The republican period was increasingly marked by violent strife between those with left-wing and right-wing views, leading to the July Revolt of 1927 and the Austrian Civil War of 1934.

In September 1919, the rump state of German-Austria—now effectively reduced to the Alpine and Danubian crownlands of the Austrian Empire—was given reduced borders by the Treaty of Saint Germain, which ceded German-populated regions in Sudetenland to Czechoslovakia, German-populated South Tyrol to Italy and a portion of the Alpine provinces to the Kingdom of Serbs, Croats and Slovenes (Kraljevina Srba, Hrvata i Slovenaca, or SHS, also known as Yugoslavia).

The Treaty of Saint Germain angered the German population in Austria who claimed that it violated the Fourteen Points laid out by United States President Woodrow Wilson during peace talks, specifically the right to "self-determination" of all nations.

Many of them felt that with the loss of over 70% of the cisleithanian territory of the prewar empire, Austria was no longer economically and politically viable as a separate state without union with Germany.

After 1920, Austria's government was dominated by the anti-Anschluss[2] Christian Social Party which retained close ties to the Roman Catholic Church.

The party's first Chancellor Ignaz Seipel came to power in May 1922 and attempted to forge a political alliance between wealthy industrialists and the Roman Catholic Church.

The matter was further complicated by the fact that a number of these new nation-states were still dependent on Vienna's banks, but business was hampered by the newly erected borders and tariffs.

In addition, Czechoslovakia, Hungary, Yugoslavia and Italy had imposed a trade blockade and refused to sell food and coal to Austria, which eventually was saved by aid and support from the Western Allies.

In October 1922 Britain, France, Italy and Czechoslovakia provided a loan of 650 million gold kronen after Seipel promised not to attempt Anschluss with Germany for the next 20 years and allowed the League of Nations to control Austria's economy.

Austria's central bank Oesterreichische Nationalbank was re-established in 1923, a sales tax was introduced in 1923, and the Austrian Schilling replaced the Krone in December 1924.

While outwardly fascist, it was mostly Catholic and influenced by the papal encyclical Quadragesimo anno of 1931 which refuted liberalism and socialism in favour of corporatism.

Dollfuss's Austrofascism tied Austrian identity to the Roman Catholic Church as an argument against a union of Austria with predominantly Protestant Germany.

Fascist Italy had good relations with Austria under Dollfuss and Mussolini suspected German involvement and promised the Austrofascist regime military support if Germany were to invade, as the Nazis had claims on Italian-administered Tyrol.