The State Treaty—signed in Vienna on May 15, 1955, by representatives of the four occupying powers and Austria—formally reestablished the Austrian republic in its pre-1938 frontiers as a “sovereign, independent, and democratic state.” It prohibited Anschluss between Austria and Germany as well as the restoration of the Habsburgs. It also guaranteed the rights of the Slovene and Croatian minorities in Kärnten, Steiermark, and Burgenland. Great Britain, the United States, and France relinquished to Austria all property, rights, and interests held or claimed by them as former German assets or war booty. The U.S.S.R., however, obtained tangible payment for the restoration of Austrian freedom. This included $150 million for the confiscated former German enterprises, which Austria bought back from the Administration of Soviet Property in Austria; $2 million for the confiscated German assets of the First Danube Steamshipping Company; and 10 million metric tons of crude oil as the price of Austrian oil fields and refineries that had been Soviet war booty.

The treaty came into force on July 27, 1955, and by October 25 all occupation forces were withdrawn. On October 26 a constitutional law of perpetual Austrian neutrality was promulgated. The Austrian government had never left any doubts that the pledge to neutrality could be interpreted only as a military one and never as an ideological one. Throughout the Soviet occupation, the Austrians had proved their anticommunist attitude, and the spontaneous reaction of the Austrian people during the Soviet suppression of the Hungarian Revolution in 1956 demonstrated their sympathy with Western democratic ideas (see Hungary: The Revolution of 1956). Austria preserved political stability; changes in the personal and ideological structure of the government and political parties were effected without major political crisis.

Austria became a member of the United Nations in 1955 and of the Council of Europe in 1956. Major problems in foreign relations were the conflict with Italy over Südtirol (southern Tirol; now part of the Italian Trentino–Alto Adige region) and the problem of association with the European Economic Community (EEC; later succeeded by the European Union). During the Paris Peace Conference of 1946, an agreement had been signed guaranteeing the rights of the German-speaking population of Südtirol, a region that Italy had obtained after World War I. The Austrian government, claiming that the Italians had not lived up to their obligations, initiated bilateral talks. In the early 1960s, acts of terrorism committed by German-speaking chauvinists interfered with the progress of the negotiations, but in 1969 agreement was finally reached on implementing the guarantees provided in the agreement of 1946. In 1958 Austria joined the European Free Trade Association, but a special arrangement with the EEC, accompanied by prudent dealings with the communist neighbours, maintained Austria’s status as a neutral nation. In that capacity, Austria provided for large numbers of refugees from eastern Europe; it also functioned as a transit link for Jewish émigrés from the U.S.S.R.

From 1962, disagreement over economic problems generated friction between the coalition parties. The annual budget led to grave disunity in the coalition, and in the autumn of 1965 the government resigned and called new elections. The elections, held on March 6, 1966, brought a setback for the Socialist Party, and the Austrian People’s Party was returned to parliament with an absolute majority. Negotiations for a new coalition government failed. The Socialists, led by a former foreign minister, Bruno Kreisky, went into opposition, and Josef Klaus formed the first one-party cabinet of the Second Republic. Contrary to widespread misgivings, the political stability of the country was not disturbed, and parliament was given new vigour and influence.

In ensuing provincial elections, the Socialist Party demonstrated recovery from the setback of 1966, and in the national elections of 1970 the Socialists managed to win a plurality of votes, becoming the strongest party in parliament, with 81 seats, though falling short of a majority. After negotiations for a new coalition cabinet failed, in May 1970 Kreisky was appointed chancellor, and he formed the country’s first all-Socialist cabinet. Sensing increased support for the Socialists, he called for new elections in October 1971, which gave his party a clear majority of 93 seats. In the subsequent elections of 1975 and 1979, Austrian voters demonstrated their approval of Kreisky’s policy of moderate social reform and economic stability by returning the Socialist Party to parliament in increasing strength: the elections of May 1979 gave the Socialists 95 seats, while the Austrian People’s Party, continually weakened by regional animosities and leadership squabbles, received 77 seats and the Freedom Party 11.

The stability of Austrian politics in the 1970s was paralleled by an equally stable economy: besides having an elaborate system of social security and health insurance, Austrians enjoyed an unbroken prosperity with one of the lowest rates of unemployment in Europe. The Kreisky governments carried through a host of reform programs, among which the reorganization of the legal code under the minister of justice Christian Broda had truly historic dimensions.

In 1978 Kreisky suffered his first defeat when a majority voted against the opening of a nuclear power plant. The late 1970s also witnessed the first of a series of scandals, many of them related to the technocratic wing of the Socialist Party. This wing centred around Kreisky’s minister of finance and political heir-apparent, Hannes Androsch. In particular, the dubious link between Androsch’s tax-consulting firm and the contractors building Vienna’s new general hospital began a series of setbacks for the Socialist Party; these were aggravated by the troubles of the nationalized industries.

The scandals that plagued Austria in the 1980s overshadowed the considerable reforms enacted by the Kreisky government. Voters grew increasingly dissatisfied with a stagnant sociopolitical system in which all important decisions were made behind closed doors by the interest groups represented in the “Social Partnership” (i.e., the chambers of industry, trade, and agriculture and the labour unions). A growing environmental awareness intensified voter frustration.

After the Socialist Party lost its absolute majority in 1983, Kreisky resigned, and the Socialists, under Chancellor Fred Sinowatz, entered into a coalition with the Freedom Party. The coalition stumbled from one scandal to another until it was finally brought down by the election of Kurt Waldheim, who was alleged to have been a Nazi war criminal, as president in 1986. Although an international historians’ commission found no evidence that Waldheim had personally committed war crimes, it proved his indirect complicity. With Waldheim’s insistence that he had only done his duty, the domestic political intrigue, the not-altogether-hidden anti-Semitism of some of his supporters, and the U.S. government’s decision to place Waldheim on its watch list of undesirable aliens, the incident undermined Austria’s domestic consensus more than any other event since 1945.

After the Waldheim debacle, Sinowatz resigned as chancellor, and the Socialist Party under Franz Vranitzky called for new elections, which resulted in a grand coalition of the Socialist and Austrian People’s parties. This government introduced partially successful budgetary and tax reforms and a privatization scheme for the nationalized industries. These reforms promoted the economic growth and social stability of the late 1980s. However, more scandals (notably the Noricum affair, involving the illegal sale of arms to Iran by a state-owned company), division within the Austrian People’s Party, and the public’s continued dissatisfaction with backroom deals weakened support for the coalition, while the environmentalist Greens (in parliament since 1986) and the Freedom Party enjoyed growing appeal.

In the 1990 elections the Socialists avoided disaster only through a combination of Vranitzky’s popularity and the weakness of the Austrian People’s Party. The reshaped coalition of the Socialist Party (renamed the Social Democratic Party in 1991) and the Austrian People’s Party faced new problems that were largely due to the dramatically changed international situation: Austria’s application for membership in the EEC (which, renamed the European Community, was embedded in the European Union [EU] in 1993) renewed heated debates over domestic repercussions and over membership’s compatibility with neutrality. The latter issue was raised again in connection with the breakdown of the Warsaw Pact and the turmoil in Yugoslavia. In 1990 the Austrian government unilaterally revoked some of the provisions of the 1955 State Treaty governing Austria’s neutrality. During the Persian Gulf War in 1991, in a controversial decision the government permitted air-transit rights to Allied planes and the transportation of U.S. salvage tanks through Austrian territory.

With the end of the Cold War and the opening of Austria’s eastern borders, the country was faced with an explosive increase of refugees (particularly from the Balkans) and immigrants (especially from Turkey). Many Austrians blamed the now-suffering Austrian economy on the influx of newcomers. In the early 1990s, heavy industry struggled, national debt rose, and unemployment reached a 40-year high. Popular discontent was reflected at the polls, as the right-wing Freedom Party and smaller opposition parties made gains against the ruling coalition.