morgan and Company by G.M. Young, p. 257.
British legation at Vienna and a director of the Anglo-Austrian bank, to prepare a report

on the finances of Austria.215

Young reported that £20,000,000 would be required to balance the Austrian

budget. He also believed that a complete overhaul of the Austrian administration and

taxation system would be necessary to prevent further budget deficits. Young was not

optimistic about the prospects for such a reform. "This presupposes more authority in

dealing with the disturbances which might ensue than any Austrian Government hitherto

has shown itself to possess."216 Young believed that even if the Austrian Government

successfully reformed its administration and raised substantial revenues internally, the

Austrian Government would require at least £10,000,000 in foreign loans to balance its

budget. In his report, Young also mentioned that Austria's trade deficit was

approximately £30,000,000 each year.217

Upon receipt of Young's report, the Morgan Bank understandably declined to

grant a loan to Austria.218 It became apparent to the British that even if all governments

released their liens on Austrian assets it was unlikely that any private bank would loan

money to Austria. Indeed, at a conference between the British and Italian Governments

in July 1922, Lord Balfour declared that "Nobody in the City would lend a shilling to

Austria."219 At the same conference a British financial expert explained that "no banks

215 Id., p. 256.

216 Id., p. 257.
217 Id.
218 DBFP vol. 24, No. 109, Record by Mr. Young of a conversation with Mr.
Vansittart, July 10, 1922, p. 272.
219 DBFP, vol. 24, No. 10, Notes of a Conversation held at 10, Downing Street on
Friday July 7, 1922 (between representatives of the British and Italian Governments), p.
119.
would lend money in the present political and social conditions."220 A British Treasury

official commented that: "[i]n the circumstances of today, the release of the liens on

Austria's assets is not yet assured and owing to the long delay in securing their release

Austria's internal position has so deteriorated that it is idle to expect that private capital

would be forthcoming to help Austria, without the guarantee of the British Government. .

. ."221

During the spring and summer of 1922, the British diplomats in Vienna reported

that the Austrian economy was in danger of a financial collapse. In May, G.M. Young

reported that the Krone had fallen to 37,800/£.222 In June, Akers-Douglas reported that

the loss of confidence by the Austrian public had triggered a "disastrous depreciation' of

the Krone and a monthly inflation rate near 100 percent223 He predicted that if the

depreciation of the Crown did not stop the State would not be able to pay its employees.

Moreover, he noted that if foreign merchants decided not to accept the Crown any

longer Austria would be unable to purchase coal and food. In that event he believed

that it was doubtful that the Austrian Police would be able to maintain order.224

On May 31, the economic crisis led to the fall of the Schober Government.

Schober was replaced by Msgr. Ignaz Seipel, a Catholic Priest. Like Schober and Mayr,

Seipel was a Christian Socialist.225

220 Id., at 124 (Comments by Sir Basil Blackett).

221 DBFP, vol. 24, No. 110, Treasury to Foreign Office (by Sir. Basil Blackett), July
10, 1922, p. 274.
222 BDFA, volume 1, Document 255, G.M. Young to Treasury, May 8, 1922.
223 DBFP vol. 24, No. 74, Akers-Douglas to the Earl of Balfour, June 9, 1922, p. 219.
224 See id., p. 219.
225 BDFA, Series F, Europe, Volume 1, Central Europe 1919-23, Document 25,
Akers-Douglas to the Marquess Curzon of Kedleston, May 31, 1923 (reporting that
Seipel became Chancellor exactly one year earlier).
 In June, G.M. Young was asked to prepare a report concerning Austria's

economy and Government plans for reform.226 He opined that the taxation system "is in

chaos, and some parts of it, notably the Income Tax has almost ceased to function."227

Young explained that: "[t]he problem is to find a method of taxation which the workmen

will not be able at once to pass on to the employer, from him to the consumer and from

him round again to the printing press by the increase in wages and prices which hitherto

has mechanically followed."228

In June, Phillpotts opined that the rapid depreciation of the Kronen could

destabilize the political situation. He explained that "[t]he danger of the depreciation of

the currency is when it takes place more rapidly than the inflation, as occurred last

autumn and again early in June, then prices rise faster than incomes and rioting

becomes imminent."229 Phillpotts also believed that the Austrians could not "pull

themselves out of the rut, not even with the assistance of more credits."230 Indeed he

maintained that "[t]hey must be led by the hand as well as have their lost confidence

restored by seeing that others have confidence in the future of their country."231

On June 26, 1922, Akers-Douglas informed Balfour that "[t]he Austrian situation

has reached a point when it is, I submit, necessary to come to some decision. . . ."232

226 DBFP, vol 24, No. 92, Akers-Douglas to Balfour, June 23, 1922, Enclosure,
Memorandum respecting the new Austrian Finance Plan, June 23, 1922, by G.M.
Young, p. 242.
227 Id.
228 Id.
229 DBFP, vol. 24, No. 94, Akers-Douglas to Balfour, June 26, 1922, Enclosure,
Confidential Supplement to the Annual Report on the Industrial and Commercial
Situation in Austria, June 1922, by O.S. Phillpotts, p. 248.
230 Id., p. 249.
231 Id.
232 DBFP, vol 24, No. 94, Akers-Douglas to Balfour, June 26, 1922, p. 244.
Akers-Douglas further warned that "if a collapse, with all its attendant dangers to the

peaceful development of Central Europe, with possibilities of new territorial

arrangements, is to be avoided, I do not see how existence can be assured without

further and larger financial help and strict and effective control."233 Akers-Douglas also

suggested that Austria might be drawn into the Little Entente or a Danube

Confederation.234

The leadership of the British Government shared these concerns about Austria's

stability. In a conversation on July 7, 1922 between Lloyd George, Lord Balfour, and the

Italian Foreign Minister, the British agreed that the situation in Austria was bleak. The

Minutes of the meeting state that:

Mr. Lloyd George continued that he never thought it was possible to rehabilitate
Austria. Though he feared it sounded brutal that was the line he had taken in
Paris. Were they to advance 20 or 30 millions it would not do more than mitigate
the difficulty by producing temporary prosperity. It would simply mean that
Austria would live on the magnificent gift of her sympathetic neighbors.235
Lloyd George again argued that Vienna's population was too large to be supported by

Austria. Balfour countered that if Vienna could again become an important economic

center in Central Europe it would be able to support its own population.236

In July 1922, the British Government believed that further financial assistance to

Austria should not be granted because it would not avert continued economic

difficulties. The Cabinet Minutes of July 7 state:

"[i]n the opinion of the Governor of the Bank of England, a financial collapse in
Austria would not have very grave effects in this country, inasmuchas (sic) the

233 Id.
234 DBFP, vol. 24, No. 74, Akers-Douglas to the Earl of Balfour, June 9, 1922, p.
219.
235 DBFP vol. 24, No. 10, Notes of a Conversation held at 10, Downing Street, on
July 7, 1922 (between representatives of the British and Italian governments).
236 Id.
 possibility of such a collapse had been already largely discounted. . . . The
Cabinet were in general agreement that no useful purpose would be served by
advancing further financial assistance to the Austrian Government merely with a
view to postponing what appeared to be an inevitable financial catastrophe."237
The British had decided that formulating an Austrian reconstruction policy was not worth

the cost.

This led Akers-Douglas to suggest other non-financial solutions to Austria's

problems. In August, Akers-Douglas suggested that if the Austrian Government

resigned the Allies might allow Austria to be administered jointly by Italy and

Czechoslovakia.238 In August, the British noted that the Krone had fallen from 34,000/£

to 200-250,000/£ in one year.239

Almost as a footnote to the debate on Austria's future, the Allied Reparations

Commission finally released its liens on certain Austrian Government assets on August

4, 1922.240

IV. B. The British become concerned about Italian efforts to obtain

increased influence in Austria.
During the financial crisis of 1922 the British were concerned that the Italian

Government was promoting certain reconstruction proposals to gain economic influence

in Austria. In the conversation with Lord Balfour and Lloyd George, Italy's Foreign

Minister proposed that the Allied Powers establish a commission to take control of the

Austrian budget and reform the Austrian Government.241 Italy's Foreign Minister

237 British Government Cabinet Minutes July 4, 1922. Microfilm roll CAB 23/30
(University of Chicago Library Microfilm).
238 DBFP vol. 24, No. 133, August 17, 1922, Akers-Douglas to the Marquess Curzon
of Kedleston.
239 BDFA, Series F, Europe, Volume 1, Document 278, Memorandum on the
Austrian Situation.
240 DBFP, vol. 24, No. 128, Enclosure, Reparation Commission to the Treasury,
August 5, 1922, p. 298-99.
241 DBFP, vol. 24, No. 10, Notes of a Conversation held at 10, Downing Street, on
explained that the reforms would involve firing excess state officials to balance the

budget.242 In their meetings with Italy's Foreign Minister, Lloyd George and Balfour were

unwilling to commit to the proposal of the Italian Government to create a Foreign

Commission to order reforms in the Austrian Government.243

The British believed that the Italians hoped to obtain control of the proposed

control commission and to use that control to obtain economic influence in Austria. One

British official explained that: "[t]he Italian Government seem indeed to have decided to

take a leading part in the reconstruction of Austria, and from confidential and

unimpeachable information in the possession of this Department it appears that their

ambition is to establish something in the nature of an economic protectorate over

Austria, possibly culminating as soon as the Austrian economic situation becomes

comparatively stable, in a customs union."244 The British Minister to Vienna, Akers-

Douglas, also reported that Italy had objected to the release of the Allied reparations

lien on the Austrian Customs because the Italian Government hoped to obtain "an

eventual customs union with Austria."245

IV. C. The Austrians make vigorous efforts to obtain an international loan from
the Allies.
During the summer, Chancellor Seipel attempted to draw the attention of the

Allies to Austria's problems. On August 7, Georg Franckenstein, Austria's Ambassador

July 7, 1922 (between representatives of the British and Italian governments), p. 119.
242 Id., at p. 119.
243 Id. p. 119-121.
244 DBFP vol. 24, No. 106, Foreign Office to Treasury (by Miles W. Lampson), p.
268. Lampson was the Director of the Central European Department of the Foreign
Office. The Dictionary of National Biography, 1961-1970, Oxford University Press,
Oxford England (1981). p.627.

245 DBFP vol. 24, No. 127, Akers-Douglas to Curzon, August 4, 1922, p. 297.
to the United Kingdom, wrote to Lloyd George. He explained that although the

Governments had finally agreed to release their liens on certain Austrian assets,

bankers were unwilling to make any loans to Austria. He requested that the Allies

approve a loan or a guaranteed loan to Austria of £15,000,000.246

In August, the Austrians also presented the British with a Memorandum urgently

requesting financial assistance. The "Memorandum for Presentation to the Allies"

stated that Austria faced an immediate financial collapse if the Allies did not render

financial assistance. The Austrian Government also threatened that if the Allies did not

make a loan, the Austrian Government would resign and "place in the hands of the

Entente the further destinies of Austria."247 The Austrians promised also to declare that

"neither the present nor any other Government is in a position to conduct the business

of the State."248 The Austrian Ambassador to London, Franckenstein wrote a letter to

Lloyd George informing him that because no foreign loans had been obtained "the

Austrian Government must resign. No other Government can be constituted. The

further destinies of Austria must be placed in the hands of the Allied Powers. The

responsibility for all the consequences must rest with them."249 The Austrian

Government probably did not mean the threat literally, but hoped to use this threat to

scare the Allies into a reconsideration of their reconstruction plan.

Lloyd George responded to Franckenstein on August 15. He explained that

246 BDFA, Series F, Europe, Volume 1, 1919-1922, Document 279, Franckenstein to

Lloyd George.
247 BDFA, Volume 1, Document 276, Akers-Douglas to the Earl of Balfour, August 4,
1922, enclosure, Document 277, Memorandum for Presentation to the Allies.
248 Id., p. 361.
249 DBFP, vol. 20, No. 64, Enclosure, Herr Franckenstein to Mr. Lloyd George,
August 13, 1922, p. 231.
Great Britain could hold out no hope of further financial support but that Britain would

agree to refer the entire issue to the League of Nations.250

At the Conference of London in August 1922, the Austrians requested that the

Allies guarantee a loan of £15,000,000.251 The Conference rejected the proposal for a

loan.252 At the Conference, the Allies discussed the deteriorating situation in Austria.

Lloyd George noted that Great Britain had already advanced £12.5 million and he did

not believe that Austria's problems could be solved.253 Lloyd George again explained

that "[t]he British Government were not prepared by calling on their heavily-taxed

nationals to create further credits for Austria."254 If the Austrian Government resigned,

Lloyd George was apprehensive that "[t]he Communists would no doubt try to seize

Austria."255 Lloyd George admitted that he did not have a solution to Austria's problems.

"He would ask for the Italian opinion--Italy was nearer Vienna than England, thank

God."256 At the end of the conference the Allies decided to refer the Austrian question to

the League of Nations. Lloyd George made it clear that there would be no further

government loans from the Allies.257 According to Lord Curzon, the Allies were agreed

that "there was no prospect of further financial assistance from allied Powers unless

League were able to propose programme of reconstruction containing definite

250 BDFA, Series F, Europe, Volume 1, 1919-22, Document 281, Lloyd George to M.
Franckenstein.
251 DBFP, vol. 24, No. 134, Curzon to Akers-Douglas, August 18, 1922, p. 304.
252 DBFP, vol 24, No. 134, Curzon to Akers-Douglas, August 18, 1922, p. 304-05.
253 DBFP, vol. 20, No. 64, British Secretary's Notes of an Allied Conference, held in
London on August 14, 1922, p. 227.
254 Id., p. 227.
255 Id.
256 Id.
257
Id., p. 229-30; see also DBFP vol. 24, No. 134, Curzon to Akers-Douglas, August 18,
1922, p. 304-305 (the Conference has referred the question of Austria to the League of Nations).
guarantee that further contributions would produce substantial improvement and not be

thrown away as in the past."258

IV. B. The Events After the Conference of London: Austria continues to put
pressure on the Allies to grant an international loan.
After the Conference of London, Seipel visited Czechoslovakia, Germany and

Italy to enlist aid for Austria. Seipel intended to draw public attention to Austria's

problems and "cause 'apprehension' among the Powers."259 At each meeting Seipel

inquired about the chances that the League would provide a loan to Austria and

discussed contingency plans if the League did not act. Seipel also made slight

variations in the program on each stop to suit Austria's political objectives and upset the

Allies.260 According to his biographer, Seipel's trips drew attention to Austria's problems

and played on the fears of the Powers.261

In Prague, Seipel discussed possible Austrian trade and political with "the Little

Entente."262 The British believed that Seipel was well aware that the Italians would

oppose such a connection. The Czech Foreign Minister, Eduard Benes, was alarmed

that Seipel would visit Italy.263

In Italy, Seipel proposed a potential Austrian financial and economic union with

Italy, which the Czechoslovakian Government opposed.264 Italy was non-committal.265

258 Id., p. 305.

259 Klemens Von Klemperer. Ignaz Seipel: Christian Statesman in a Time of Crisis,
Princeton University Press, Princeton New Jersey (1972), p. 188.
260 Id., p. 189
261 Von Klemperer, pp. 186-97.
262 According to a Foreign office memorandum "the Little Entente" between
Czechoslovakia, Rumania, and Yugoslavia was formed to uphold the treaties of St.
Germain and Trainon. DBFP vol. 24, No. 1, Memorandum on M. Schanzer's Formula
respecting an Anglo-Italian Entente, p. 3, n.3.
263 Von Klemperer, p. 191.
264 BDFA, Series F, Volume 1, Europe 1919-22, Document 285, Akers-Douglas to
Akers-Douglas explained that Seipel had undertaken the trips to Italy and

Czechoslovakia with a purpose of "playing one country off against the other, in the hope

of getting help from one or both."266

In Berlin, Seipel discussed a possible Anschluss with the German Chancellor

Wirth, no doubt to encourage the British and French to support a reconstruction plan.

The French Government did not approve of Seipel's trip to Berlin. According to the

British Minister to Prague267 the French Premier wrote to Czechoslovakia's Foreign

Minister, Eduard Benes to protest Seipel's proposed visit to Berlin.268 The British

Minister wrote: "[t]he French Premier had written to him to the effect that Dr. Seipel's

proposed visit to Berlin had made a bad impression on the French Government and, I

gathered, rather more than hinted that Dr. Benes should let Dr. Seipel realize this."269

Benes informed Seipel as requested but Seipel was unmoved.270 The British believed

the French were alarmed that the Berlin visit might bring the Anschluss question to a

crisis.271

Seipel's trips do not seem to have had any substantial impact on the British.

Indeed, the British viewed Seipel's discussion of a customs union with Italy as a ploy to

the Marquess Curzon of Kedleston, September 1, 1922; DBFP, vol. 24, No. 143,
Kennard (Rome) to the Marquess Curzon of Kedleston, p. 318-19.
265 BDFA, vol. 24, No. 143, Kennard (Rome) to the Marquess Curzon of Kedleston,
August 26, 1922, p. 318-19.
266 DBFP, vol. 24, No. 133, Akers-Douglas to Curzon, August 17, 1922, p. 304.
267 Sir George Clerk
268 DBFP, vol 24, No. 135, August 22, 1922, Sir George Clerk to Curzon, p. 305.
The Premier of France was Raymond Poincaré.
269 Id., p. 305.
270 Von Klemperer, p. 188-89.
271 DBFP vol. 24, No. 138, Lord Hardinge to the Marquess Curzon of Kedleston,
August 23, 1922, p. 311-12.
alarm the Czech Government.272 Akers-Douglas also noted that Seipel was attempting

to "play off" the Czechs and Italians to obtain financial help from both governments.273

V. The League of Nations Reconstruction Plan.

The Austrian Section of League of Nations met in September 1922 to consider

means of solving Austria's economic crisis. Balfour and Sir Basil Blackett, a British

Treasury Official, represented the British Government at the meetings. The Section

agreed on a reconstruction plan for Austria which would be based upon a loan of

£27,000,000 to Austria.274 The loan would be guaranteed by the Allies, with the United

Kingdom, France, Italy and Czechoslovakia each guaranteeing 20%.275 Other neutral

governments would guarantee the remainder. The reconstruction loan was to be

secured on the revenues of the Austrian customs and tobacco monopoly. The loan was

also made on the condition that the Austrian Government would prepare a

reorganization plan that would eliminate the Austrian budget deficit in two years. This

plan called for a detailed reorganization of the Austrian Government which would

necessitate firing thousands of officials and railway workers to reduce costs. According

to the British, if the League assumed control of Austria's public finances, the Allies would

not have to accept responsibility for the layoffs and other austerity measures required to

balance the budget.276

Upon review of the plan, the British Government again declined to support the

272 DBFP vol. 24, No. 133, Akers-Douglas to Curzon, August 18, 1922, p. 303-04.
273 Id., p. 304.
274 DBFP, vol. 24, No. 172, B. Blackett (Geneva) to the Chancellor of the Exchequer,
September 23, 1922, p. 354.
275 Id., p. 354.
276
Id.
plan because it would involve further government guarantees of loans to Austria.277

Balfour would not accept the answer of the British Government. Blackett

informed the Chancellor of the Exchequer that Balfour wished to inform the Government

that "he is convinced both that the further help proposed can and ought to be given by

the United Kingdom and that it would be very disadvantageous to British interests to

refuse it and run the risk of Britain's being justly accused of wantonly failing Europe in a

crisis."278 Shortly thereafter, the British Government reconsidered its position and

agreed to the terms of the League of Nations reconstruction plan.279

The British Government, at Balfour's urging, no doubt accepted the League of

Nations plan because it offered a solution to the Austrian crisis that did not involve

further direct British loans to Austria. The League plan also settled the problem of the

control of Austrian public finances which had been a major problem with previous

reconstruction proposals. The League's control system promised to be impartial

because it would not be managed by the representatives of the Allied Powers. Finally,

through the League plan the British hoped to prevent Italy from increasing its influence

in Austria. For the price of guaranteeing 20 percent of the loan the British hoped that

Austria would remain stable and independent. The reconstruction of Austria promised

to contribute towards the stabilization of Central Europe as a whole.

The Austrian Section of the League of Nations sought to improve control of

Austria's public finances by providing for the appointment of a Commissioner-

277 Id., p. 353, n. 2.

278 Id., p. 353.
279 DBFP, vol. 24, No. 174, Lord Curzon to Lord Balfour, 9-25-1922, p. 356 (British
Government agreed to guarantee 20% of the loan provided that France, Italy and
Czechoslovakia each did the same).
General.280 The Commissioner-General would be responsible to the League and would

control the release of the proceeds of the loan.281 The League reconstruction plan

thereby established an independent check on Austria's public finances.

The British also sought to obtain the consent of all the Powers not to attempt to

gain economic advantages in Austria. The British apparently wished to curb Italian

influence in Austria. At a meeting of the League Council on Balfour proposed that:

The Powers signatories of the Pact [Britain, France, Italy, and Czechoslovakia] . .
. declare that in any action which they should take for the economic
reconstruction of that country they will not only respect her political and territorial
integrity but that they will refrain from seeking special or separate advantages
(economic, financial etc.). Austria on her part will not negotiate or conclude with
any other country economic or financial agreements whilst the control system is
in force and without the previous consent of the signatories."282
This proposal would clearly disallow any Customs Union with Italy without the consent

of the British. This provision also would prevent Italy from using the League to stabilize

Austria and then establishing an Austro-Italian customs union.

The Italian Government objected to Balfour's proposal on the grounds that

Austria would benefit from economic arrangements with its neighbors. The Italians

threatened to leave the League of Nations if the proposal was adopted. The Foreign

Office was unimpressed by this threat. Lampson wrote: "[f]rankly this strikes me as a

pure 'try on' the part of the Italians, and I should deprecate our doing anything here that

would fetter the discretion of Lord Balfour at Geneva. . . The moral of the Italian Note is

280 DBFP, vol. 24, No. 198, Keeling (Vienna) to Curzon, November 10, 1922,
Enclosure, Memorandum by Mr. Niemeyer respecting the results of his visit to Vienna,
November 10, 1922, p. 396 (Provisional delegation visited Vienna to take preliminary
steps towards the establishment of control by the Commissioner-General).
281 DBFP, vol. 24, No. 343, April 24, 1923, Comments by Mr. Tufton on the meetings
of the Austrian Sub-Committee of the Council of the League of Nations, p. 606.
282 DBFP vol. 24, No. 167, The Italian Ambassador to the Marquess Curzon of
Kedleston, September 16, 1922.
that Italy is out to get some political or economic advantage out of Austria in her present

plight."283 After modification, Balfour's proposal was adopted by the League Council.284

As the Austrian Section of the League of Nations put the reconstruction plan into

final form, the British attempted to curb Italian economic influence in Austria. The

League plan called for the creation of a Commission of Control, composed of the

representatives of the Allied Powers and Czechoslovakia. The Commission would

regulate the activities of the Commissioner-General. The Italians proposed that the

Commission could only act if all members were unanimous.285 Balfour, with the support

of the French and Czech delegates, successfully opposed this proposal.286 Indeed,

Lampson reported that Niemeyer believed that "the Committee of control set up by the

League of Nations was after all mere window dressing to save the Italian face and . . .

after a few meetings the Committee would to all intents and purposes softly and silently

vanish away."287 Lampson reflected that "I have no doubt that he [Niemeyer] is correct

and it is certainly the idea with which Lord Balfour suggested its institution."288

283 See id., n.

284 League of Nations, The Financial Reconstruction of Austria, General Survey and
Principal Documents, Geneva (1926), Geneva Protocol No. 1, October 4, 1922,
(hereinafter League of Nations, General Survey) p. 137 (The Powers declared "that they
will not seek to obtain any special or exclusive economic or financial advantage
calculated directly or indirectly to compromise [Austria's] independence.")
285 DBFP, vol. 24, No. 177, Cabinet Offices to Foreign Office, October 4, 1922,
Enclosure No. 2, Phillpotts to Akers-Douglas, September 30, 1922, p. 359.
286 Id., at 359. The Commission of Control could make most decisions by majority
vote. For decisions involving the loan a two-thirds majority was required. Each country
received one vote for each one percent of the loan guaranteed. League of Nations,
Financial Reconstruction of Austria, General Survey and Principal Documents, Geneva
Protocol No. II, Articles 6, 12, p. 139-141.
287 DBFP, vol. 24, No. 198, Keeling to the Marquess Curzon of Kedleston,
November 10, 1922, Enclosure, Memorandum by Niemeyer respecting the result of his
visit to Vienna, p. 400 n.10.
288 DBFP vol. 24, No. 198, Enclosure, n. 10. One commentator believed that Italy
 The political arrangements constituting the reconstruction plan were summarized

in several Geneva Protocols. The most important agreement involved Austria's

independence. The Allies required Austria to guarantee that it would not attempt to

unify with Germany. Geneva Protocol No. 1 states that the Austrian Government:

"[u]ndertakes, in accordance with the terms of Article 88 of the Treaty of St. Germain,

not to alienate its independence; it will abstain from any negotiations or from any

economic or financial engagement calculated directly or indirectly to compromise this

independence."289 Protocol No. 2 set forth the loan guarantee arrangement.290

Protocol No. 3 required the Austrian Government to carry out the goals of the

reconstruction plan. Austria agreed that the Commissioner-General had to approve any

disbursement of funds from the loan.291 Austria was required to propose a budget plan

that would meet the goals of the reconstruction plan.292 The British continued to

carefully observe the reform efforts of the Austrian Government.293 The plan required

the Austrian Government to lay off thousands of government and railway workers.294

Young believed that the plan would work if the Austrian Government was able to put it

resisted British efforts to rehabilitate Austria because Italy wanted "to secure hegemony
for herself in Austria." Ranki, p. 33.
289 League of Nations Official Journal, p. 1471 (1922), League of Nations, General
Survey, p. 138.
290 DBFP, vol. 24, No. 177, Enclosure 2, Phillpotts to Akers-Douglas, September 30,
1922, p. 359; League of Nations, General Survey, p. 139-43.
291 Id., vol. 24, No. 177; see also League of Nations, General Survey, p. 147, ¶ 4.
292 League of Nations, General Survey, p. 147, ¶ 3 (requiring a balanced budget in
two years).
293 DBFP, vol. 24, No. 197, Keeling (Vienna) to Curzon, November 10, 1922,
Enclosure, Memorandum respecting the new Finance Proposals, by Young, November
8, 1922, p. 392.
294 Id., p. 393.
into operation.295

In early October 1922, the Austrian National Assembly endorsed the Geneva

Protocols. The British Minister to Vienna reported that there was little discussion of the

Anschluss.296

VI. The Role of the British During the operation of the League of Nations
Reconstruction Plan.
After the Allies signed the Geneva Protocols, the League of Nations assumed

control of Austrian public finances. The League controls remained in place until July

1926. During the period of League control, the British maintained an advisory role in the

reconstruction effort. At first, the British were satisfied with the results of the League

plan. As we shall see, however, by 1926 the British realized that the League plan had

restored Austria's finances but had not solved Austria's underlying economic problems.

During 1922 and 1923 British Government financial experts participated in the

League of Nations audit of Austria's finances and were partially responsible for the final

version of the budget cutting plan. In fact, Otto Niemeyer, a British Treasury official,

was a member of the League Commission which established the budget reform plan.

In accordance with the League of Nations plan, the Austrian Government

adopted its own budget reform plan. Under the plan Austria would dismiss 100,000 of

250,000 bureaucrats and railway personnel by July 1924. The budget plan also limited

the yearly expenditure of the Austrian Government to 350,000,000 Kronen. In addition,

the Commission plan provided for the creation of a new Austrian note-issuing bank.

The bank, which was originally proposed by Oppenheimer, would control the money

295 Id., p. 395.

296 BDFA, Series F, Europe, Central Europe 1919-1922, Volume 1, Document 293,
Akers-Douglas to the Marquess Curzon of Kedleston, October 13, 1922.
supply and hopefully prevent another fall in the value of the crown.297

The British also assisted the Austrians in obtaining temporary financing. In

March 1923, Niemeyer and Montague Norman, the Governor of the Bank of England,

helped the Austrians raise a temporary loan to provide for their expenses during the

arrangement of the League backed international loan. According to Niemeyer, the

British experts obtained the participation of the governments of France, Switzerland, the

Netherlands, Belgium and the Bank of England in the £3,500,000 loan.298

Niemeyer and Norman also convinced the Austrians to form a Public

Commission to negotiate with private bankers. When it was established, the

Commission was known as the Austrian Commission. Its members were Baron

Franckenstein, Austrian Ambassador to London, Pierre Bark, a director of the Anglo-

Austrian bank, and Sir Arthur Salter, a British diplomat and League of Nations official.299

The British also blocked efforts by the Italian Government to obtain concessions

from the League. In December 1922, the Italian Government demanded that the

President and Foreign Advisor of Austria's new Bank of Issue should be Italians.300

When the Austrians appointed an Austrian President and a Swiss special advisor the

Italian Finance Ministry prohibited the placement of the international loan by Italian

297 DBFP vol. 24, No. 198, Enclosure, Memorandum by Niemeyer respecting the
results of his visit to Vienna, pp. 396-400.
298 DBFP vol. 24, No. 281, Niemeyer to Lampson, February 23, 1923, Enclosure,
Niemeyer to Dr. Zimmerman, February 24, 1923, p. 519-20.
299 DBFP vol. 24, No. 295, The Marquess Curzon of Kedleston to Lord Crewe
(Paris), March 12, 1923.
300 DBFP, vol. 24, No. 225, Keeling to the Marquess Curzon of Kedleston,
December 21, 1922, p. 443. In April 1923 Italy opposed the nomination of the foreign
advisor to the Bank, a Swiss banker. DBFP, vol. 24, No. 314, The Marquess Curzon of
Kedleston to Keeling, April 6, 1923.
banks.301 British diplomats were concerned that the action of the Italian government

would destroy public confidence in the League plan. Lord Curzon persuaded the

Italians to stand by the Geneva agreement by sending the British Minister to Rome to

appeal to the new Italian Foreign Minister, Benito Mussolini.302 After meeting with

Graham, Mussolini agreed to allow Italian banks to participate in the placement of the

loan.303

The reconstruction loan associated with the League's reconstruction plan was

formally issued in May 1923. The proceeds of the loan remained under the control of

the League Commissioner-General, Dr. A. Zimmerman. Dr. Zimmerman had previously

been the burgomaster of Rotterdam.304

After the reconstruction loan was issued, the British Government ceased to have

an active role in Austria. The British supported the decisions of Dr. Zimmerman and

they provided him with certain assistance. For example, a British railway expert

prepared a reorganization plan for the Austrian system.305 The British experts also

continued to provide some minor advice to Zimmerman. For example, during a stock

exchange crisis in Austria in May 1924, Norman advised Zimmerman not to use any

301 DBFP, vol. 24, No. 346, The Marquess Curzon of Kedleston to Sir R. Graham
(Rome), April 25, 1923, p. 610-11 (instructing Graham to urge the Italians to withdraw
their objections). See also DBFP, vol. 24, Nos. 370, 371 and 377.
302 See id.
303 DBFP vol. 24, No. 385, Sir R. Graham to the Marquess Curzon of Kedleston,
May 18, 1923, p. 660-61.
304 BDFA, Series F, Europe, Volume 2, Central Europe 1923-30, Document 6,
Memorandum respecting the League of Nations Scheme for Austria, January 17, 1923.
305 League of Nations Financial Reconstruction of Austria: Sixth Report by the
Commissioner-General of the League of Nations for Austria. July 9, 1923, p. 7
(compilation by the University of Chicago Library 1923-26). (Hereinafter only the report
by the Commissioner-General will be cited.). The British expert was Sir William
Acworth. Id., p. 7.
portion of the international loan to support the market. Zimmerman followed the

advice.306

The condition of the Austrian economy improved to some degree during the

period of League of Nations control.307 However, Austria's economy was in bad shape.

As the Commissioner-General noted in his reports, during the control period imports

were substantially greater than exports. In May 1925, a typical month, imports

exceeded exports by 40 percent.308 In January 1925, Zimmerman reported that the rate

of unemployment was equal to that of Great Britain, which had the highest

unemployment rate in Europe. Austria's rate of unemployment far exceeded the

unemployment rates of Poland and Hungary.309 175,000 Austrian workers were

receiving unemployment relief while only 90,000 Czech workers were unemployed,

even though Czechoslovakia's population was twice as large as Austria's. By March

1926, the number of unemployed Austrian workers had increased to 216,524. The

Austrian economy was performing poorly in comparison to the economies of the other

Central European states.310

VI. A. The British Discuss the Problem of High Tariffs in Central Europe
and what to do about it.
During the Reconstruction period, the British also turned their attention to trade.

After the League of Nations reconstruction plan was put into effect the British again

turned their attention to the problem of high tariffs in Central Europe. In 1919,

306 DBFP vol. 26, No. 132 MacDonald to Akers-Douglas, May 6, 1924, pp. 199-200.
307 See generally the reports of the Commissioner-General to the League of Nations
in 1924-26.
308 DBFP vol. 26, No. 132, MacDonald to Akers-Douglas, pp. 199-200.
309 Twenty-fifth Report by the Commissioner-General of the League of Nations of
Austria. January 31, 1925. pp. 6-7.
310 Thirty-Ninth Report by the Commissioner-General of the League of Nations for
Austria. March 31, 1926. p. 3.
Oppenheimer had proposed the creation of close economic intercourse between the

new states of Central Europe. At the Peace Conference the British supported a

proposal which created preferential customs rates for the countries which comprised the

Austro-Hungarian Empire. The Peace Conference instead agreed on a more limited

provision which made it possible for Austria, Hungary, and Czechoslovakia to establish

preferential customs rates for five years.311

During the period from 1922-26 the British were concerned about protectionist

tariffs which had been established by the successor states, which they believed harmed

all of the countries in Central Europe. In 1922, O.S. Phillpotts, the Commercial

Secretary to the British Legation in Vienna, argued that the protectionist policies of the

successor states were hurting regional trade. The high tariffs decreased exports from

Austria and raised the cost of imports to Austrians. As a possible solution Phillpotts

proposed a customs union, which would include all of the successor states. According

to Phillpotts, a customs union would be highly beneficial to the successor states.312

He noted, however, that this idea was "politically out of the question."313 Phillpotts'

suggestion is similar to Oppenheimer's suggestion that the Allies foster "close economic

intercourse" among the successor states to the Empire.314

In 1925, the British and the Austrians remained concerned about the high tariffs

311 DBFP vol. 1, No. 43. Notes of a Meeting of the Heads of Delegations of Principal
Allied and Associated Powers at the Quai d'Orsay, August 26, 1919; The Treaties of
Peace, 1919-23, Carnegie Endowment for International Peace, New York, 1924, p. 373-
74 (Article 222).
312 DBFP vol. 24, No. 215, Enclosure, Interim Report on the Commercial and
Economic Situation in Austria, with special reference to the League of Nations action,
O.S. Phillpotts, p. 429-30.
313 Id.
314 DBFP, vol. 6, No. 25, Enclosure 1, Memorandum by Sir Francis Oppenheimer
relative to the situation in Austria, July 1919.
of the successor states. Hungary and Czechoslovakia favored high tariffs, while Austria

did not. Phillpotts believed that Austria could only solve the problem by negotiating

commercial treaties with each of the successor states.315

The Commissioner-General also believed that trade restrictions of the successor

states contributed to Austria's economic problems. Dr. Zimmerman argued, in June

1925, that customs barriers established by Austria's neighbors to assert their economic

independence had reduced Austrian exports.316 As a remedy, Dr. Zimmerman

advocated the relaxation of trade restrictions in Central Europe through commercial

agreements. He hoped the successor states would enter into more trade

agreements.317 In March 1926, Zimmerman criticized the Austrians for raising their own

tariffs.318

In March 1925, the British Government discussed methods to convince the

successor states to reduce their tariffs.319 The Foreign Office realized that Austria's

problems could not be solved with a Danube Confederation or a Customs Union

because the successor states were strongly opposed to either idea.320 The British

believed that Austria's neighbors viewed the proposal to create a Danube Confederation

as an attempt to reestablish Austrian domination of the region.

315 BDFA, Series F, Europe, Volume 2, Central Europe, 1923-1930, Doc. 62,
Memorandum of the General Economic Situation and Future of Austria, O.S. Phillpotts,
January 29, 1925.
316 Thirtieth Report by the Commissioner-General of the League of Nations for
Austria. June 30, 1925. p. 4.
317 Twenty-Fifth Report by the Commissioner-General of the League of Nations for
Austria, January 31, 1925, pp. 6-7 (noting Austrian trade agreements with Germany,
France and Czechoslovakia).
318 Thirty-Ninth Report by the Commissioner-General of the League of Nations for
Austria. March 31, 1926. p. 3.
319 DBFP vol. 27, No. 74, Chamberlain to Lord Crewe, March 5, 1925, p. 119-20.
320 DBFP vol. 27, No. 112, Sir G. Clerk to Chamberlain, April 30, 1925.
 One possible solution to Austria's trade problems was the creation of preferential

tariff arrangements between Austria and Czechoslovakia, Yugoslavia, and Italy. In April

1925, Benes informed the British that Czechoslovakia was willing to make trade

concessions to Austria. Benes would not make any concessions, however, "unless

those Powers with whom Czechoslovakia has commercial treaties, which include a

most-favoured-nation clause, are prepared to renounce their rights in regard to special

favours accorded to Austria."321 The British Government did not like the proposal. The

British Secretary of State for Foreign Affairs, Austen Chamberlain, believed that such an

arrangement "would be highly detrimental to British Trade and must be resisted."322

Instead, Chamberlain favored a policy of "reduction of tariffs in Central Europe, the

removal of import and export prohibitions and, generally, a closer economic relationship

between Austria and her neighbors."323 The British were not confident that the policy

would succeed because of "the existence of so much rivalry and divergence of

interests" among the successor states.324

In 1925, the Board of Trade informed the Foreign Office that any negotiation of

preferential customs rates in the Danube area would harm British trade. The Board of

trade believed that if the successor states lowered their tariffs their goods would sell for

less than British goods. In the event of a Danube customs union, British merchants

would still be required to pay tariffs on British goods, while Hungarian and Czech

merchants would not.325

321 DBFP, vol. 24, No. 112 Sir G. Clerk to Chamberlain, April 20, 1925, p. 164.
322 DBFP vol. 27, No. 129, Chamberlain to Sir G. Clerk, May 21, 1925, p. 186-88.
323 Id., p. 187.
324 See DBFP vol. 27, No. 98, Akers-Douglas to Chamberlain, April 15, 1925, p. 146.
325 BDFA, Series F, Europe, Volume 2, Central Europe 1923-1930, Document 78,
 During the 1920s, tariffs in Central Europe went up, not down. The League of

Nations commissioned a study of Austria's economic problems.326 The Committee's

Report concluded that tariffs caused a substantial reduction of Austria's foreign trade

and that the tariffs should be reduced.327 The Economic Council of the League adopted

the recommendations but no significant reduction of tariffs occurred.328 According to

one historian, customs rates were raised by the successor states throughout the 1920s.

Between 1924 and 1927 Austria, Czechoslovakia, Yugoslavia, Hungary, and Rumania

increased customs rates. The Successor states also signed trade agreements with

each other which reduced certain tariffs. The trade agreements did not reverse the pro-

tariff trend.329 Ranki agrees with Dr. Zimmerman and the British diplomats that the

states passed the tariffs to reestablish their independence. Before World War I two-

thirds of the trade of each Danube state was with other Danube states. By 1929, each

state did about one-third of its trade with other Danube states and the total level of trade

in the entire region was less than it had been before World War I when the region had

been unified under the leadership of Austria.330

VI. B. The Austrians begin to seek a Customs Union with Germany.

In March 1926, Akers-Douglas reported that the failure of the effort to reduce

April 16, 1925, H. Fountain, Memorandum by the Board of Trade to the Foreign Office.
326 League of Nations Official Journal. June 11, 1925 pp. 860-1 (Committee
Appointed).
327 League of Nations, the Economic Situation of Austria, report Presented to the
Council of the League of Nations by W.T. Layton, C.H. and Charles Rist, August 19,
1925, League of Nations, Geneva (1925), pp. 27-31.
328 League of Nations, Financial Reconstruction of Austria, Arrangements
Consequent upon the Approaching Limitation and Termination of the Commissioner-
General's Control, League of Nations, Geneva 1925, pp. 7-9 and 12-14 (Economic
Council recommendations adopted by League Council).
329 Ranki, p. 39.
330 Ranki, p. 39-41.
tariffs had convinced elements of the Austrian business community to support a

customs union with Germany.331 The Austrian Chambers of Commerce formed an

organization to study "the possibility of creating a greater economic area." The

organization was pro-Anschluss.332 The British were also concerned that a Customs

Union would hurt British Trade. In June, Akers-Douglas reported that the Austrian

Minister of Commerce also supported the economic Anschluss.333 The Minister of

Commerce suggested that Austria might negotiate with the allies concerning whether a

customs union was compatible with the Peace Treaty and the Geneva Protocols.

Chamberlain responded that such an agreement would be inconsistent with Geneva

Protocol No. 1.334 He was also concerned that the Customs Union would lead to

political union.

The British were also felt a Customs Union would harm British Trade. The

Treasury stated that the effect of a Customs Union with Germany would be that it would

"slightly reduce" British trade to Germany and to dramatically reduce trade with Austria

because British goods would be subject to duties in both countries.335 The Customs

Union would stabilize Austria and benefit some British trade interests.336 The Treasury

also admitted that the customs union would benefit Austria's economy because Austria's

331 DBFP Series 1A. vol. 1, No. 390, Viscount Chilston to Sir Austen Chamberlain,
March 31, 1926, p. 563-64. Akers-Douglas had become Viscount Chilston in 1926.
332 Id., p. 563.
333 DBFP Series 1A. vol. 2, No. 43, Viscount Chilston to Sir Austen Chamberlain,
June 2, 1926, p. 62-64.
334 DBFP, Series 1A, vol 2, No. 67, Sir Austen Chamberlain to Viscount Chilston,
June 22, 1926.
335 Id., p. 113.
336 See id.
industry would be able to sell to a broader market.337 These developments illustrate the

increasing support for the Anschluss after 1924 and eventually led to a successful effort

in the 1930s to create an Austro-German customs union.338

Despite the concern regarding the Anschluss, in 1926 Akers-Douglas referred to

the reconstruction effort as a "remarkable success." He explained that the League

controls had stopped the runaway inflation, restored Austria's credit, stabilized the

Krone (since 1922) and balanced the budget.339

In 1938, Hitler was able to obtain an Anschluss with Austria. The union with

Austria increased Hitler's power and weakened Czechoslovakia as Oppenheimer had

predicted in 1919. Hitler seized control of Czechoslovakia shortly thereafter.340

VII. Conclusion.

The British recognized by 1925 that their effort to reconstruct Austria had only

been a partial success.341 The British believed that they had prevented a collapse of the

Austrian Government in 1922 and believed that they had prevented a Communist

revolution. They had also believed that they had defeated Italian efforts to gain

influence in the Austrian economy. The British realized that they had not successfully

337 BDFA, Series F, Europe, Volume 2, Central Europe 1923-30, Document 142,
Treasury to Foreign Office, O.E. Niemeyer, April 29, 1926.
338 In July 1923, Akers-Douglas had reported on the activities of the Austrian Nazi
party. He explained that the party contained many pan-German members. He stated
that most of the members of the party were middle class or young students and he
described some of the activities of the party as "para-military." He stated: "the main
feature of the movement at present appears to be anti-Jew." BDFA, Series F, Europe,
Volume 2, Central Europe 1923-1930, Doc. 37, Akers-Douglas to the Marquess Curzon
of Kedleston, July 27, 1923.
339 BDFA, Series F, Europe, Volume 2, Central Europe 1923-30, Document 146,
Viscount Chilston to Sir Austen Chamberlain, June 9, 1926.
340 See Thomson, p. 741-43.
341 DBFP vol. 27, No. 112.
encouraged what Oppenheimer called "close economic intercourse" between the

successor states. This meant that Austria's long-term economic problems remained

unsolved. The weakness of the economy strengthened the Anschluss movement,

which again became prominent in the 1930s when it served Hitler's interests. In sum,

the British realized that the reconstruction effort had temporarily stabilized Austria but

that it was not able to guarantee long-term independence and stability.

For the British Government, the League of Nations plan for the reconstruction of

Austria became the prototype for future reconstruction efforts. In 1924, the British

Government led the effort to set up a similar League reconstruction plan in Hungary.

The plan featured an Allied guarantee for a private loan to Hungary and League

oversight of Hungary's budget.342 The Hungarian plan demonstrates that, by 1924, the

British realized that economic syndicates would not adequately stablilize the weak

governments of Central Europe. They had realized that the policies of imperialism were

not equal to the task of reconstructing modern European states and would not,

therefore, effectively serve British trade and security interests.

The reconstruction of Austria also taught the British that private bankers could

not be expected to willingly undertake the risk of loaning large sums of money to foreign

governments. The failure of the plan to obtain the release of reparations liens taught

the British that stability and reconstruction could not be accomplished for free.

The League of Nations plan for the reconstruction of Austria initiated a new

method of treating defeated impoverished states. During the period 1919-22 the Allies

342 See for example, DBFP vol. 24, No. 587, Sir G. Clerk to the Marquess Curzon of
Kedleston, December 3, 1923, p. 900-02 and No. 589, Memorandum by Mr. Butler on
Hungarian Reconstruction, December 7, 1923, p. 904-910.
realized that the reparations terms of the Treaty of St. Germain were too harsh. The

Allies never collected any reparations from Austria.343 In 1922, the Allies gave up on

collecting reparations and made a sincere effort to establish a healthy Austrian state.

One cannot help but think that if the Allies had renounced the right to reparations and

reconstructed Germany as they did Austria the future history of Germany might have

been very different.

Perhaps the League's reconstruction of Austria can be viewed as the first

manifestation of a new diplomacy of international responsibility. In 1922, the British

realized that they would have to stabilize the Austrian economy to remove the potential

for future instability. They were able to accomplish this task with the help of the League

of Nations. The Allies' treatment of Austria can be viewed as a forerunner of the

Marshall plan adopted by the United States in the 1950s. In formulating the Marshall

plan, the United States applied to the same insight to West Germany and Japan after

World War II. As of this writing the Marshall plan appears to have worked. Germany

and Japan do not appear inclined to resort to war to achieve their political objectives.

Both countries are stable democracies.344

Financial reconstruction plans for new countries might also prove helpful to solve

current political problems. Recently, the countries of Central and Eastern Europe have

undergone revolutions, which have in large part replaced Communist Governments with

democratic governments. Certain borders established by the Treaties of Versailles, St.

343 Peter H. Buckingham, International Normalcy: The Open Door Peace with the
Former Central Powers, 1919-1921, Wilmington Del., Scholarly Resources, 1983, pp.
127-28.
344 Charles L. Mee, Jr., The Marshall Plan: The Coming of Pax Americana, Simon &
Shuster, New York (1984), pp. 246-63.
Germain and Trianon have been redrawn. Yugoslavia no longer exists.

Czechoslovakia has become two countries.345 The Soviet Union no longer exists. In its

place are numerous successor states. The recent changes have produced a bloody

war in Serbia and Bosnia. To reduce instability and prevent further strife the United

Nations might consider establishing reconstruction plans for these countries. Many

countries have granted substantial financial assistance to the countries in Eastern and

Central Europe.346 Western business interests have also sought economic opportunities

in Eastern Europe. But we cannot expect that Western business interests can

adequately reconstruct the economies of Central and Eastern Europe. The League of

Nations' plan to reconstruct Austria in 1922 might well be applied today to again

reconstruct the new successor states in Central and Eastern Europe.

345 The recent divisions of Czechoslovakia and Yugoslavia have again called into
question the actions of the Big Three Wilson, Lloyd George and Clemenceau in drawing
arbitrary boundaries for the successor states to the Austro-Hungarian Empire. Time has
shown that their decisions-motivated by their own political concerns-did not produce
stable independent states. The Allies, however, acted correctly in prohibiting the
Anschluss. Their resolve failed them in 1938.
346 Wolfgang H. Reinicke, Building a New Empire, The Brookings Institution,
Washington D.C., 1992, p. 162 (European countries granted $13 billion in foreign
assistance to Eastern Europe in 1991).