Messersmith, G.S., Vienna. To James Clement Dunn, Washington.

[Fritz] Stockinger, Minister of Commerce, to be dropped from Cabinet; likely that [Ludwig] Draxler, Minister of Finance, will take over both posts; Austria concerned over her position in case of sudden German move against her; England and France could not act quickly enough to save her, and Italy, with her Army involved in Abyssinia, not likely to use troops in Austria's defense; reports German plans for placing 30,000 men in barracks within striking distance of Austrian frontier; internal situation in Austria better than in years; financial position sound, business good, unemployment down; country politically quiet; Nazis inactive, Socialists encouraged over attitude of new Minister of Social Welfare, and people more contented and tolerant of government; Italian Press Attach?? in Vienna had recent conversation with head of so-called nationally minded Austrians which leads Government to fear Italy preparing way to desert Austria; on Dec. 11 [Franz] von Papen called at Foreign Office and protested proposed visit of Chancellor to Prague; von Papen gave large party last week; invited President [Wilhelm] Miklas weeks ahead and asked him to fix date, so that it was impossible for him to refuse; Messersmith glad previous engagement made his refusal possible; U.S. Military Attach?? present and he informs that except for Diplomatic Corps and President's entourage very few people from Vienna attended; not one Jew invited; story is told that just before party von Papen suffered two days from toothache before finding non-Jewish dentist; ties being strengthened between Austria and Hungary and Little Entente states, particularly Czechoslovakia; Chancellor has postponed Prague visit until Czechs can straighten out their position created by retirement of President [Tom??s G.] Masaryk; thinks he will go in January as he wants to talk to new Prime Minister, [Milan] Hodza; concern felt here about situation in Czechoslovakia; some division in the ranks and it is questionable if [Eduard] Benes can be elected President; situation may give Henlein Party opportunity to play role; Benes-Hodza would make good combination; Anglo-French proposals to Mussolini have upset situation again in Europe; fears proposals merely a face-saving compromise; too early to speak of change in British attitude, but conservative pressure since election may have influenced policy; compromise may ease situation temporarily, but only prepares way for devastating war later; if compromise is carried through under League auspices it will kill League; Christmas amnesty declared in Austria; imprisoned Social Democrats and National Socialists to be freed; will have good effect in Austria as well as in France and England; commissars controlling political activity in business establishments being abolished; enclosing reproduction of placard appearing above Ski Club entrance at Garmisch-Partenkirchen, where winter Olympics are to be held; placard reads "Entrance to Jews Forbidden"; London Times reports certain newspapers excluded from Italy and Christmas trees prohibited; arrest of priests and persecution of church in Germany continue unabated