The main subject of interest in diplomatic circles at the moment is the possibility of an agreement between Germany and Austria which would at once pave the way towards close collaboration in international affairs between Germany and Italy. There are undoubtedly signs of a relaxation of the tension which has existed between Berlin and Vienna since 1933: thus, Austrian athletes are coming to the Olympic Games, and permission to go to Austria is more readily given to Germans who have either relations or business concerns in that country. It is true that for the ordinary tourist the fee of RM. 1000 is still charged by the German Government, but it is anticipated that this may shortly be removed. Propaganda against the Austrian Government does not occupy an important part of the German Press, although the propaganda against a Habsburg restoration is violent. I understand that, presumably owing to the efforts of von Papen, a corresponding charge of heart, or at least of tactics, has taken place also in Vienna.

At the same time, it cannot be denied that the differences between the Governments of Hitler and Schuschnigg are very grave ones, and at first sight it is not easy to see how they could be bridged over. On the one hand, National Socialists in Austria have been encouraged to regard themselves as members of the German people, separated from their fatherland by the Treaty of Versailles. It is very difficult to see how Hitler could come to any agreement which would be tantamount to disowning his own supporters in Austria and denying an integral part of the fundamental theory of National Socialism, namely the unity of all persons of German race. And, on the other hand, it would be equally difficult for Schuschnigg to come to any agreement with Germany with would permit National Socialists to carry on their propaganda unhindered in Austria. The suggestion was made that they should be allowed to continue cultural, though not political, propaganda, but the obvious impossibility of making the distinction caused this particular proposition to break down.

But I think it would be very rash to say that, in spite of the manifest difficulties, any agreement is impossible. Three years ago, before the agreement between Germany and Poland was announced, German, and indeed international, opinion considered a German-Polish rapprochement quite as inconceivable as an Austro-German agreement today. It was thought that Germany could not possibly give up her claim to the Corridor and Upper Silesia. Yet, when Hitler agreed to a ten years' truce on the basis of the status quo, not a voice in Germany was raised against it. After this proof of his being able, in the classic phrase, to 'deliver the goods', I do not consider it at all inconceivable that he might agree to discontinue all political activity in Austria for 10 years in consideration of an undertaking that during that period there should be no restoration of the Habsburg monarchy. His real gain would of course be that in the event of a European War he could count, as France could in 1914, on a friendly Italy.

This is of course only one suggestion as to a possible basis of accord between Germany and Austria, and hence between Germany and Italy: There are no doubt many other possible bases. The Austrian Minister here denies that any agreement has been come to, but the very form of this denial appears to confirm the rumours that the matter is being discussed. In Italian circles it is hinted that some such agreement is quite within the bounds of possibility.

It is rumoured, so far as I can gather on good authority, that the German Foreign Office proposes to answer the English questionnaire, but probably in a general form without entering into the particulars requested. It is not anticipated that an answer will be given to the inquiry what distinction the Chancellor makes between the German Reich and the German people - an inquiry which has become particularly relevant owing to the claim by the President of the Danzig Senate to speak in the name of the German people.

As regards Danzig, the prevailing opinion, with which I entirely agree, is that there will be no attempt at direct annexation and no alteration of the Constitution, but that the Senate will carry out a National Socialist policy in its internal affairs, completely ignoring the High Commissioner and the League of Nations, but scrupulously regarding the rights of Poland. The position will then be that the League of Nations could only interfere by actual physical intervention, which it would never venture to do. The plan appears to have been very cleverly calculated, and will certainly present great difficulties to the League. The only possible flaw in the German calculation would be in the event that Poland was dissatisfied, but there appears to be every ground for thinking that the Polish Government, provided that Polish rights are not infringed, will bear with equanimity the suppression of the German Opposition. Particularly at a time when Communism is attempting to become active in Poland, and with the example of France and Spain before its eyes, it is, to say the least, unlikely that the Polish Government will without very grave reasons quarrel with the power which seems its best protector against Bolshevik Russia.

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