The main task of the nonsocialist governments in power from the autumn of 1920 was to restore financial and economic stability. Between 1919 and 1921 Austria’s urban population lived largely on relief from the United States and Great Britain, and, although production improved, distress was heightened by inflation that threatened financial collapse in 1922. In October 1922 the chancellor, Ignaz Seipel, secured a large loan through the League of Nations, enabling Austrian finances to be stabilized. In return, Austria had to undertake to remain independent for at least 20 years. The controller general appointed by the League of Nations reported in December 1925 that the Austrian budget had been balanced satisfactorily, and in March 1926 international financial supervision was withdrawn.

Seipel’s success in October 1922 gave Austria some years of stability and made economic reconstruction and relative prosperity possible. In socialist-controlled Vienna, an ambitious program of working-class housing, health schemes, and adult education was carried out under the leadership of Karl Seitz, Hugo Breitner, and Julius Tandler. “Red Vienna” thus acquired a unique reputation in Europe.

In 1920 all three major parties spoke in democratic terms. Despite democratic rhetoric, however, preparations for civil war had never been abandoned. The Christian Socialists, led by Seipel, a believer in strong government, were convinced that they had to protect the existing social order against a Marxist revolution. In the provinces, reactionary forces known as the Heimwehr (Home Defense Force)—originally formed for defense against Slavs invading from the south or against marauding soldiers returning from service in World War I—gradually acquired fascist tendencies (see fascism). The Social Democrats, who felt that their social-reform program was endangered, had their own armed force, the Schutzbund (Defense League), descended from the People’s Guard of 1918.

The Schutzbund and the reactionary forces regularly demonstrated against each other. In 1927, in the course of a clash between members of the Schutzbund and reactionary forces at Schattendorf, an old man and a child were accidentally shot by reactionaries. When the latter were acquitted by a Vienna jury on July 14, the Social Democrats called for a mass demonstration, which got out of hand and ended in the burning down of the ministry of justice. In fighting between the police and the demonstrators, almost 100 people were killed and many more were wounded. The Social Democrats then launched a general strike, but it was called off after four days. Seipel had violently asserted the government’s authority, and the balance between socialist and nonsocialist forces in Austria was never secure after this decisive date.

The Christian Socialists, pressed increasingly by the Heimwehr, began to take the offensive against the Social Democrats. Wilhelm Miklas, a leading Christian Socialist, was elected president in 1928, successor to the nonparty Michael Hainisch, who had been in office since December 1920. There were repeated attempts to revise the constitution, principally with the object of strengthening the power of the executive. After protracted negotiations, a compromise was reached late in 1929. On December 7, 1929, a series of constitutional amendments gave increased powers to the president. Of particular importance were the rights to appoint ministers and issue emergency decrees. But Vienna maintained its autonomy, and the democratic principle was preserved against the far-reaching authoritarian demands of the Heimwehr. In the elections of November 1930, the Social Democrats were returned as the largest single party, with 72 seats. The Christian Socialists held 66, the German Nationalists 19, and the Heimwehr, elements of which had temporarily coalesced into a fascist party on the Italian model, 8.

These political events were overshadowed by the great world economic crisis (see Great Depression). Though the Social Democratic Party’s leaders believed that the crisis should be met by the orthodox means of deflation and spending cuts, they were resolved not to be compromised by supporting these measures and refused to enter a coalition government. On the other hand, in October 1931 they acquiesced in suspending the election of the president by direct popular vote, as had been provided by the constitution of 1929, and agreed to the reelection of President Miklas by parliament. The government, meanwhile, led by Chancellors Johann Schober (1929–30) and Otto Ender (1930–31), was driven to desperate devices to stave off collapse. Schober, leader of the middle-class German Nationalists, launched a project for a customs union with Germany in March 1931; this provoked violent opposition from France and the alliance of the Little Entente (Czechoslovakia, Yugoslavia, and Romania) and was subsequently condemned by a majority of the Permanent Court of International Justice at The Hague. The bankruptcy in May 1931 of the Creditanstalt, the country’s most influential banking house, brought Austria close to financial and economic disaster. This, together with the rise of the National Socialists in Germany, resulted in considerable support being given to the Austrian Nazi Party (see National Socialism; Nazi Party). Provincial elections in 1932 showed that the Nazis were draining off votes from the conservative parties. The Nationalists began to demand a general election, and this demand was taken up by the Social Democrats, who saw a chance of winning a majority in parliament.