FINANCIAL RECONSTRUCTION OF AUSTRIA

Transcription

1 Extract No. 11 from the Official Journal. (March 1923.) (C ) LEAGUE OF NATIONS FINANCIAL RECONSTRUCTION OF AUSTRIA FIRST REPO RT BY THE COMMISSIONER-GENERAL OF THE LEAGUE OF NATIONS A T VIENNA submitted to the Council on February 1st, 1923

2 LEAGUE OF NATIONS. FINANCIAL RECONSTRUCTION OF AUSTRIA FIRST REPORT BY TH E COMMISSIONER-GENERAL OF TH E LEAGUE OF NATIONS AT VIENNA. submitted to the Council on February IsZ, [Translation.] (Period, December 15th, 1922 to January 15th, 1923.) Paragraph 4, sub-paragraph 2, of the Geneva Protocol No. Ill lays down th at the Commissioner-General shall present monthly to the Council a report upon the progress of the reforms and the results achieved. In accordance with this provision, I have the honour to submit to the Council of the League of Nations the following report dealing with the period December 15th, 1922 to January 15th, 1923, which forms a continuation of the report by the Provisional Delegation. I. E stablishm ent of th e n e w B ank of Issu e. The most im portant event in this period, my first period of office in Vienna as Commissioner-General of the League of Nations, is undoubtedly the establishment of the new Bank of Issue, the opening of which, on January 2nd, 1923, inaugurates a new period in the financial policy of Austria (see Report of the Provisional Delegation). A. Subscription of the Capital of the Bank. The subscription list for shares in the new bank opened on December 4th 1922 ; the methods by which this transaction was carried out are set out in full in the prospectus, published in Appendix I. The Federal Minister of Finance originally intented to close the subscription list on December 15th. The whole capital of the Bank, i.e., 30 million gold crowns, had been subscribed by that date, the State providing 14 millions of th at sum. It should, however, be noted that the possibility of subscribing the capital of the Bank was in practice prolonged up to January 16th 1923, as the plan established a close connection between subscription to the Bank and subscription to the Treasury Bonds (see prospectus), and since the subscription list for the latter remained open until the latter date. The final result of the shares of the Bank was highly satisfactory. It is probable that it will only be necessary to fall back to a very slight extent on the State reserve, the possible employment of which had been anticipated. The extension of the period of subscription to the Treasury Bonds allowed the Government to reduce the amount of its subscription to less than 8 millions, two-fifths of which were paid up by it in gold. Out of the total subscription of 30 million crowns, 22 millions were paid up in gold and 8 millions in Treasury Bonds. An agreement will have to be concluded between shareholders of the former Austro- Hungarian Bank and the National Bank with regard to the ownership of the printing press and the premises belonging to the former institution. Until this agreement is readied, the Federal Law has guaranteed to the New7Bank of Issue the use of the installation and premises. The conclusion of such an agreement will be facilitated by the fact th at the Government has expressed its willingness to set apart l 1/» million of the shares which it holds to enable the new bank to transfer them to the former shareholders. B. Appointment of the Chairman of the New Bank of Issue. It is clear that, for various financial and political reasons, the National Bank was to be founded forthwith. The meeting of shareholders to arrange for the opening of the Bank was therefore convened for December 22nd in the hope that by that date the President of the Republic would have appointed, on the recommendation of the Government, the Chairman of the new Bank of Issue. Failing this appointment, certain formalities indispensable in founding the Bank could not be complied with. It was on the evening of December 21st that the Council of Ministers agreed to the nomination of Dr Richard Reisch, whose appointment by the head of the Government followed on the same day. The reason for this delay is as follows : The Geneva Protocols merely place on record the undertaking assumed by the Austrian Government to set up a fully autonomous Bank of Issue, leaving the Government the responsibility for drawing up the statutes and of settling all details, including the appointment

3 4 of a Chairman. Nevertheless, as the Government had expressed a desire to have my opinion on the latter question, I explained my views in a letter dated December 19th (see Appendix II), While fully realising the legitimate desire of the Government to secure the appointment of an Austrian chairman of the National Bank, I felt it my duty to point out that, in my opinion, the issue of loans would be considerably facilitated if, for the period of the organisation of the new Bank and the issue of loans, if the choice of a chairman for the New Bank should fall on a person whose name wrould carry weight in the great financial centres of the western countries (see Appendix II). In a letter dated December 21st, the Government noted my opinion and informed me that the President of the Republic had that evening appointed an Austrian, Dr. Reisch, as Director of the Bank, while at the same time considering the possibility of giving a place in the management to a foreigner described as "an expert provided with special powers, powers which would be determined at a subsequent date (see Appendix III). In the same letter the Government advised me of its intention of approaching M. Janssen, Director of the National Bank of Belgium, to request him to accept the post of expert. Negotiations have since taken place on this m atter but have not yet, however, yielded any definite results. It appears to me important th at a decision with regard to fixing the limits of the powders of this expert and the choice of a suitable person should be reached as soon as possible ; it is all important in the interest of Austria herself, w7ho, during the difficult period through which she is passing, stands specially in need of the confidence of foreign countries. C. Meeting of Shareholders to found the new Bank of Issue. On December 23rd, 1922, the shareholders of the new bank held an inaugural meeting under the chairmanship of Dr. Reisch. The latter set out his views in a speech, the text of which is given as an annex to this report (see Appendix IV). D, Transfer of the Business of the Austrian Branch of the Austro-Hungarian Bank to the Austrian National Bank. By a Federal Decree dated December 29th, 1922 (see Appendix V), the business of the Austrian Branch of the Austro-Hungarian Bank wras transferred to the National Austrian Bank, which, on January 2nd, 1923, began operations. Reference to the last balance-sheet of the old bank (see Appendix VI) and comparison with the first balance-sheet of the National Bank (AppendixVII) will bring out the fact that as at December 31st 1922 : The fiduciary circulation amounted to 4,080 milliards ; Current accounts»» 328» To cover these liabilities, amounting to 4,408 milliards, the apparent realisable assets consisted of only about 5 milliards in addition to 782 milliards of commercial paper and 2,558 milliards of Austrian Treasury bonds. The item Various assets (1,288 milliards) included, however, the deposits forming the reserves of the Devizen-Zentrale (clearing house for foreign valuta), a sum which has been increasing for weeks past. In the new balance-sheet, as a result of the fusion of the Devizen-Zentrale and the National Bank, these reserves have become the property of the Bank of Issue. As against liabilities of 4,471 milliards, namely. Fiduciary c irc u la tio n... 4,054 milliards, Current accounts » we find realisable assets of 1,195 milliards in gold and securities. The commercial securities amount to 732 milliards, while the figure for Treasury bonds remains unchanged. In accordance with the statutes, gold and foreign securities are estimated on the basis of the average rats of exchange for the second half-year of 1922, i.e., on a basis which is 8 to 10% lower than the present rates of exchange. They represent, therefore, in reality, a greater value than that w'hich is assigned to them in the balance-sheet, and this margin is indicated under the heading Other assets, along with the value of other securities w'hich are not included in the reservee Although the reserve, therefore, only represents a certain proportion of the realisable assets, it covers 26.7% of the total amount of notes in circulation, including notes issued against Treasury bonds. This position is all the more remarkable seeing that the wdiole of the gold capital subscribed has not yet been paid up, and the statutes provide that, when payment has been fully made, only 2 0 % of cover wrill be obligatory, and that in making this calculation, in accordance with Article 85, the amount of the Treasury bonds, i.e, more than 2,500 milliards, will be withdrawn from the notes and immediate liabilities! The taking over of the business of the Devizen-Zentrale by the National Bank has led to this satisfactory result. E. Transfer of the Business of the "Devizen-Zentrale to the New Bank. The Foreign Securities Department has been able to build up for itself a large reserve during the past few months owing to the special conditions of the market. The relief measures of the League of Nations and the programme of reforms have inspired the Austrian public with confidence. A portion of the foreign securities which had been hoarded up as reserves by private persons was once more converted into crowns, and the supply of foreign

4 5 currencies has been considerably in excess of the demand. As the gold value of crowns in circulation (300 million gold crowns at the present date instead of 1 milliard gold crowns in 1919) was inadequate for the requirements of the market, this confidence would have led to a rapid rise in the crown, entailing a serious economic crisis, if the policy of the Foreign Securities Department had not been to purchase from the public currencies offered in excess against crowuis, with which the Bank of Issue supplied it on the basis of these foreign securities. The situation caused by the scarcity of crowns in the market w7as thus eased by an issue of secured crowms. The value of the reserves of the Devizen-Zentrale rose from 700,000 in October to 4 millions at the close of the year. When the National Bank took over the exchange business, i.e., the ownership of the reserves, each one of the 4,000 milliards of crowns in circulation was better secured than each of the 3,000 milliards of crowns w hich were in circulation in November. This position is clearly brought out in the first account of the New Bank, and it ought to serve to inspire the Austrian public and foreigners with a considerable measure of confidence. II. A dm inistrative R eform s. A. Measures of Reform. The Reconstruction Law of November 27th, 1922, includes, among other measures of administrative reform, the following articles : Section A. 1. In order to simplify the Federal Administration as far as possible and to reduce its expenditure to an absolute minimum, every branch of the Administration shall be reformed in accordance with the principles laid dowrn in paragraphs 2 to Paragraphs 1 and 2. (1) The number of Federal Ministries shall be reduced as far as possible and shall be fixed at a maximum of eight. (2) Apart from this reduction in the number of the Ministries, their organisation shall be simplified as far as possible, and every effort shall be made to avoid an overlapping of duties. The nature and object of all these measures render them so urgent that they ought to be carried out as soon as possible. Immediately upon my arrival at Vienna, I discussed this subject with the members of the Austrian Government, and, in particular, with the Chancellor and Vice-Chancellor, the latter of whom has been personally entrusted with the task of simplifying the Administration. In a letter dated December 21st (see Appendix VIII), I asked him to be good enough to state what measures he proposed to adopt during the first few weeks and to keep me regularly informed of the results obtained. The Vice-Chancellor s reply, in his letter dated January 4th (see Appendix IX), makes it clear that the Austrian Government is. fully aware of the necessity of undertaking not only reforms of detail but also numerous measures of a comprehensive nature. I also discussed this question with the Chancellor on several occasions and confirmed my views in writing. Among measures which might be undertaken immediately, I suggested that the number of Ministries should be reduced by two, notably by the fusion of the Ministry of W ar and the Ministry of the Interior. The Post Office might again be combined with the Telegraph and Telephone Services, and the State Chancellor might be housed in the same buildings as the Ministry for Foreign Affairs. I had hoped that these measures would have been adopted before the meeting of the Council of the League of Nations at the end of January, but unfortunately my hopes have been disappointed. The m atter is still in abeyance and forms the subject of "discussion between the Government and myself. I am obliged to admit that at the end of this first period, apart from the fiscal measures, not one of the important reforms decided upon has yet been carried out ; the few administrative reforms which have been accomplished are of a minor character. This fact is particularly to be regretted, because it shows that, if better results are not obtained within a very short time, the progress of the w7ork of reconstruction may be delayed. B. Redaction in the Number of Officials. The Provisional Delegation of the League of Nations had concluded an agreement with the Austrian Government providing for the dismissal of 100,000 officials before July 1st, 1924, as follows : before January 1st, 1923, before July 1st, 1923, before January 1st, 1924, before July 1st, 1924, S. d. N. 250 (F.) (A.) 4/ (F.) (A.) 7 /2 3. Imp. d'ambilly.

5 6 In order to carry out this agreement, the Austrian Government has entrusted all the problems connected with the reduction of the number of officials to Dr. Hornik, Economy Commissioner, who has had great experience in matters of this kind, as he was responsible for the demobilisation of the military organisations after the Armistice. The Economy Commissioner is working in close touch with a Staff Discharge Committee, consisting of representatives of the various Ministries ; the duty of this Committee is to apportion between the various Ministries the total number of officials to be dismissed. The Economy Commissioner reports progress to me weekly. From October 1st to December 30th, 1922, the Government has discharged 23,651 persons employed in State services. On January 13th, 1923, this number had increased to 25,494, divided among the various Ministries and State enterprises as shown in Appendix X. The figures which show the number of officials discharged also refer to officials who are still employed but whose discharge or dismissal papers have already been signed. In point of fact, most officials finally leave the service after a certain period of notice varying from one to six weeks. Those officials who are not placed upon the pensions list receive gratuities in proportion to their length of service. The Government is taking appropriate measures to assist discharged officials to find employment. As the gratuities now being paid are too high, and utterly out of proportion to those which are granted in private businesses, it will be necessary to modify the law regarding dismissals of staff. At the same time, the highly complicated procedure of discharge prescribed in this law must be simplified. I am glad to note that the Austrian Government is of the same opinion, and th at an amendment to the law regarding dismissals of staff has already been passed by the Council of Ministers. This amendment must come into force as soon as possible. The Council of Ministers has also passed a law prohibiting the accumulation of State pensions and other sources of income by discharged officials, after they have obtained employment. W ith a few days delay, therefore, the Austrian Government has kept its engagements in regard to the dismissal of the first 25,000 officials. The very large total number of officials rendered this first stage comparatively simple, but it is clear that, as the process of dismissal continues, the execution of the programme will become proportionately more difficult. In order to overcome all the difficulties involved in a reduction of staff on so large a scale as that to be anticipated in Austria, the work connected with dismissals must be entrusted to an organisation possessing special powers. Even if this measure were adopted, it would be impossible to dismiss another 75,000 officials in a period of 18 months merely by informing each department of the number of officials it must dismiss. Such a method would entail the risk of serious dislocation in the working of the Administration. The dismissals must therefore be accompanied by simplifications of administration, involving the abolition of certain offices and services, the fusion of others, the suppression of duplicate posts and the recasting of an over-complicated procedure. This simplification of administration is so closely bound up with the reduction of stall that the two tasks must be entrusted to a single person. W ithout unity of control, it would seem impossible to secure a sufficiently rapid progress in the reforms. The Austrian Government, however, to which I have communicated m y opinion, has as yet taken no steps in this direction. III. State F inance and the B u d g et. The reforms already undertaken could not to any large extent facilitate the balancing of the State finances during the first period. For instance, the dismissal of officials offered hopes of an alleviation of the public expenditure at a future date, but, at the outset, it involved an increase of expenditure in the form of gratuities and pensions. The stabilisation of the crown, at the very moment when the currencies of the neighbouring countries were collapsing, brought in the element of foreign competition, thus giving rise to an economic crisis and compelling the State to disburse large sums for unemployment relief. The new measures of economy do not make it less necessary to meet engagements previously undertaken and payments which have since fallen due. I was therefore compelled to place large sums once more at the disposal of the Austrian Government to enable it to meet its deficit. My policy has, however, been to grant the sums asked for only for the most important requirements and, moreover, to insist on other claims being carried forward, thus impressing on the departments concerned the absolute need of economy. This policy in m atters of State finance of meeting expenses the payment of which could be delayed but not avoided was intended to facilitate the task of the Finance Minister in confining within limits the estimates of the various Departments when drawing up his preliminary budget for January and also his annual budget. A. State Finance. The Agreement concluded in November between the Provisional Delegation and the Government provided for a first reduction of the deficit of 457 million gold crowns per year on the basis of the situation in October 1922, to 283 million gold crowns on the average over

6 7 the period January-June Including the revenue receipt on account of the communes, i.e., after adding their total both to the revenue and expenditure the estimates in question represented the following amounts in paper crowns per month : For October at the exchange rate of 15,000 : Expenditure milliards R e v e n u e » (including customs and tobacco) D e fic it » Average for the period January-June 1923 at the exchange rate of 14,380 : E x p en d itu re milliards. R e v e n u e » (including customs and tobacco). Deficit » The applications for funds for December were accompanied by weekly estimates reaching a total of : Expenditure...1,140 milliards R e v e n u e » (not including customs and tobacco) Applications for funds » to meet the deficit and the deduction of customs and tobacco. Only 423 milliards were released during the month, including 265 milliards released by my authority. Forty milliards are accounted for by the placing at the Government s disposal of a part of the gross receipts from customs and tobacco after setting aside the necessary reserve to guarantee the Treasury Bonds issued. The receipts thus pledged as security were included in the general receipts by the agreement of November. W ith a view to comparing the deficit with the totals given in th at Agreement, it is therefore necessary to deduct from that deficit the portion of the revenue from customs and tobacco which is not required to guarantee the loans. 383 milliards were obtained from the special fund into which the yield of the Treasury operations carried out to cover the deficit is paid ; that is a total nearer to 339 than to 572, but it was necessary to insist on numerous claims for payment being carried forward. The allotment of the receipts from customs and tobacco to Account A only began on December 8th ; 57 milliards had been received up till the end of the year, and 122 in all (including 79 for tobacco) up to January 6th on account of the month of December. The amounts thus obtained should be compared with the effective receipts for this month, as verified in the books. C u sto m s milliards T o b a c c o » T o ta l » I drew attention to the difference between these totals and the amount obtained on January 8th, 1923, in a letter dated January 12th to the Federal Finance Minister ; the difference was paid in during the next few days (between December 8th, 1923, and January 15th, 1922, 186 milliards were obtained). This yield from sources of revenues mortgaged fell below the estimates of the Austrian Government owing to the economic crisis and the number of holidays in December. B ut it is distinctly larger than the estimates in the Geneva report (100 milliards per month, including 50 milliards for tobacco). The gross receipts for October had reached 163 milliards, including 106 milliards for tobacco ; those for November, 179 milliards, including 116 for tobacco. The increase in the fiscal customs dues introduced on December 26th gives a prospect of larger receipts in January. The 383 milliards taken from Account B to cover the deficit were obtained chiefly from operations connected with the placing of Treasury Bonds in the home market. They were released, partly in the form of foreign securities obtained from the last payments made by the banks for the block of 30 million gold crowns which they had taken up in November (see the Provisional Delegation s report), and partly in crowns obtained from the amounts subscribed by the public from December 4th onwards. 1,775,000 dollars were handed over to the Government, which converted them into about 128 milliards of crowns through the agency of the Central Office for Foreign Exchanges (Devisen-Zentrale); the duties of which have already been explained ; 175 milliards were obtained from the yield of the bonds allotted to the public in crowns (return, 205 milliards up to December 30th ; 260 up to January 15th). The additional 80 milliards were obtained by a provisional transaction effected with the Vienna banks for an advance of 100 milliards secured by half of the gold realised by the winding-up of the Austro-Hungarian Bank. This advance will probably be repaid in January when certain assets, the employment of which is now being considered have been realised, and the gold will thus figure among the assets of the National Bank and will be a further addition to its cash. Thus the requirements of the Austrian Government Treasury for the month of December were covered without the necessity of remitting Treasury Bonds to the Bank of Issue ; the principle of putting an end to the inflation of currency (see report of the Provisional Delegation,

7 8 Annex 458) is now actually being applied. For January we had at our disposal the surplus of customs receipts and the yield of the tobacco monopoly under Account A, further receipts from the public loan under Account B, and surplus amounts obtained by other operations. We have, moreover, obtained the deposit of the Czech balance in Treasury Bonds payable at sight, which it is proposed to make use of, and the balance of the French loan is now available. The financial requirements of the Treasury are thus assured, and we hope tha during the next months the balance of the Italian loan will become available under the same conditions, and that it will be possible to make use of the gold which is still in reserve. All these transactions are, moreover, subject to the option of repurchase should it be possible to place abroad Treasury Bonds secured by the assets or by the Parliamentary guarantees plus those assets. This was the financial position at the end of the second period provided for in the report of the Financial Committee (reply 5) annexed to Geneva Protocol N III. Instead of the estimated sum of from 120 to 160 million gold crowns, the actual deficit required only part of the yield of the internal loans (30 million gold crowns from the banks, plus approximately 12 million gold crowns, i.e., 175 milliard paper crowns from the subscriptions of the public) and the pledging of 7 */3 million gold crowns, a total of roughly 50 million gold crowns. This reduction is due, in the first place, to the fact that, up to November 18th 1922, the State continued to have recourse to the old methods of inflation in order to cover its deficit. It was in a position to withdraw banknotes against Treasury Bonds without, however, causing a fall in the crown and was thus able to constitute the reserve referred to in the report ; it is due also to the fact that a beginning has been made with the carrying out of the programme of reform. Under these circumstances, no outside advance has been required ; at the beginning of the third period, when 80 % of the Parliamentary guarantees became available, the Austrian Government still had at its disposal part of the international loan, on which it was able to subsist till January 15th, 1923; further, it had at its disposal the whole of the balance which was to be used as security for the second period, and half the gold resulting from the winding-up of the Austro-Hungarian Bank. These assets, in addition to the value of the Parliamentary guarantees, will assure the position during the next few months. Their utilisation in some form or other is imperative, and, since some of these assets may not be immediately realisable, it is essential th at loans secured wholly or in part by the new Parliamentary guarantees should be obtained without delay. B. Budget. Unlike the Treasury operations for December, those for January can be verified in accordance with the figures laid down in the preliminary budget for the month. The deferred payments due during the course of December brought home to the various branches of the administration the urgent necessity of at last economising and of reducing fresh financial commitments to a minimum. I insisted upon this situation being taken into account in the estimates for January and those for 1923, and for this reason have been in consultation with the Finance Minister. From December 21st, five days after taking up my duties, I requested the Minister for Finance to exercise with the least possible delay a central control over the other branches of the administration (Appendix XI). At the beginning of January, I pointed out that, instead of the monthly deficit of 572 milliards on the basis of the situation in October (agreement between the Provisional Delegation and the Austrian Government), of 339 milliards on the basis of the average for January- June 1923, the first estimates of the Government provided for 536 milliards for the month of January. I insisted that it was impossible to work on such a basis. It was not to be expected that all the reforms in the direction of economy and all the increases in revenue, which are to be spread over a period of six months from January to June would take effect during the first month of the period. But the excess of expenditure should be sufficiently small to be wiped out between the coming month and July 1st, I have therefore agreed to the adoption of a preliminary budget for January providing : Expenditure 740 milliards, an excess of 21 over the 719 estimated as the average for the period. Revenue 336» a deficit of 44 on the 380 estimated as the average for the period. Deficit 404» i.e., 65 more than the 339 estimated as the average for the period. If this budget be adhered to, it will represent a monthly reduction in the deficit amounting to 168 milliards since October. I have tried to indicate that I shall not give permission for the estimates to be exceeded, and the sums actually released during the first fortnight of January, both in bills of exchange and in crowns, corresponded only to a deficit of 200 milliards, together with the retrocession of th at part of the customs and tobacco revenues which exceeds the necessary cover for the present loans. The Finance Minister subsequently informed me th at he had taken all the necessary steps to ensure that the deficit in January should not exceed 404 milliards. Revenues as last estimated reaching only 330 milliards on account of the economic crisis, expenditure would be reduced to 734 milliards in accordance with a programme applicable to all Departments which has been submitted to me and carries out the reforms previously worked out (see Appendix XII). The Financial Administration must be reorganised without delay if we are to ensure the application of the foregoing reforms and to obtain the expected results in the budget. It was impossible, during the four years of the war and the three years of continual currency

8 depreciation, to adhere to the estimates. The credits budgeted for an entire year have often been expended within the first few months, and accountancy calculations which were originally drawn up with the heller as a basis were complicated by the immensely swollen figures. It accordingly became the custom of the various departments simply to give the Finance Ministry some rough indication as to the size of their deficits ; the actual revenues and expenditure were only reported to the Ministry after a considerable delay, usually about six months late. The Government was able to cover the deficit by issuing notes guaranteed by Treasury Bonds, but it was quite impossible to control excess of expenditure in any way at all. " Now that the State can no longer have recourse to inflation as a source of revenue, the re-establishment of a rigorous control has become absolutely indispensable. This is rendered possible by the stabilisation of the crown, but the system of control still remains to be organised. I have, since my arrival, drawn the attention of the Finance Minister to this problem (Appendix XI), and on January 4th I reminded him that, in my opinion, the only feasible system of control which would be likely to give real results was the following : officials from his Ministry should be seconded to the various Departments in order to be on the spot to enforce a strict economy in the drawing up of the estimates. Inspectors of this kind have already been attached to the Ministries of Social Relief Work, of the Army and of Commerce. The administration of the railways is disastrous ; its deficit is by far the heaviest charge upon the budget (according to the January estimates, 43 %, and to subsequent estimates, 39 %, of the total deficit). Liaison between the central direction and the local executive authorities does not appear to be adequate. This Department does not seem to understand the necessity for far-reaching reforms. Having compared the Austrian railway management with the management, by private companies in certain foreign countries, I asked the Finance Minister to be good enough to consider the possibility of inviting a foreign expert to come and investigate on the spot the running and the. reorganisation of the Austrian railways. The Chancellor and Finance Minister have told me th at they are, in principle, in agreement with this suggestion. We have also considered the possibility of employing the same system in certain other branches, especially that of the tobacco monopoly, the yield of which is set aside as one of the pledges for "the loans. The budget for the entire year 1923 has been drawn up on the basis of the agreement between the Austrian Government and the Provisional Delegation. Under this agreement, expenditure was to be estimated for the first six months at the rate of 600 million gold crowns per annum, and during the second quarter at the rate of 578 millions; it was only possible, therefore, in the 1923 budget to estimate for an average expenditure of 589 million gold crowns, this sum representing 8,540 milliards at the rate of 14,500, which was that adopted for calculating the budget. The Austrian Government s estimates for expenditure amount to 8,448 milliards, i.e., 582 million gold crowns. Estimates for receipts are 6,098 milliards, i.e., 420 million gold crowns instead of 369 millions, which was the sum fixed under the agreement (six months at the rate of 317 millions and six months at the rate of 420 millions). The deficit in the budget for the entire year 1923 would therefore amount to 2,350 milliards, i.e., 162 million gold crowns, instead The above budget must be submitted to and discussed in Parliament during the coming months, when the estimates for expenditure and receipts respectively may be modified, but the total must not exceed the limits of the engagements entered into by the Government towards the Provisional Delegation. Meanwhile the Government has secured authorisation to incur expenditure during the first four months of the year not exceeding a maximum of 200 million gold crowns, that is to say, at the rate of 600 million gold crowns per annum, as fixed for the period January to June 1923 in the agreement with the Provisional Delegation of the League of Nations. I have taken note of this fact in my letter dated December 21st (Annex XI) to the Austrian Finance Minister. IV. General S ituation. The Geneva Protocols are based upon the fundamental assumption that the Austrian problem must be considered in three different but closely connected aspects : political, financial and economic. This view of the question is in entire agreement with my conception of the task undertaken by the League of Nations, and, although the duties of the Commissioner- General do not officially include the consideration of all the questions which fall within these three categories, I think it desirable, as these problems form a complete whole, to deal with them in a general manner in my first report. A. Political Aspect. It is obvious that no State can be rendered financially sound until it has a political organisation strong enough to prevent any waste in public finance. In other words, a Government must take drastic action in all established cases of waste of this nature, and must not hesitate to take strong measures, if necessary, in order to effect economies. These general observations have a special force in the case of Austria, where the financial difficulties are largely due to abuses from which the country has been suffering since the Armistice.

9 10 The reforms demanded in the Geneva Protocols are so stringent that they can only be carried out by a strong and fearless Government. Moreover, the Protocols were based upon considerations of this nature, for they stipulate that the Government must be invested with special powers throughout the period of reconstruction. It is clear that the Government must not only be furnished with extraordinary powers but must also have the will, the courage and the strength to use them in order th at the budget may be balanced within the comparatively short time which has been allowed for this work of reorganisation. In short, it is the Government s duty not to hesitate to go forward with the necessary measures, taking no account of any political considerations, even should it be obliged (as I think it inevitably will be) to run counter to the interests and to thwart the desires of more or less important sections of the population. It is the duty of the people, on the other hand, to work towards the common goal by rendering the Government s task as easy as possible. I have as yet 110 reason to doubt th at the Government shares this view, but I think it well to point out that it is the absolutely indispensable condition for the success of the entire plan. It is among the duties of the Commissioner-General indefatigably to support the Government to the best of his ability in the great task which lies before it, but it is doubtful whether the goal can be attained unless the Government itself, by its composition and its mental attitude, gives the necessary guarantees of its intention to carry out the required measures. B. Financial Aspect. It is the financial side of the work of reconstruction which has most closely held the attention of the Council and Advisory Committees of the League of Nations. In Austria, also, this aspect receives most consideration. In another part of this report I have a lready dealt with financial problems from a technical standpoint, but we have also to consider the influence of these questions on the psychological and political condition of the Austrian people. It is not too much to say th at the whole financial problem is now dominated by the question of whether or not credits, first provisional and then definite, will be placed at the disposal of the Treasury in time. It will not be long before they become indispensable, as I have endeavoured to show above in my statement of the position of the Treasury; and in my opinion it is perfectly comprehensible that the Austrian public should betray some anxiety in view of the absence as yet of any definite agreement between the Austrian Government and international financial circles. It is true that the resources of the Treasury that is to say, the ordinary receipts together with the funds obtained by the internal loan and the credit operations which have so far been carried out are sufficient to cover the State expenditure for some weeks to come ; and there is therefore no reason to anticipate immediate difficulties. But if a certain nervousness is becoming perceptible in public opinion, the reason is that the Austrian public is wondering not merely when an agreement will be concluded with regard to the necessary credits but also whether advances will be actually available for use when they are required. Since the work of the League of Nations began, it should be observed th at there has been a remarkable growth of public confidence, particularly as compared with the complete collapse of that confidence last summer. This renewed faith in the future of the country has been demonstrated in various ways. One proof of it is the stabilisation of the crown since the end of last August ; another is the increase in bank and savings-bank deposits, which shows that the public has again begun to invest its savings in Austrian currency. The successive falls in the cost of living during October, November and December indicate that producers and middlemen have gained confidence in the value of the national currency and have thus been enabled to reduce their margin of profit. Lastly, large purchases of crowns have been made in foreign currencies1. Moreover, the subscriptions to the internal loan and to the capital of the new Bank of Issue have given far better results than we ventured to hope at the beginning of December. During the last few weeks, however, a slight reaction has been felt, which finds its main expression in a greater demand for foreign securities, an increase in speculation on the exchange, and a certain nervousness which is reflected in the Press. At the same time, but for different reasons, the index figure for January has risen by 1 /o the first rise for three m onths2. As I have already observed, this anxiety is due in the main to the doubts which public opinion is beginning to feel with regard to the continued absence of foreign credits. Personally, I regard Jhis anxiety as unjustified, as I endeavoured to explain in a Press interview on January 17th (see Appendix XIII). But this state of mind must be reckoned with, for the maintenance of public confidence in the ultimate success of the reconstruction scheme is one of the essential conditions of that success. 1 Figures in support of these statements have already been given in the Report of the Provisional Delegation. During the month of December the total deposits in banks and savings banks have increased by 26 milliard crowns. i i slight increase in the cost of living (in reality only 0.83 %) is due to the rise in the price of coal owing to Higher treight rates, and to the increase in rents, which are tending to rise from an excessively lowr level to the normal

10 - 11 The best way of removing this momentary anxiety is undoubtedly to take a prompt decision regarding the credits necessary7to continue the carrying out of the scheme prepared at Geneva. C. Economic Aspect. Another fact which exerts, of necessity, a depressing influence on the state of public opinion is the economic crisis through which the country is now passing l. This crisis is due to various causes : in the first place, to the normal and invariable consequences of a period of inflation such as Austria has recently suffered ; secondly, the general European situation has, of course, been felt in Austria and the collapse of the German mark has rendered Austrian export trade particularly difficult, so th at industry has very largely shut down. A third cause, which had already been taken into account at Geneva, is the question of the commercial difficulties which obstruct international traffic in Central Europe ; the excessive regulation of economic relations with her neighbours which Austria has kept up since the end of the war renders the importation of raw materials and the exportation of manufactured products still more difficult, quite apart from any financial problems. It is, I think, superfluous to explain in detail the great difficulties produced by this economic crisis in the financial reconstruction of the country, which depends on an increase in State revenues accompanied by a decrease in expenditure. If Austrian industry can find 110 outlet, the yield from taxation will inevitably diminish ; that of the customs will also decrease, side by side with the amount of raw materials imported. No increase in tariffs can make up for a decrease in the quantity of dutiable articles in fact, the contrary is true. When we reflect that, in addition, the State expenditure on unemployment benefits increases daily with the growth of unemployment, it becomes clear that, by no fault of the Austrian Government and people, the success of the reconstruction scheme will be jeopardised unless the present economic dislocation is somehow remedied. Austria has hitherto suffered the financial disasters brought about by political disorganisation, inflation and the fall of the exchange. We must try to temper, for her benefit, the economic suffering endured even by countries which have a sound financial policy and a stabilised currency. 1 This crisis is reflected in the unemployment figures, which reached about in January, being in 'ienna (for details, see Appendix XIV).

11 12 Appendices. Page I. Prospectus regarding subscription to the shares of the Bank of Issue Letter from the Commissioner-General to the Chancellor regarding the chairmanship of the National Bank (December 19th, 1922) I I I. IV. Letter from the Chancellor to the Commissioner-General announcing the decision taken by the Austrian Government regarding the appointment of the Chairman of the Bank of Issue and of a foreign expert (December 21st, 1922) Opening address delivered by Dr. Reisch, Chairman of the National Bank, at the General Assembly of the Governing Body of the Bank, December 23rd, V. Federal Decree of December 29th, 1922, relating to the transfer of the affairs of the Austrian Branch of the Austro-Hungarian Bank to the Austrian National B a n k...19 VI. VII. V III. IX. X. X I. X II. X III. Last balance sheet of the Austrian Branch of the Austro-Hungarian Bank (December 31st, 1922) First balance sheet of the National Bank, with explanatory note (January 7th, 1923)... ; Letter from the Commissioner-General to the Vice-Chancellor regarding the simplification of the Administration (December 21st, 1922) Letter from the Vice-Chancellor to the Commissioner-General regarding the Austrian Government s scheme for the simplification of the Administration (January 4th, ) Statement dated January 13th, 1923, relating to the reduction in the number of officials...26 Letter from the Commissioner-General to the Minister for Finance regarding the control to be exercised by the Ministry of Finance over the other Departments (December 21st, 1922) Letter from the Minister for Finance to the Commissioner-General regarding the final figures of the provisional budget for the month of January (January 13th, 1923) Text of a statement made by the Commissioner-General to the Vienna Press on January 17th, XIV. Statement of the condition of the labour m arket... 30

12 13 Appendix I. [Translation.] PROSPECTUS REGARDING SUBSCRIPTION TO THE SHARES OF TH E BANK OF ISSUE. In accordance with Article 8 of the Austrian Federal Law of July 24th, 1922 (Official Journal, No. 490), relating to the foundation of a Bank of Issue, a Bank of Issue has been founded in the Austrian Republic as a limited company under the title of National Bank of Austria. The authorised capital of the Bank is 30,000,000 gold crowns. Shares are drawn to bearer. The nominal value of the shares is 100 gold crowns, blit quarter shares at 25 gold crowns will also be issued. The Bank will be opened as soon as the entire share capital is subscribed and half of it paid up. Until the expiration of its privilege (December 31st, 1941) the National Bank of Austria lias the sole right to issue bank-notes, within the limits laid down in its statutes. The notes issued by the Bank will be legal tender until the paper money is redeemed in coin. The total monetary circulation must be covered, in a proportion laid down in the statutes, by precious metals, foreign currencies and foreign securities (specie reserve of the Bank). That part of the note issue which is not covered in specie must be covered by commercial assets. Neither the State, provinces nor communes have the right to issue paper money. It is the duty of the Bank to regulate the monetary circulation in Austria, to facilitate payments and to ensure the utilisation of available capital. The principal duty of the Bank is to provide for and to ensure the redemption of paper money in coin, by concentrating precious metals and by maintaining a reserve of foreign securities of constant value, and to ensure the continuance of payments in coin when such payments are made legal and compulsory. Until the legal regulation of the exchange of its bank-notes for coin, the Bank will use its utmost endeavours a t least to prevent the value of those notes (as expressed by the currencies which have a gold standard, or a constant monetary value) from suffering any depreciation. The National Bank of Austria is authorised to carry on the following operations : (a) To discount and to put into circulation bills of exchange, securities, coupons and warehouse certificates ; (b) To make advances on mortgage securities ; (c) To carry out investments of funds, deposits and transfers ; (rl) To issue bonds on the security of its own reserves ; (e) To transact commission business ; ( f) To buy and sell gold and silver, minted or otherwise ; (d) To buy and sell, at home and abroad, bills and cheques drawn on foreign countries, foreign currencies, and bills payable in Austria, made out in other than Austrian currency. To draw cheques and orders on places abroad. To make and to receive payments abroad on behalf of third parties. To obtain abroad the credits necessary for these operations, and to carry out the commercial transactions required for their productive investment. The State, provinces and communes must not have recourse, directly or indirectly, to the funds of the Bank unless they cover in gold or foreign securities the amount issued to them in bank-notes. The Federal administration may only carry out transactions with the National Bank if such transactions do not relate to any advance of funds or credits by the Bank. Every shareholder who can prove, as laid down in the statutes, his ownership of 25 shares has the right to attend the general meeting. Every shareholder who holds 25 shares will be entitled to one vote ; but no shareholder may exercise more than 100 votes for the shares which he holds or represents. A number of holders of whole or quarter shares, amounting to 25 whole shares in all, may be represented by one person with full powers. The administration of the National Bank of Austria is carried out by the Governing Body of the Bank, which consists of the Chairman and thirteen members. The Chairman of the Bank will be appointed by the President of the Confederation, on the proposal of the Government. The direction of business will be entrusted to a Director-General (appointed by the Governing Body) and a director. The annual balance sheet of the Bank will be expressed in gold crowns. Shareholders will receive a dividend of 8 per cent, in gold crowns on the share capital drawn from the receipts and annual turnover, after deductions have been made for a reserve fund and a pensions fund. Provided that the total dividend to be distributed among the shareholders does

13 14 not exceed 10 per cent, of the share capital, one-third of the profits will be distributed among the shareholders and the remaining two-thirds will be paid to the State Administration" Should this dividend be exceeded, the remaining profits will then be allocated as follows : one-quarter to the shareholders, and the remaining three-quarters to the State Administration. Subscribed shares to the Bank of Issue will enjoy special fiscal advantages. Further, the use of the capital will be facilitated by certain privileges - particularly with regard to various infringements of the currency regulations or of certain fiscal regulations. (See details in appendix attached.) Vienna, November, Appendix to the Prospectus. ( Signed) K ienbôck, Federal Minister for Finance, In accordance with the present prospectus, and at the request of the Federal Ministry of Finance, a Committee, consisting of the Governing Bodies of the Post Office Savings Bank the banks and bankers of Austria, and the Association of Austrian Savings Banks, invites the public to subscribe for the Austrian National Bank. I. Conditions of Subscriptions. (1) Shares in the Austrian National Bank will be issued to a total of 28 % million gold crowns. (1) The price of shares will be 100 gold crowns for each share, or 25 gold crowns for each quarter share. (3) Subscriptions may be paid at the offices of the Post Office Savings Bank, at the Central Office and all branches of the Austro-Hungarian Bank, and at other banks and savings banks. (4) Shares will be allotted as soon as possible after the closing of the subscriptions and subscribers will be informed of the allotment. (5) Subscriptions will be opened on December 4th, 1922, and will be closed on December 15th, 1922, at 12 noon. (6) The amounts subscribed must be paid not later than December 18 th, (7) Payments may be made, as desired by subscribers, either in Austrian gold currency or in other legal tender, at the rate fixed by law, or by other means of payment expressed in American, English, Swiss, Dutch or Scandinavian currencies. For this purpose, 100 gold crowns will be calculated at $ */* If payment is made, not in dollars, but in one of the oilier currencies mentioned above, the amount in dollars of the currency in question shall he calculated according to an average to be determined by the Central Office for Foreign Exchanges, on the basis of their average rate of exchange on December 15th, a t Zurich, London and Amsterdam. (8) Should it be impossible to pay the full amount in any of the currencies mentioned above, and should other currencies be offered to complete the payment, the subscription offices will undertake to carry out the conversion at the request of the parties concerned. (9) The amounts subscribed will be payable either at the offices of issue or at the offices of their correspondents abroad. II. Special A dvantages granted to S ubscribers to t h e A ustrian 8 pe r c en t. G old L oan of (1) Subscribers to the Austrian 8 per cent. Gold Loan of 1922, to which subscription is open at the same time as to the National Bank, will have a priority right to subscribe for shares of the Austrian National Bank on particularly favourable conditions of payment. Every subscriber will have a priority right to one share of nominal value of 100 gold crowns for each $ 40 Treasury bond. The subscription to a S 10 Treasury bond carries a priority right to a quarter-share of the value of 25 gold crowns. (2) This priority right must be exercised at the time of subscription to the Gold Loan. Subscribers to the Gold Loan must then give notice that they also subscribe to an amount in shares of the National Bank corresponding to the whole or part of their subscriptions to the Gold Loan. The right of priority cannot be exercised at any later period. (3) Subscriptions made by virtue of the right of priority cannot be reduced. (4) At the time of payment of the share calls, gold Treasury bonds subscribed may bo deposited to an amount of $ 12 for a complete share in the Bank and to an amount of $ 3 for a quarter share. The balance of about two-fifths of the total due for one share subscribed ($8.26 Vi) must be paid according to the conditions of subscription explained in Chapter I. A person therefore who subscribes Treasury bonds to the amount of $40, and exercises the concomitant right of subscription to a share in the Bank of Issue, must pay for this share $8.26 /i

14 15 in an approved currency, and the balance in Treasury bonds to a total of S 12. Similarly, a person who subscribes to Treasury bonds to an amount of $10 must pay for his share $2.6 9/ 16 in an approved currency and the remainder in Treasury bonds to a total of $ 3. (5) The offices at which subscriptions may be paid to the Gold Loan, by virtue of the priority right in question, will immediately appropriate on account the gold Treasury bonds set apart for the release of shares in the Bank. (6) Finally, the provisions contained in Chapter I, paragraphs 6 to 9, will apply to payments. Vienna, December 1st, For the Committee : ( Signed) Schuster. Governor of the Administration of the Savings Banks. Fiscal Privileges granted to Subscribers of Shares in the National Bank. 1. At the time of the assessment for income tax the profits mentioned in Section 159a, P.St.G., made during the period of subscription by subscribers to the Bank s shares through the sale of foreign paper (securities, currencies, etc.), of foreign or national bonds, of securities quoted on foreign exchanges or of bar or of coined metal, will be reduced by an amount corresponding to the amount of their subscriptions to shares in the Bank. If several sales have taken place, the total profits will be taken into account, after deduction of the losses on these transactions during the period of subscription. The profits realised on the sale of shares in the National Bank by subscribers of those shares will not be subject to the tax mentioned in Section 159a. P.St.G., if the shares sold were actually in the possession of the subscriber for one year. 2. If the stocks mentioned in Chapter I (1) are sold within the period of subscription by a company which subscribed to the Bank and which is taxable under Chapter 2 of the P.St.G., the profit on this transaction is exempt from taxation up to the amount of the subscription, provided that this profit is used to form a reserve against currency depreciation within the meaning of Article 1 of the Fiscal Law of 1922, or to form a reserve fund under Article 2 of that law, or a reserve against losses on the exchange (Section 95/, para. 3, P.St.G.). In the letter case, half of the profits only will be taken into account. The above provisions, together with Article 3 of the Law of 1922, which grants certain privileges in the m atter of taxes and duties will also apply to the income tax. 3. The treatm ent described in Chapters 1 and 2 may be granted in special cases when securities of the class mentioned in Section 1 (1) have been given as guarantee by subscribers to shares in the Bank within the period of subscription, but have been sold between the expiration of this period and June 30th, Amnesties. If, at the time of issue, it is discovered th at any person has used, for the purpose of subscription, stock in respect of which he has not conformed to the laws and regulations relating to securities and to the declaration and cession of that part of his capital, or if he has failed to include such stock in any declaration with a view to assessment for a State tax, the subscriber will be entitled to an amnesty for these infrignements, provided that they were committed before August 1st, Assets or receipts which wtere not discovered until the time of subscription will not he subject to retrospective taxation, and must not. be taken into account, if the registers in which they should be entered have not yet been published. Appendix II. CHAIRMANSHIP OF THE NATIONAL BANK. Letter from the Commissioner-General to the Chancellor of the Austrian Republic. [Translation.) Your Excellency, Vienna, December 19th, I had the honour to discuss with you last Saturday various urgent questions relating to the restoration of Austria, and particularly the question of the early appointment of the Chairman of the new Bank of Issue. From conversations which I had yesterday with several other members of the Austrian Government, I gather th at the Cabinet is seriously considering this question. I need not assure you that I also am deeply concerned with this mat-

15 16 ter, for the Chairman of the new Bank of Issue will have an important part to play in the work of restoration. The appointment of a competent person to the new office of Chairman is of cardinal importance to the great work of reconstruction. W ith this in mind, I have considered this question with the closest attention, and as a result I can state with certainty that the m atter is not covered by the Geneva Protocols. I therefore only venture to offer the following comments, because you expressed a desire for my opinion on the matter. I trust you will believe that, in making these observations, I have been inspired solely by a sincere desire for the complete success of the work which has been undertaken on behalf of the Austrian people. Were the situation normal, I should fully agree with you that the direction of the Austrian Bank of Issue should be placed in the* hands of an Austrian, and in my opinion this principle ought to be put into practice as soon as possible. On the other hand, I must point out that, in the present circumstances, all considerations should give way to the necessity of carrying out the Geneva plan, the object of which is to secure the co-operation of foreign countries in the restoration of Austria. At the present moment nothing is more important for Austria than to arouse foreign confidence in her financial administration. From this standpoint, after considering the question in all its aspects, and taking the opinion of interests which may exercise a wide influence over the success of the loans, I venture to offer it as my view that the issue of the loans would be rendered considerably simpler if the office of Chairman of the Bank of Issue were filled, for the period of the organisation of the new Bank and the issue of the loans, by a person whose name carried weight in the great financial centres of the Western countries. I am convinced that a decision by the Austrian Government based on the arguments which I have set forth above would have a very favourable influence on opinion in foreign financial circles with regard to the position of Austria. I have the honour, etc. ( Signed) Z im m erm an. Appendix III. DECISION OF AUSTRIAN GOVERNMENT REGARDING THE APPOINTMENT OF THE CHAIRMAN OF BANK OF ISSUE AND OF A FOREIGN EXPERT. Letter from the Chancellor of the Austrian Republic to the Commissioner-General. [Translation.] Your Excellency, Vienna, December 21st, In the course of the conversation which I had with you with reference to the restoration of Austria, we discussed, among other things, the question of the appointment of the Chairman of the Austrian National Bank. We agreed th at this question was not covered by the Geneva Protocols, and that it was therefore for the Federal Government to take a decision in this matter, which is of so much importance for the success of the work of restoration. As you are aware, public opinion has been much concerned with the question of principle which arises with regard to the appointment of an Austrian or a foreigner to this position, and the question has also been debated at great length in the Press. I need not, therefore, remind you of the arguments which have been urged in favour of each of these solutions. The Federal Government, after giving mature consideration to all these arguments, decided to-dav to propose to the President of the Confederation the appointment of Doctor Reisch, formerly Minister of Finance, as Chairman of the National Bank ; and the President of the Confederation has made the appointment. In my opinion, Dr. Reisch, who is regarded as remarkably competent in all financial matters, particularly matters relating to Banks ol Issue, is a person whose name carries great weight in all the important financial centres. Although the Federal Government has thus decided in favour of the appointment of an Austrian to the position of Chairman of the Bank, it is by no means blind to the undoubted advantages which would be secured if a foreigner who was an expert on Banks of Issue took over the direction of the new institution which will act as intermediary for foreign credits, lhe Government has accordingly conceived the idea of securing for the Chairman of the Bank the assistance of a distinguished foreign expert, furnished with special powers. It has there

16 17 fore decided to ask M. Janssen to accept this office, and to make such proposals as he may consider likely to secure the realisation of the scheme. As a modification of the statutes of the Bank is involved, I shall have the honour to consult you on the subject as soon as the wording of the proposed alterations has been drafted. I shall be glad if you will take note of this communication. I have the honour, Sir, etc. ( Signed) S eip el. Appendix IV. OPENING ADDRESS BY Dr. REISCH, CHAIRMAN OF THE AUSTRIAN NATIONAL BANK, AT THE GENERAL ASSEMBLY OF THE GOVERNING BODY OF THE BANK, DECEMBER 23r d, [Translation.] In opening the inaugural session of the General Assembly of the Governing Body of the Austrian National Bank, I have the honour to introduce myself as Chairman of the Bank appointed by the Federal Government, and cordially to welcome you as delegates of the shareholders, elected at the inaugural general meeting which took place yesterday. I should also like to welcome Dr. Schwarzwald, Chief of Department and Commissioner of State, appointed by the Federal Government, and Dr. Brauneis, Ministerial Councillor, who has just been appointed Director-General of the Bank. Though we are appointed by different authorities and are members of different professions, I think I may publicly state, on your behalf, th at we shall have but one mind and one will in our conception of our new- duties and in our efforts to carry our work to a conclusion. I do not consider it desirable to-day to give a detailed programme, but shall confine myself to giving a brief sketch of the outlines of our work as I see it. During the last few years we have passed through an unprecedented crisis of inflation, the origin of which may be traced back to the war period. This crisis has assumed increasingly threatening proportions since the political collapse and the cruel dismemberment of the long-standing common financial system of the Succession States ; it has shaken not only our monetary system but also the whole of our economic and social organisation and has brought us to the verge of the abyss. We need waste no time in asking whether or not this sequence of events is inevitable, whether certain persons, social classes or parties, may be held responsible for it, or whether it is merely a consequence of the destructive effects of the war, the conditions of the Peace Treaty, or the broken engagements of the conquering countries, which, in the note th at accompanied the Peace Treaty, promised us their help. We may be the better satisfied th at it is due to the clever and energetic action of the Government and to the wise and generous decision of the League of Nations th at we have happily been saved, at the eleventh hour, from the impending catastrophe by the inauguration of a wide and energetic programme of restoration. We must once more gather all our strength in an attem pt to balance the budget by decisive economies, and by stretching the fiscal resources of the country to the utmost to cover the still existing deficit by the normal method of credits, and to satisfy our financial requirements from the resources of our own country, until the foreign credits, which are absolutely necessary and have been solemnly promised to us, are punctually forthcoming within the periods prescribed. So strong is our desire to reach safety, so firm is our conviction that we shall not this time be abandoned by the Powers united in the League of Nations who desire to assist us so strong, I say, is that conviction th at we have burnt our boats and cut off every possible retreat. For that is what the Government did when it undertook to have no further recourse to the printingpress to cover its budget deficit ; and the Austrian National Bank, which was inaugurated yesterday, is founded principally on this decision. All of us who represent this National Bank join in giving this pledge and we associate ourselves with the solemn promise that, as far as in us lies, wre will hold ourselves irrevocably bound by the Government s declaration, for we regard it as the only firm guarantee that, when we have closed this source of inflation, we may attain stable monetary conditions which will be capable of gradual improvement. A sound currency is the indispensable condition of sound national finance. We shall not be deluded by the false air of prosperity worn by an economic organisation which is suffering from inflation, nor by the painful crisis through which such an organisation m ust pass when, after a long period of inflation, an attem pt is made to restore it to health by making it renounce its former mistakes. During this period it is we who must play the part of the physi

17 18 - cian called to the bedside of a suffering economic organisation, and we must wisely and conscientiously administer the remedies prescribed in such cases by knowledge and experience. These remedies consist, speaking generally, in the principles of a judicious policy in regard to currencies, credits and foreign exchange. The aim of a wise policy in regard to credits will be, as far as possible, to satisfy the needs of commerce, industry and agriculture, taking account of the special conditions of each, the necessities of the present time and certain isolated cases ; and taking special care not to leave the Bank without ready money. If we cannot immediately be, at the least, a Bank of Issue capable of exchanging its notes against coin, we must none the less adapt our entire business policy to the general principles of ordinary banks of issue. These principles require a large mobile or liquid reserve. A satisfactory policy in regard to currency must, as we have already pointed out, aim at preventing new issues which are uncovered or are covered only by the credit of the State, or by long-term credits on companies ; while issues of notes which are completely covered by their equivalent in securities or currencies should be regarded in an entirely different light. It is particularly difficult for us to regard this policy with an unbiased eye, because 110 reform of the currency has yet been carried out in Austria, because the relation between our currency and gold has not been fixed afresh, and because, as a result, the relation between Austrian and foreign currencies cannot be regarded as fixed. Unfortunately, these considerations do not prevent every variation in those relations from carrying with it consequences which are very seriously felt by all classes of the population, and particularly by those engaged in industry, who can only count upon imports and exports. Banks which redeem their notes in coin are very largely free from this preoccupation, for in their case the in-goings and out-goings of precious metals produce an automatic adjustment of these variations, a limited movement in the foreign exchanges around a fixed point. Unfortunately, such banks have become rare on our continent, and our international relations in currencies have therefore become chaotic. Fresh attempts to find a method which can be substituted for the automatic working of these banks are continually being made 011 all sides. Regulations against speculation in foreign exchanges are constantly being made and amended, and this leads to all kinds of restrictions on exports and imports. Attempts of this kind are almost always costly, and the methods to which we have referred have shown themselves in the long run to be highly detrimental to the economic systems of the countries in which they are employed. They have aggravated the unhealthy condition which they were intended to remedy, and they have produced fresh troubles. The tragic part of all this is th at we cannot immediately and entirely dispense with these artificial methods in the present economic constitution of our country and of neighbouring countries, and th at these methods cannot be discarded by one party alone. It seems at present more satisfactory to discard them gradually, by patient, well-directed effort, avoiding any sudden change and the resultant disturbance. Our first object must be to prepare the ground for the re-establishment of free relations in regard to currencies and credit, not only at home but also with foreign countries ; for this condition is indispensable to the organisation of the division of labour in the economic system of the world, in which we are a unit. To provide these preliminary conditions, it is first of all necessary that the Bank of Issue should be furnished as freely as possible with foreign currencies, securities and precious metals. We were therefore very glad to learn that provision had been made for the deposit in our new Bank of all sums of this nature which may be available in our poor economic organisation, and for the payment into the funds of the National Bank of the reserves of the Devisen-Zentrale the balance of the gold reserve of the Bank of Austria-Hungary, and the foreign credits which have been placed at our disposal. We may further expect the deposit of credits from the League of Nations, so that we shall have at our disposal a certain modest cover in sound securities. During the last few months the mere announcement of our return to generally recognised financial principles has led to a calmer appreciation of our financial situation on the world market ; and I am convinced that the actual existence of the Austrian National Bank, and its entrance upon normal operations, will consolidate the position still further, for the fact that we keep our promises will give rise to an increase in confidence. This confidence we solemnly undertake to deserve every day and every hour by the irreproachable and conscientious conduct of the affairs with which we are entrusted. But here I must say quite plainly, and with emphasis, Confidence for confidence. By the stoppage of the printingpress, by the acceptance of the Geneva Protocols and of the reorganisation of our fiscal situation to which they are directed, by the issue of the Gold Loan, by the subscription of the capital of the National Bank, and by the forthcoming opening of its activities, we have done all that was asked of us to give proof of our sincere desire to help ourselves. I11 all these cases it is, of course, primarily to ourselves that we have rendered a service, but we have also fulfilled certain conditions ; that is to say, we have accomplished something which was regarded in the Geneva Protocols as the condition of a reciprocal action, and must be followed, act for act, not by a corresponding but by a complementary action on the part of the League of Nations. In fulfilling these conditions, we have been confident th at the promises made to us will be fully carried out a t the proper time. Otherwise all our efforts would be vain, for our strength is so greatly impaired by the long period of poverty through which we have passed that wre cannot long stand alone. It is true that we have created our National Bank as the preliminary condition of a better future for our credit and monetary systems, but we must strengthen its foundations, we must increase our deposits of securities,

18 19 and, above all, we must have a guarantee against requests for State credit, for such requests cannot be met on the home market and -can only be covered by a timely grant of foreign credits. It would be a disastrous blow if we found ourselves unable to put our restoration programme into practice with any hope of success owing to the delayed arrival of the credits from the League of Nations. I therefore urgently appeal to the guaranteeing Powers not to destroy by avoidable delays th at part of their work of restoration w'hich is represented by the prospects of our new Bank, but to translate their generous promises into swift action, and to grant us the promised credits while there is yet time. I appeal for their assistance during this period the last critical period, we hope of our progressive restoration, and thus to contribute, not only to our recovery, but to th at of Central Europe and the entire economic organisation of the world. If our legitimate hopes are fulfilled ; if, Gentlemen, in your whole-hearted co-operation with the Chairman and Director of this Bank, you place at its service all the wealth of your knowledge and valuable experience ; if I can count upon the sincere collaboration of all the officials, employees and workmen of the former Bank of Austria-Hungary (which is about to disappear), with all their fine traditions, as surely as they can count on our full sympathy in all their legitimate demands and expectations then we can set to work courageously upon our new task, which, difficult though it be, promises complete success. Such success will be the pledge of a brighter future and of happier Christmases for our sorely-tried country. With the expression of these aspirations, I shall conclude by calling on you to enter upon your task. Appendix V. DECREE OF THE FEDERAL GOVERNMENT, DATED DECEMBER 29t h, 1922, RELATING TO THE TRANSFER OF THE AFFAIRS OF THE AUSTRIAN BRANCH OF THE AUSTRO-HUNGARIAN BANK TO THE AUSTRIAN NATIONAL BANK. [Translation.) By virtue of the transfer of the affairs of the Austrian Branch of the Bank of Austria- Hungary to the Austrian National Bank : By virtue of the Law of December 20tli, 1919 (Bulletin of Laws, No. 574), by which the State Government is authorised to make temporary provision for the affairs of the Bank of Issue ; and by virtue of the Federal Laws of July 24th, 1922 (Federal Law Bulletin, No. 490), and November 14th, 1922 (Federal Law Bulletin, No. 823), regarding the constitution of the Bank of Issue, it is decreed as follows : section 1. The authority granted to the Bank of Austria-Hungary by the Law of December 20th, 1919 (Bulletin of Laws, No. 576), to continue its operations within the limits laid down by the Statutes after December 31st, 1919, will expire on January 1st, The Austrian Branch of the Bank of Austria-Hungary will cease to exist on the date on which the Austrian National Bank begins the operations laid down in its Statutes. section 2. (1) W ithout prejudice to the taking over of the assets and liabilities of the Bank of Austria-Hungary, as laid down in Chapter VIII of its Statutes, the Austrian National Bank is authorised to take over and to carry on the affairs of the Austrian Branch of the Bank of Austria- Hungary on behalf of the latter, in guaranteeing its interests. (2) The affairs of the Austrian Central Office for the Circulation of Foreign Paper (Devizen- Zentrale) will be transferred to the Austrian National Bank as from January 1st, section 3. In so far as the laws and regulations now in force relate to the Bank of Austria-Hungary or to the Central Office for the Circulation of Foreign Paper, the provisions in question shall provided th at the Laws of July 24th, 1922 (Federal Law Bulletin, No. 490), and November 14th, 1922 (Federal Law Bulletin, No. 823), regarding the constitution of a new Bank of Issue do not contain other provisions which invalidate the former be understood and executed as if those provisions applied to the Austrian National Bank. section 4. (1) To enable the Bank of Issue to continue its operations without interruption, the Austrian National Bank shall be entitled to use the premises placed at the disposal of its shareholders by the liquidators of the Bank of Austria-Hungary, including all the furniture,

19 20 material and contents of the note-printing works, until the ownership of this property is transferred to the Austrian National Bank by agreement with the shareholders of the Bank of Austria-Hungary. (2) Until the ownership is thus transferred, a rent, the amount of which shall be fixe by agreement, shall be paid for the use of this property. section 5. (1) Until the Austrian National Bank issues its own notes, it shall have the right to issue notes similar in all respects to those which the Bank of Austria-Hungary is entitled to issue. This must be understood to apply to all the notes put into circulation by the Austrian Branch of the Bank of Austria-Hungary. All notes of this class which are in circulation on January 1st, 1923, will be deemed to have been issued by the Austrian National Bank. They will therefore be subject to all the provisions contained in the Statutes of the Austrian National Bank and in any other laws and decrees relating to banknotes, provided that such provisions are compatible with the Statutes of the Austrian National Bank. (2) At the same time, the Austrian Branch of the Bank of Austria-Hungary will be relieved of all obligations which it might incur as a result of the issue of such banknotes. Se ip e l, F rank, K raft, Schmitz, W a b er, Gru n berg er, K ienbôck, Vaugoin, B uch in g er, Od eh n a l, Sc h n e id e r. [Translation.] Appendix VI. LAST BALANCE SHEET OF THE AUSTRIA BRANCH OF THE AUSTRO-HUNGARIAN BANK. Statement of Accounts as at December 31s/, A s s f t s Changes since Dec. 24, 1922 : Metal reserve : Crowns. Crowns. Crowns. 1 Austrian gold currency, gold in bars, in foreign and commercial currencies, the kilo of fine gold being reckoned at 3,278 c ro w n s... 45, Gold bills on foreign markets and foreign bank-notes, securities being calculated in dollars according to the parity of the currencies, the other securities in accordance with their relation to the dollar at the present rate of e x c h a n g e , Silver coins and coins of small d en o m in atio n s... 7, , , Foreign securities and gold deposited by the Government and available on endorsement by the Delegation of the League of N a tio n s ,254,403, ,858,707,500. Treasury Bonds of the War Loans Fund.. 106,600, ,000. Discounted bills, warrants and securities. 781,767,393, ,776,760, Loans on se cu ritie s ,786, ,276,400. Securities... 4,016, ,632, Austrian State Treasury B o n d s... 2,558,379,848,629. 1,088,528,000. Sums arising from the liquidation of the Austro-Hungarian Bank, brought forward from ,687,726, Other A s s e ts... 1,288,355,732, ,161,493, ,165,050,864, _ n Value of the metallic reserve at the rate of the day, calculated at the rate fixed for customs duties payable in gold : 5,013,938, Austrian crowns.

20 21 L ia b il it ie s. Total Notes in c irc u la tio n... 4,080,177,237, ,095,872,331. Treasury bonds payable at s i g h t ,493, ,000,000. Holdings of transfer accounts and other obligations at c a l l ,991,959, ,113,486, Holdings on the account of the funds arising from the liquidation of the Austro- Hungarian B a n k ,564, ,359, Holdings on the account of the Austrian G overnm ent ,254,403, ,858,707,500. Other liabilities ,710,206, ,353,144, V ien n a, January 10th, ,165,050,864, L ibert, Head Accountant of the Austro-Hungarian Bank. Appendix VII. FIRST BALANCE SHEET OF THE NATIONAL RANK. Statement as at January 7th, A ssets. Metal Reserve : Crowns, Crowns, Minted and unminted gold (in gold crowns : 3,870,360.56)... 49,762,307,435 Currencies and securities calculated in conformity with Article 85 of the Statutes (in gold crowns : 89,256,536.99)... 1,145,518,395,784 1,195,190,603,219 Amount to be paid up on share capital (in gold crowns : 7,944,710.30) 101,962,411,990 Bills discounted, warrants and other secu rities. 731,613,035,949 Secured loans ,026,600 Austrian State Treasury bonds... 2,557,948,819,614 Claims on the Austrian Branch of the Bank of Austria-Hungary (corresponding to the amounts owed by the Austrian Branch of the Bank of Austria-Hungary, capital-stock in liquidation).... 7,687,726,100 Other a s s e ts ,566,906,215 T otal... 5,280,442,529,687 L ia b ilities. Share capital (in gold crowns : 30,000,000) ,020,000,000 Total value of notes in c ir c u la tio n... 4,053,689,483,759 Obligations arising from the movement of Transfer Accounts and other obligations falling due im m ed iately ,203,770,604 Other lia b ilitie s ,529,275,324 V ien n a, January 13th, ,280,442,529,687 The totals given in gold crowns have been calculated at the rate of 12,834 paper crowns to the gold crown (average rate of the second half of 1922, fixed for the payment of customs duties which have to be made in gold). E xplanatory N ote regarding th e B alance Sh e e t of the N ational A ustrian B a n k, January 7th, The National Austrian Bank, which was constituted on December 22nd, 1922, and commenced operations on January 2nd, 1923, issues the first Statement as to its position to-day. This Statement for various reasons requires a certain amount of explanation. The general lines which the Statement m ust follow are laid down in Article 101 of the Statutes. The items "Reserve Fund and "Capital received against bills of exchange" in the liabilities column, and the item Bills in the assets column, are not. included in this first Statement, because no sums of money fall under these headings at present. A comparison between the items of the present Statement and those of the last Statement of the Austrian Branch of the Austro-Hungarian Bank shows the following important changes. In this Statement, under the heading Metal Reserve no mention is made of sums in silver because such sums consisted for the most part of coins of small denominations, which are

21 22 included in the item Other Assets. The new item, "Amount not yet paid up on the Share Capital, is inserted as a result of the provisions of the Prospectus of Issue, according to which subscribers to the loan in Dollar Treasury Bonds, who are bound to exercise thenright of option, may pay the subscription of their shares with these Treasury Bonds up to a stated amount. The item " Total assets of the Austro-Hungarian Bank in liquidation, carried over from the year 1920, in the Statement of the Austrian Branch of the Austro-Hungarian Bank (representing the equivalent of the notes of the Austro-Hungarian Bank bearing the German- Austrian stamp in 1919, which will again form the subject of negotiations between the Austrian Branch and the Federal Government, and which have only been taken up provisionally by way of commission), has been included in the new Statement under the title "Sum owed to the National Bank by the Austrian Branch. Certain items which appeared in the Assets column of the Austrian Branch have not been included in the new Statement. There is, first of all, the item Foreign holdings and gold deposited by the Government, which are only available for the use of the Government if the order is countersigned by the League of Nations Delegation. In the Statement of the Austrian Branch this item was only included provisionally on the strength of the heading Holdings of the Austrian Government, w'hich appeared opposite in the liabilities column. These holdings and sums deposited are in the nature of deposits and cannot therefore appear in the Statement. Drafts on the W ar Loans Fund" are no longer shown as a separate item. They have been taken up by way of commission and have been included in the Other Assets. The heading "Treasury bonds payable at sight no longer appears in the Assets column. These bonds have been included in the item Liabilities arising from the movement of Transfer Accounts, and other liabilities to be met immediately. As the liquidating officers of the Austro-Hungarian Bank had, before January 7th, 1923, taken a decision on the Holdings of the Austro-Hungarian Bank, total assets in liquidation, this item has been omitted. The following remarks will furnish the necessary explanation with regard to the figures which appear in the Statement : All the sums representing securities and currencies, included under the heading Metal Reserve and shown in the Statement, have been calculated in conformity with the Statutes on the basis of the average rates quoted on the Vienna Bourse, during the latter half of The gold has been brought forward on the basis of the average rate of the gold crown as fixed every week during the same period for the payment of Customs duties. The Directors of the Bank are not sure whether, on this occasion, more precise results would not have been obtained, in calculating the average rate of the gold crowrn, by referring to the rates quoted at each meeting of the Bourse. They thought, however, that they would fulfil the conditions laid down in the Statutes by employing a simpler method, for, on the one hand, they could take recently published data as a basis and, on the other, they could not possibly in the present case apply the provisions of the Statutes exactly, seeing that the gold rate has never been officially quoted on the Vienna Bourse. The method selected has given a ratio of 11:2,834 between the gold crown and the paper crown, whereas the gold crown rate for the payment of Customs duties is, according to the average rate at the time when the Statement was published, 14,250 paper crowns to one gold crown. The same difference of from 8 to 10% appeared when, after calculating the average rate of the various amounts of currencies included under the heading Metal Reserve", comparison was made with the rate quoted at the meetings of the Bourse shortly before the publication of the Statement. These differences in the rates have been included under the heading Other Assets, and they correspond to other sums of a similar nature included in various reserved accounts under the heading "Other Liabilities. As the average rate for the latter half of 1922 must, in conformity with the Statutes, be used as a basis for estimating the value, of the items which go to make up the Metal Reserve for the whole of 1923, the modifications caused by fluctuations in the rate will exercise, an influence on the total amount of this reserve. Currencies not included in the Metal Reserve have been shown under the heading Other Assets". In the case of these securities also, a difference of from 5 to 10% in comparison with the current rate has arisen in the same fashion, and this difference has been included in the form of a reserve under the heading "Other Liabilities", as had already been done in the case of gold and currencies. The sums in gold are for the most part made up of unminted and minted gold wiiich was deposited when the share capital was paid up. A small portion comes from the funds of the Central Office for Foreign Exchange and some, finally, from the assets of the Austrian Branch. The negotiations with the Federal Minister of Finance concerning the taking up of the assets and liabilities of the Central Office for Foreign Exchange, and the similar negotiations with the Austrian Branch of the Austro-Hungarian Bank concerning the assets and liabilities of the Austrian Branch, have not yet been concluded. In particular, the rate at which the securities shall be taken up has not yet been fixed. These sums have been taken up provisionally on the basis of a simple calculation, so that, after the final rate at which they are taken up is fixed, a difference will occur, either to the detriment or to the advantage of the reserves referred to above. The Directors of the Bank will take all possible steps to ensure a satisfactory conclusion of these negotiations, but this has not up to the present been possible, because neither the Austrian Branch nor the Central Office for Foreign Exchange has yet closed its accounts.

22 - 23 The position as regards bills held by the Bank on January 7th shows, in comparison with December 31st, a decrease of 50 milliard crowns in round figures, and this is due to the fact that the amounts cashed during this period were considerably greater proportionately than the bills presented. For similar reasons, the statement as regards secured loans shows a decrease of about 22 million crowns. The figures representing Austrian State Bonds held by the National Bank show, when compared with the figures in the last statement of the Austrian Branch, a decrease of about 451 million crowns. The conversion of Treasury Bonds into Federal Loan Debt Bonds, a conversion provided for in Article 53 of the Statutes of the National Bank, has not yet taken place. A t this juncture, it should be pointed out that the final amount of the Loan Debt will not be identical with the amount of the Treasury Bonds at present held by the National Bank. As a m atter of fact, the statutory provisions referred to above provide for an increase of the Loan Debt by means of the Treasury Bonds at 5% and 6 % which are in circulation. Since, therefore, the total amount of Treasury Bonds issued at 5% and 6% is greater than the total bonds in the possession of the Bank by about 25;,/i milliards, a considerable increase may appear under this heading in the future, equivalent at most to the sum stated above. It is difficult to draw any comparison between those figures which are quoted under the heading Other assets and "Other liabilities in the first Statement of the National Bank, and those shown in the last statement of the Austrian Branch. The reason for this is that various transfers have taken place, such as the carrying forward of bonds of the W ar Loans Fund already referred to in the "Other liabilities account ; and moreover, in taking up all the assets of the Central Currencies Funds and of the Austrian Branch by way of commission, various items have had to be placed, for reasons of accountancy, under this same heading. It is natural th at a considerable decrease in "Other assets should result, and this is mainly due to the disappearance of the most important category of details Sums owed by the Austrian Branch" which has been replaced by the carrying over to the Metal Reserve of all currencies taken over from the Central Office for Foreign Exchange. The total amount of notes in circulation has diminished by about 27 milliards a fact which it is gratifying to note. The Obligations arising from the movement of transfer accounts and other obligations falling due immediately show, it is true, an increase of 90 milliards in round figures. This, it must be said, is the result of carrying over certain bonds arising out of certain liabilities under this heading. They had to be carried over in order to place certain creditor accounts at the immediate disposal of the account in question. The ratio wrhich should, in accordance with Article 85 of the Statutes, exist between the Metal Reserve and the total value of notes in circulation (having regard to bonds falling due immediately, from which, however, the. Federal Debt Loan will be deducted) will only become obligatory wdien the share capital has been fully paid up. The share capital cannot be considered as fully paid up, seeing th at when the shares were issued, part of the price of the shares was paid in the form of Treasury Bonds representing the Dollar Loan. The fact should also be noted that the National Bank has at its disposal to-day a far greater Metal Reserve than th at provided for under the Statutes for the five years following the integral paying-up of the capital, a reserve which is to cover 2 0 % of the whole of the notes in circulation. At present the Metal Reserve covers 26.7% of the total number of notes, and to these m ust be added the value of bonds falling due immediately, without deducting debts in Treasury Bonds. The discount and deposits Lombard portfolio covers about 16.3% of the value of notes in circulation, adding the transfer accounts bonds, while the remainder, about 57%, is covered by State Treasury Bonds. The first statement of the National Bank of Austria produces, therefore, an entirely favourable impression, due to th at stabilisation of the economic situation which has been brought about in the last four months. The new Bank possesses, at the outset of its career, a fairly large Metal Reserve, which will be of great value-to it and will enable the Bank to carry out its task. It is to be hoped that, by successfully concluding at an early date the negotiations abroad regarding credits, negotiations provided for in the scheme of improvements, this atmosphere of confidence will be maintained, in the midst of which the first act of the work of reconstruction has taken place in a manner so full of promise for the future. It is also to be hoped that the new Bank of Issue will, in consequence, be able to work out its internal consolidation and to contribute powerfully to the economic development of the country. [Translation.] Sir, Appendix VIII. SIMPLIFICATION OF THE ADMINISTRATION. Letter from the Commissioner-General to the Vice-Chancellor. Vienna, December 21st, In the conversation which I had with you a few days ago, I learnt with much pleasure that you are keenly interested in the execution of the Geneva Restoration Programme, and particularly in the simplification of administrative machinery in Austria.

23 24 You are no doubt aware th at the realisation of this part of the Programme is beino watched very closely abroad, and particularly in financial circles, and that the success of the Austrian Loan abroad might be most happily furthered if positive results could be obtained in this direction in as short a time as possible. You will therefore realise that it is quite natural that I should be keenly interested in the progress of your endeavours in this matter, and I venture to request you to be good enough to inform me of the measures you propose to take in this connection during the next few weeks and of the results obtained. I have the honour, etc. ( Signed) Z immehman. [Translation.] AUSTRIAN GOVERNMENTS SCHEME FOR THE SIMPLIFICATION OF THE ADMINISTRATION. Letter from the Vice-Chancellor to the Commissioner-General. Appendix IX. Vienna, January 4th, Sir, During the visit which I paid you before the Christmas holidays, I had an opportunity of informing you of the main features of the measures which must first of all be taken in the sphere of administrative reform. In reply to your letter of December 21st, 1922, and in conformity with the views of the Federal Chancellor, I desire, however, to place before you in writing additional information regarding the programme which is to be followed in carrying out the work of administrative reform which has now been begun. The Federal Government fully realises the great importance which must be attached to giving practical effect to judicious reforms introduced in the administration in the shape of measures intended to restore healthy conditions in our country. For that reason the Federal Government is glad to know that, from the very outset, you have also displayed special interest in this question. As a first step towards the realisation of the programme of reforms and financial restoration, the Federal Government, in conformity with the final provisions of Articles 1 and 2 of the Programme, decided as regards administrative reform that, in order to ensure a methodical control of the work which is to be undertaken, it was necessary to confide this control to a single person, and, in my capacity as Vice-Chancellor- and Minister of the Interior, I have been entrusted with this duty. I shall consider it m y main task to devote all my powers to carrying out this work. In your letter you displayed a special interest in the simplification of the administrative maôhinery ; I shall accordingly inform you of our intentions in this connection : Before the war the organisation of the Austrian administration, compared with that of other States, could not be regarded as unsatisfactory. No doubt it had certain defects, but these defects were not serious enough to make radical alterations imperative. The necessity for reforms, which is now felt in our administrative organisation no one can deny this necessity is largely due to two main causes, and these causes are closely related to the war and to post-war conditions, i.e., on the one hand to the fact that, from being a great Power, we have become a small State, and our country, which was a centralised State, has become a Federation, without the changes thereby rendered necessary in the organisation of our administration having been effected. Moreover, during and after the war, administrative requirements arising out of the conditions in which we were placed at various times, requirements some of which necessitated new organisations and other important extensions of the existing organisation, led the Government to adopt administrative measures, the reasons for which, white at that time all-important, no longer, generally speaking, exist. Our work of reform must, therefore, in the sphere of the simplification of our administrative machinery, be directed towards these two objects, and we must, in the first place : (1) Reduce our administrative organisation to meet the requirements of a small State by adapting it to the constitutional structure of our State ; (2) Eliminate from our administrative organisation all war and post-war institutions, the maintenance of which is no longer absolutely essential. Our first task, in my opinion, therefore consists of effecting such considerable reductions in our centrcd administrative organisation as have already been mentioned in the programme

24 25 of reform and financial improvement. These reductions involve cutting down the number of Federal Ministries. They are at present ten in number, and if we reckon as a Ministry the Education Office, which is combined merely in name it is really carried on independently with another Ministry under the title of Ministry of the Interior and Education, th ere are really eleven. This number ought to be reduced to eight at most, and indeed to seven, or even six, if th at is possible. The preliminary work for this fundamental simplification is already in a sufficiently advanced stage to allow me to entertain the hope th at in the near future I shall be in a position to lay before you definite proposals which may be immediately carried into effect. With regard to the reduction in the number of Federal Ministries, it is especially important that this opportunity should be taken to fix once again, and in final and authoritative manner, the Powers of each Federal Ministry. The object of fixing these powers will be to bring under one authority, as far as possible, all business of ù similar nature and to get rid of overlapping, for this is the method by which im portant economies may be effected and our administrative organisation simplified. In connection with this reform of the organisation of the ministries, an endeavour will also have to be made to find an early solution, and one in harmony with the spirit of the provisions of paragraph 2 of the Reconstruction Law, of the problem of status and relations of the administrative branches which are carrying on the business undertakings of the Federation. Again in the administrative sphere, there are other highly urgent measures which must also be taken, and which, as a result of the preliminary work already accomplished, may be enforced at a very early date. We refer here [to the fusion of the administrative organisation formerly independent of the provinces with the organisation of the central administration of the State, a fusion which m ay get rid of the overlapping which still to some extent exists in the administration in our provinces and may lead to considerable economies in provincial administration. In regard to this m atter also, I feel confident th at we shall soon be in a position to consider in some definite form a method of giving effect to this point in the programme of reforms and financial restoration. Simultaneously with these measures, a beginning has now been made in all other branches of the administration with a systematic investigation into the existing administrative organisation, and, wherever possible, measures will be taken in this sphere also to abolish certain classes of officials and offices, in order to give effect to the principles of simplification which have been imposed upon us by the narrowed limits of our territory. We may even now record a first achievement in this connection. It has already been decided in principle to suppress the local administration of the mines a service of some importance. This administration will almost certainly be suppressed within a few days. Moreover, the fusion of the provincial financial administrations (Finanzprokuraturen) into a single administration, which will have its headquarters at Vienna, is at present the subject of negotiations which will soon lead to tangible results. Again, as regards institutions created, during the war and after the war, in the sphere of administrative organisation, vigorous measures have been initiated to reduce their number The Federal M inistry for Food Supplies, which is included in this category, was abolished a few months ago. Moreover, the District Food Commissions will be dissolved at an early date and a decree for this purpose will be promulgated in a few days. The Offices for Disabled Soldiers will also be closed by means of a decree in the near future. A number of the central provincial offices responsible for the work of rectifying the frontiers in pursuance of the terms of the Treaty of St. Germain have been suppressed, and orders to close those which still remain will be issued in a few weeks. I beg to add th at I shall always actively supervise this work of reduction and see th at it is energetically pursued. W ithout prejudice to measures for the general suppression of whole categories of offices and officials, an investigation into the necessity of maintaining certain offices as separate bodies and of retaining certain individual officials is still being conducted, and I feel confident that this investigation will lead to considerable reductions and economies in the various branches of the administration. Naturally, any simplification of the administrative organisation can only give satisfactory results if success is achieved in diminishing, as far as possible, the enormous burden of work with which the administration is oppressed and the cause of which is very often to be found in regulations dating from a former age, in needless complexities and in an obsolete procedure. I am about to issue the necessary instructions on this subject. In the information which I have given you I believe I have met in respect of the piost important points the desire which you expressed to obtain at least provisional information with regard to the present position of the work which has been undertaken to simplify our administrative machinery. Should you deem it expedient to obtain fuller particulars, I am entirely at your disposal. In accordance with your wishes, I shall, moreover, always keep you informed of the progress of the whole of the measures taken and, more particularly, of the results obtained. I am, etc. ( Signed) F rank.

25 26 Appendix X. STATEMENT UP TO JANUARY 13t h, 1923, REGARDING REDUCTION OF STAFF. [Translation.] (a) Central Administration. Department Strength on Oct. 1st, 1922 Strength on Jan. 13th, 1923 Total reduction from Oct. 10,1922 to Jan. 13 th 1923 f l. Federal Chancellory i 2. Audit O ffice Federal Ministry of the In te rio r... 23,675 22,564 1, Federal Ministries of the Interior and Education, Department of Public Education. 5,795 4,762 1, Federal Ministry of Ju stice... 7,054 6, »»» Finance ,314 10,724 1,590 7.»»» Agriculture and Forestry 1,319 1, »»» Commerce, Industry and»»» Public Works... 9,558 7,932 1,626 9.»»» Public Welfare (Pré-»»» voyance sociale).. 4,335 1,757 2, »»» Foreign Affairs »»» War... 8,847 7,702 1, »»» Transport... 1, »»» Transport (Post Office) »»» Transport (Telegraphs»»» and Telephones) Total ,482 65,301 10,181 (b) State Undertakings (Betriebe). Department Strength on Oct. 1st, 1922 Strength on Jan. 13th, 1923 Total reduction from Oct. 10,1922 to Jan. 13, Federal Chancellory : Wiener Zeitung Federal Chancellory : Central Administrative Office for Photography and Cinematography Education : Administration of State Theatres 1,292 1, Finance : U ndertakings... 15,026 14, Agriculture and Forestry : Administration of F o re sts... 2,793 2, Commerce, Industry and Public Works : Undertakings... 3,070 2, Public Welfare (Prévoyance sociale): Federal Hospitals and Dispensaries... 6,514 6, Transport : Federal Railways ,939 90,748 10, » Post O ffice... 25,048 22,631 2, » Telegraphs and Telephones.. 11,814 10,783 1,031 Total , ,489 15,313

26 27 Appendix XI. CONTROL BY THE MINISTRY.OF FINANCE OVER THE OTHER DEPARTMENTS. Letter from the Commissioner-General to the Minister of Finance. [Translation.] Sir, Vienna, December 21st, The law relating to the provisional Budget, which has just been passed by the National Council, provides that, during the first four months of 1923, the Confederation shall incur only such expenditure as m ay be absolutely necessary and compatible with the Reconstruction Law. Further, the total Federal expenditure during this period shall in no case exceed the sum of 200,000,000 gold crowns". As the execution of this law is in your hands, I venture to ask you what measures have been taken by the Ministry of Finance in respect of the various Government departments to ensure th at the administration of those departments conforms to the provisions of the law. W ith reference to this question, I have the honour to request th at you will be good enough to inform me how and to what extent the Federal Ministry of Finance proposes to exercise over the other Government departments a central control of the current administration as a Avhole, not merely within the limits of the provisional Budget, but also within those of the final Financial Law which is shortly to be promulgated. I must lay special stress on the fact that I regard the question of the centralised control of all current administration as being highly important, and even decisive, for the realisation of the Geneva Programme. I have the honour, etc. ( Signed) Zimm erm an. Appendix XII. FINAL FIGURES OF THE PROVISIONAL BUDGET FOR THE MONTH OF JANUARY. [Translation.] Letter from the Minister of Finance to the Commissioner-General. Sir, Vienna, January 13th, In continuation of my letter of January 2nd, 1923 (Z ex 1922), I have the honour to forward for your information the final figures of the preliminary Budget for January. (Signed) Dr K ienbôck, Federal Minister of Finance

27 28 SUB-APPENDIX 1 to APPENDIX X II BUDGET, JANUARY 1st, Stage of plan of reform beginning January 1st, Sums asked for January 192» FEDERAL EXPENDITURE. In millions. In millions. Gold cr.1 Pap. cr. Gold cr.1 Pap. cr. Gold cr.1 Pap. cr. 1 2 / /1 2 1 /1 2 1 /1 2 1 /12 1 /12 1 Service of the Debt ,5 438,590 2,541 36,549 1,798 25, Pensions and Indemnities ,1 677,298 3,925 56,441 4,790 68,980,C 3 Army... 48, ,058 58,359 3,347 48,128.(J 4 Public W elfare... 37,4 537,812 3, ,866 84,358,0 5 Other Administrative Services ,7 3,748,866 21, ,405 15, ,501,8 6 Staff of the Independent Administrations 33,3 478,854 2,775 39,904 2,531 36,393,0 7 Contribution to the Independent Administration ,263 2,505 36,022 2,895 41,631,0 8 Loans to Independent Administration.. 0,0 0,824 11,931,5 9 Federal Railways (subsidies)... 91, 1,308,580 7, ,048 11, ,708,4 10 Other Undertakings showing a Deficit (su bsid ies)... 21, 301,980 1,750 25,165 2,532 36,419,5 11 Monopolies (subsidies)... 0,0 Total Expenditure , ,549 49,98 718,712 51, ,915.8 Total Receipts (see Sub-Appendix 2).. 317, ,709 26,43 380,142 22, ,356,7 D eficit ,534 4,062,840 23,55 338,570 28, ,559,1 Surplus... SUB-APPENDIX 2 to APPENDIX XII. BUDGET, JANUARY 1st, Stage of plan of reform beginning January 1st, Sums asked for January 1923! No. RECEIPTS In millions In millions Gold cr.< Pap. cr. Gold cr. i Pap. cr. Gold cr.1 Pap. cr. 12/12 12/12 1/12 1/12 1 /12 1/12 1 C ustom s... 44,0 632,720 3,67 52,775 5,0 72, Import and Export Charges... 7,05 101,379 0,58 8,340 0,54 7,756,8 3 Taxes on Commodities... 15, , ,694 1,34 19,335,0 4 Direct T a x e s... 44,4 638,472 3,7 53,206 2,43 35,000,0 5 Taxes on Railway T raffic... 68,0 977,840 5,67 81,535 5,91 84,990,0 6 Taxes (other than taxes on railway traffic) 26,2 376,756 2,18 31,348 3,26 46,840,5 7 Receipts from other Administrative Departments... 27,4 394,012 2,27 32, ,695,3 Total ,626 3,345,161 19,37 278,541 19,37 278,617,6 Monopolies : Tobacco (ordinary receipts)... 72,0 1,035,360 6, ,856 41,067,1 Salt (ordinary receipts)... 3,1 44,578 0,26 3,739 0,404 5,831,0 75,1 1,079,938 6,26 90,019 3,260 46,898,4 Productive Undertakings. Regular R e c eip ts... 9,5 136,610 0,79 11, ,840,7 Total Receipts ,226 4,561,709 26,43 380,142 22, ,7 Total Expenditure (see Sub-Appendix 1). 599,76 8,624,549 49,98 718,712 51, ,915,8 D eficit ,534 4,062,840 23,55 338,570 28, ,559,1 Surplus... 4 One gold crown = 14,380 paper crowns. After the original requests had been systematically reduced by from 5 0 to 15 % and subsequently reduced by a further 12.5 milliard crowns.

28 29 Appendix XIII. TEXT OF a STATEMENT MADE BY THE COMMISSIONER-GENERAL TO THE VIENNA PRESS ON JANUARY 17th, [Translation.] It has probably been a m atter of considerable surprise to the Viennese Press th at I should have allowed a whole month to elapse before establishing relations with its representatives. This delay does not in any way imply th at I attach no importance to remaining on good terms with the organs of public opinion. On the contrary, I sincerely hope th at I shall find the Austrian Press of inestimable service in assisting me in the difficult task which I have undertaken in Austria s interests. Only, before meeting you, I wished to acquaint myself, at least superficially, with the position of affairs. Had I neglected to do so, my remarks would have been of little use to the public. Now, after four weeks work, I think I have obtained some idea of the situation. My enquiries have resulted in a firm conviction that, in spite of the enormous difficulties which have yet to be overcome, it will be possible for Austria to extricate herself from her present difficulties and to advance to a brighter future. The attem pt of the League of Nations to bring some relief to Austria, in the interests of all the Members of the League of Nations, consists of organising co-operation between all the forces of Austria and the stable political and financial elements in Europe. If this co-operation is to succeed, such elements will be bound to come to the help of Austria, but Austria, for her part, must prove th at she is equal to so difficult a task. We must not, however, lose sight of the general European situation. It would not be possible for Austria to be the one healthy country in a sick Europe. If Europe finds a solution to the present crisis and such a solution must be found if she is not to perish Austria must also assist the other States in the great comity of Nations by herself making every effort to bring about her convalescence and final cure. The signatories of the Geneva Protocols have fulfilled the obligation which they had undertaken to guarantee a certain share of the credits Austria needs ; 80% of this guarantee is already assured. Meanwhile, Belgium and Spain have promised to participate in the international w'ork of reconstruction, and Switzerland is also taking the necessary measures to provide Austria with a direct advance of 20 million gold crowns. The Netherlands and the Scandinavian countries will, we trust, become responsible for the rest. I have spared no effort to persuade my Government at The Hague to join in this action. Negotiations with international financial circles have been inaugurated by the Government, and there is reason to hope th at they wrill be successful. In such transactions there are always great difficulties of a technical character to be overcome. The way in which the guarantees are to be furnished, which constitutes an innovation in the history of finance, increases the difficulty still further. I am none the less convinced that the necessary credits, whether they are credits of a provisional nature or long-term loans, will be placed at Austria s disposal as soon as her financial position renders them necessary. Any other hypothesis is, to me, inconceivable. All the Powers recognise th at the rehabilitation of Austria is a problem of the greatest importance ; consequently all those States which publicly proclaimed this fact when setting their signature to the Geneva Protocols will also in the future do all that is in their power to ensure the success of the credits. I myself consider it a duty to spare no effort to render these credits an accomplished fact. The attitude of foreigners should encourage us. As you are aware, the remainder of the French, Italian and Czechoslovak credits have now been released in accordance with the Geneva Protocols and may be used to guarantee the operations connected with the provisional loan. The French Government has consented to the immediate employment of the sums which are to serve as a temporary guarantee. This is the money which, since the signing of the Geneva Protocols, has come to Austria to meet the needs of the State Administration. We hope that before the end of this week we shall be able to use the Czechoslovak balance. It will then be easier for us to await the result of the negotiations concerning credits which are now in progress and the future loan. The second source of strength for the rehabilitation of Austria is Austria herself. The task which the Republic has undertaken is extraordinarily difficult. I am the first to recognise this fact entirely and completely. My most wholehearted co-operation and all the strength of my intellect are at the service of the Austrian nation, which will be bound to suffer greatly as a result of the economic phenomena th at will, up to a certain point, be entailed by the carrying-out of the restoration scheme. I can even understand the attitude of those who think it impossible to rehabilitate Austria by putting into practice the programme drawn up by the League of Nations ; I should like, however, to ask those Austrians who hold this opinion two questions : Is any other solution possible ; and again, what would be the inevitable consequences of the failure of the League of Nations scheme? I am fully aware of the importance of the mission which I have undertaken, and I have studied these two questions at great length. I have considered whether any less drastic solution were possible, and I must tell you that, in my opinion, the League of Nations scheme is the only plan which can possibly be put into practice at present. The reply to the second question w hat would happen if the League of Nations scheme were to fail is a simple

29 30 noe. It is no exaggeration to say that in this case no foreign credit would -be granted. The same would be the case with every sort of relief which has been granted Austria during the last few years. W ithout foreign credits the Austrian Government will never be able to meet out of its own resources the deficit which will exist for the next few years. It will have, therefore, no other alternative but to resort once more to the printing-press. Austrian money would then sink lower still, and this fact would render it daily more difficult, if not indeed impossible, to import foodstuffs, coal and raw materials ; the moral of the population would sink lower and lower until it gave place to despair, and finally, as a last and inevitable consequence, chaos and anarchy would spread throughout the land and would endanger the peace of all Central Europe. These are the reasons why, in my opinion, every Austrian who is aware of his responsibilities towards his country must assist in carrying out the Geneva Programme and in supporting all the consequences of this action, however severe these may be, especially in the beginning. The Austrian Press will shoulder a heavy responsibility during the next few months. As elsewhere, the Press is not content to be a mere reflection of public opinion bu t exercises an immense influence on the formation of this opinion. The Austrian Press has before it at the present moment a double task. It must aim, in the first place, at keeping its readers informed, as correctly as possible, of everything which is taking place. To this end, in all cases of doubt or vague rumours, you should apply to the proper authorities. Whenever these are able to furnish the required explanation they will do so most willingly. If, however, some higher exigency should oblige them temporarily to keep their own counsel, this would be because, in the public interest, silence is sometimes preferable to a half-truth, which can only be harmful. Your second task is to keep the moral of the population steady by means of the great influence which you exercise over it. Matters are often complicated by the nervousness of public opinion. A perpetual fluctuation between optimism and the darkest pessimism does not help matters along but merely complicates them. If it is known, foiinstance, that the negotiation of a credit has been successful, this should not obscure the fact that the work of restoration is still far from complete. But, on the other hand, if difficulties occur during the course of the negotiations, it must not be assumed that all is therefore lost. I shall consider my own duties as being purely those of a friend of Austria. I never sought the position which I hold, nor did I exert any efforts to obtain it. B ut as soon as I entered on my duties I devoted myself wholeheartedly to my work. I am fully convinced that it is work which will absorb all the energies of any man. At the same time I am sure that the Federal Government is inspired by the most sincere desire to put the Geneva Programme into practice down to its very smallest details. I am certain th at for this reason it will waste no precious time in hesitation. I know also that the great majority of the population supports and approves of the Government. A little reflection and common sense point out [the way, which is indicated also in the case of other States by the main lines of historical development during the post-war period. Mindful of the great democratic past of my country, I also feel that the true character of a democracy is to be found in a sentiment of duty towards the w'hole State, and this sentiment should rise above all party considerations. It is my duty to support the Government with all my strength and with all my experience in carrying out its difficult task. I shall fulfil this duty without any desire to show favour or to do hurt. It has never been my intention to interfere with the internal politics of the country, or to wish to play a leading part, or, as has been stated in print, to establish a foreign domination. The scope of my activities is definitely laid down in the Geneva Protocols, and my task entails too much work and anxiety to permit of my increasing it or of assuming powers which do not belong to me. B ut when it is a question of putting into force the reforms and economies which are necessary for the restoration of Austria, I shall be at my post. I desire nothing more ardently than to see Austria rendered once more, as a result of our labours in common, a State of which every one of its citizens may be proud. [Translation.] Appendix XIV. STATEMENT ON THE CONDITION OF THE LABOUR MARKET. According to statistics supplied by the Federal Ministry of Public Relief for the period December 16th to 30th 1922, unemployment at Vienna and in its suburbs exists mainly amongst the following classes of workmen : Men and Women Metal w o rk e rs... 23,482 of whom 17,919 are in receipt of unemployment bonus Auxiliary workers in different branches... 18,872» 17,798 )) )) )) Shop assistants and office employees, etc... 11,143» 6,070 ))» )) Building t r a d e... 12,336» 10,502» )) )) Hotel staffs... 7,971» 7,939»»»

30 31 The number of unemployed in receipt of unemployment bonus throughout Austria during the last six months of 1922 is as follows : July. August September October November December 30,971 31,243 37,999 57,849 84, ,525 Of the above 120,525 unemployed during December, 87,290 were resident in the city of Vienna and 9,424 in the suburbs, while the remainder were distributed throughout the industrial districts of Wollersdorf, Wiener-Neustadt, St. Pôlten, Linz and the province of Styria. Out of the total of roughly 120,000 unemployed in Austria, about 90,000 are in receipt of the maximum bonus (7,560 to 10,080 crowns per diem). The other 30,000, who belong to the less highly salaried classes, are in receipt of a bonus of from 4,000 to 8,600 crowns per diem. On the basis of these figures, we may put the total expenditure on unemployment bonus at a little more than a million crowns per diem, 2 0 % of which is at the present moment paid by the State. The administration expenditure amounts to 10% of the total of the bonuses paid ; fiveninths are paid by the Central Unemployment Fund, and the remaining four-ninths distributed among the provinces. It should be observed, however, th at this expenditure includes also that for the administration of the State labour exchanges.