Messersmith, G.S., Vienna. To William Phillips, Washington.

Calls attention to despatch no. 813 covering visits of [Hjalmar] Schacht to Vienna and other capitals; visits important if only as indication of policy; Schacht refused to comment on German foreign policy except in Belgrade, where he assured Yugoslavs Germany would stand behind them against Hapsburg restoration; in talks between Chancellor [Kurt] Schuschnigg and [Franz] von Papen, Schuschnigg listed in memorandum conditions under which modus vivende with Germany might be reached; von Papen left immediately for Berlin and talked with Hitler; has not heard result, but doubts von Papen brought back answer; [Hermann] Goering's brother-in-law, Franz Hueber, one of the leaders of so-called "nationally minded" Austrians, has made frequent trips to Germany, and in Austria has been having conversations with someone (not identified) in the confidence of the Chancellor; Goering anxious to reach agreement with Austria and willing to agree to Austrian conditions, as he believes this will ease situation in Germany's dealings with England and France, but probably will not sway Hitler; German-Italian conversations have broken down; debates on foreign policy in London and Paris encouraging; whatever their disagreements, they know they must cooperate; tone of English press now more favorable; Czechs putting through loan for defensive measures; [Konrad] Henlein forced into the open; one of his newspapers suppressed, and rifts apparent in his party; [Stanley] Baldwin made serious mistake in recent speech when he placed blame on U.S. for England's failure to impose oil sanctions on Italy; Germany's internal problems no easier; conversion loan of 700 million marks being put through, but will not relieve situation much, though for a while it puts off tax increase or capital levy; German industry leaning on short term revolving credits; U.S. and British interests participate in these; if they should be curtailed, Berlin government would soon be starved out; situation in Austria remains quiet; no trouble anticipated until after Olympics; many tourists