From the point of view of French diplomacy, the difficulties raised by the sale of the Italian Church lands were more ominous. For the Roman imbroglio not only precluded Rothschild involvement in the sale of Church lands; it also effectively ruled out the possibility of an anti-Prussian partnership between France and Italy. Each time the French Rothschilds retreated from the Church lands business, it was German bankers like Erlanger, Oppenheim, Hansemann and Bleichröder who stepped into the breach.
Another sign of the declining influence of French capital in Italy was the gradual disintegration of what had been one of James’s proudest creations: the South Austrian Lombardo Venetian and Central Railway Company. Compared with the Zaragoza line, the Lombard was a success story: it actually paid dividends to its shareholders. Its future prospects also seemed rosy: the Austrian Brenner pass was opened for rail traffic in 1867, and in 1871 the Fréjus tunnel was opened, sharply reducing journey times from Italy to France. When members of the English family travelled on the Lombard network they were suitably impressed by these developments. Moreover, there seemed no reason why the Lombard should not continue to extend its geographical reach. In 1867 it secured control of a number of Roman lines for a modest advance to the Italian government of 11 million lire. Two years later, the company’s bonds were boosted by talk of extending its network into the Balkans and towards Constantinople.
Yet there were undeniable problems. Natty and his uncle Anthony both complained about overmanning on the Italian part of the network. More seriously, the company’s financial needs seemed insatiable. The amounts of money absorbed by the Lombard company, even after government subsidies, were staggering. According to Gille, the French house poured over £5 million into the company between 1864 and 1870, with more being needed each year. Ayer’s figures indicate that the London house issued Lombard bonds with a nominal value of £24.6 million between 1866 and 1871. The issue price of these bonds tells its own story: in the first issue of 1866 the price was 93 per cent of par; further issues later the same year were for an average price of 79; in 1871 the price was down to 43. In 1874 alone, payments made by the London house on the company’s account totalled £893,000. In the 1860s cash-flow crises were more or less an annual event. Inevitably, the financial weakness of the company gave its major shareholders less political leverage than they had enjoyed in the past. Straddling the Austrian-Italian border as it did, paying substantial sums on a regular basis to the governments on each side, the line had once given James real political influence. By the late 1860s that had ceased to be the case. The old game of advancing moneys due to the government could still be played; but increasingly the various states dictated to the company.
In 1868, for example, the Italian government threatened to cut off the railways’ subsidies as part of its programme of retrenchment, and two years later it proposed a tax which Alphonse feared would consume all the profits generated by the Italian side of the network.8 The Austrian government meanwhile sought to force the company to construct an uneconomic branch line in the politically sensitive Tyrol. The Prussian government’s efforts to promote an alternative link from Germany to Italy via the St Gotthard pass sowed confusion in Rothschild ranks: Mayer Carl voted against the proposed subsidy only to be berated by his relations who had hoped the new pass would boost Lombard bond prices. There was similar disarray when the Austrian government announced its determination to enforce the financial separation of the Austrian Südbahn from the less profitable Italian network, which had been repeatedly postponed since 1866. It was the end of an era. In 1875 the Rothschilds sold the Italian network to the government for 750 million francs (£30 million); henceforth Italian railways would be the preserve of the Italian political elite.
These financial and political pressures gave rise to new kinds of friction between the various Rothschild houses, precipitating periodic “wars of words” between London, Frankfurt, Vienna and Paris. The Paris house was regarded by the others as excessively sanguine about the Lombard company’s finances and susceptible to pressure from other major shareholders like Talabot. Alphonse retorted by accusing Anselm of putting the interests of the Creditanstalt before the collective Rothschild interest. This, however, was just part of a more profound process of divergence which by the 1870s seemed to call into question the fundamental rationale of the Rothschilds’ traditional multinational partnershiip, so eloquently reiterated by James in his will. Though not unrelated to personal differences, as we shall see, this divergence of interests was primarily due to the changing patterns of capital formation, which were gradually allowing Central Europe to emancipate itself from Western European influence. Gradually, the interests of the various houses were becoming more and more geographically distinct. The ultimate failure of France to find any way of effectively counterbalancing Prussian power also had its roots in this process.
The Isolution of Austria—Hungary
An alliance between France and Italy, even if it had been secured, would have been of little strategic value if Austria had not been a party to it. Superficially, a Franco-Austrian alliance was the most likely combination to emerge after 1866; indeed, as we have seen, it had already emerged during 1866, and may even be regarded as one of the reasons Austria risked war against Prussia. After the Austrian defeat, there were repeated French attempts to resuscitate the idea: in April and August 1867, in the summer of 1868, in December the same year, in March and September 1869. To the duc de Gramont—the French ambassador in Vienna who became Foreign Minister in April 1870—such an alliance seemed not only attainable; he believed it had been attained. Gramont treated the abortive agreement of 1869 as if it had been genuinely as well as “morally signed” (Napoleon’s wishful phrase). A French general was even sent to Vienna to discuss joint military operations. But the fundamental stumbling block all along was that the new Austro-Hungarian Dual Monarchy had different priorities from the old Austrian Empire. As Lionel informed Disraeli in 1867, the idea of revanche in either Germany or Italy was not seriously entertained in Vienna, much less in Budapest: the future now seemed to lie in the Balkans. The problem for France was that the Austrian Prime Minister Beust’s interest in Bosnia—Hercegovina implied conflict with Russia, not Prussia. Unless France were willing to favour Austria against Russia over the Eastern Question—for example, over the Cretan revolt against Turkish rule—there was no reality to the Austro-French alliance. And so it proved. There was only really one occasion—at the end of 1868—when the Vienna Rothschilds reported a serious intention on the part of Beust to fight another war against Prussia, and that plainly had more to do with events in Rumania and Crete than with France.
So much for the diplomatic foreground; but these events make little sense in the absence of an economic background. The key, once again, lies in the regionalisation of the European capital market. In the 1850s and 1860s, as we have seen, Austria’s recurrent fiscal deficits had been partly financed by English and French capital. After the débâcle of 1866, James sought to resume business as before. Although he declared that he “really no longer had any great confidence in the ailing credit of Austria,” in practice he began to offer cash advances almost at once. Indeed, he made a personal visit to Vienna in the summer of 1867 to try to negotiate a new issue of “Anglo-Austrians”—sterling bonds of the sort which had been issued in 1859. Yet to other members of the family this seemed premature at a time when the Ausgleich between Austria and Hungary had yet to be finalised. Mayer Carl was especially sceptical about the financial viability of the new system of Austro-Hungarian “dualism,” which gave Hungary almost complete financial autonomy save for a relatively low contribution to a “common” Austro-Hungarian defence budget; he was prepared to contemplate issuing new Austrian bonds only if the price were extremely low. This wariness was shared by Natty in England.
Their reservations were only confirmed by the efforts of the Austrian government to secure rival offers from the Credit Foncier and other Paris houses in November 1867. As Alphonse complained,
“In truth, it is pretty difficult to deal with the Austrian government, which is always so pressed for money that it approaches everyone simultaneously,” making it “almost impossible to bring any association to a happy conclusion.” To cap it all, even as these talks were going on, the government announced a new tax on all securities and a compulsory conversion of the interest on existing government bonds from 5 to 4.5 per cent—a measure denounced somewhat intemperately by Alphonse as “impractical financial Jacobinism” and de facto “bankruptcy,” which could only undermine Austrian credit.9 There were similar difficulties with the Hungarian government’s fledgling attempts at borrowing in its own right.
These problems need to be seen in the context of a breakdown of communication—and confidence—between the Vienna house and the other Rothschilds branches. In 1867, to his uncle’s great indignation, Anselm negotiated an Austrian crown estates loan with a Vienna syndicate and even allowed the Société Générale to issue the new bonds in Paris. This was the first sign of a new policy of semi-autonomy on his part, which ran parallel to the divergence of railway interests described above. The Hungarian General Credit Bank (Magyar Altalanos Hitelbank) set up by the Vienna house and the Creditanstalt in 1867 was part of the same trend: Anselm pursued new business opportunities in Hungary with only the most perfunctory nods towards Paris and London. When Austrian bonds were suspended in London following the forced conversion of 1868, Anselm was indignant, siding with the government against what he regarded as an awkward minority of English bondholders, and reproaching Lionel for not taking the same line. Fresh proof of his Austro-Hungarian orientation came in February 1870, when he announced the conclusion of a new 30 million gulden Hungarian lottery loan. His partners were exclusively Austrian and Hungarian banks, and he offered Lionel a risible participation of just 250,000 gulden. It was not until 1871 that another Rothschild house (Frankfurt) secured a worthwhile share in a Hungarian loan, a mortgage on the state railways; and not until 1873 that the London house participated in a Hungarian bond issue. Symptomatic of the widening gap between the houses was the diminishing frequency of communications from Vienna to London: Anselm’s son Albert sought to revive the traditional practice of regular correspondence in 1871, supplying detailed reports of Austrian economics and politics—which reveal, among other things, his father’s closeness to Beust—but these soon tailed off.
Predictably, Anselm’s independent course angered the other houses. James complained that he “informed [them] of all transactions not before but after they were agreed,” despite the fact that “many of them were better suited in their own interests to the foreign, and preferably the Parisian, rather than the Austrian market.” Mayer Carl accused him of “always advocat[ing] the interest of the government & never our own,” an echo of earlier complaints about Anselm’s father Salomon. Alphonse, on the other hand, grumbled that “despite his good relations with the government” Anselm was “often ill-informed about what goes on in Vienna.” Above all, Anselm seemed to be “allow[ing] all the business to go into other hands” (Mayer Carl). “In giving his support to all these new banks,” argued Alphonse, “our good uncle is encouraging competition against our houses in every market in Europe.” To such complaints Anselm responded in terms which say much about the growing dissension within the family. He had established the Hungarian Credit Bank without reference to Paris, he wrote, because he did not wish merely to be regarded as “an agent or a reporter for the [Rothschild] house.” On numerous occasions in the past, Anselm complained, he had been “wholly left out” of transactions undertaken by the other Rothschild houses. In the case of a recent Lombard bond issue, he had been:fobbed off with empty, vacuous private letters, with letters which say nothing more than the better or worse state of the [Paris] bourse and withhold [details of ] the ... often interesting negotiations and advance transactions with Italy, Spain and so on. If I can be accused of acting with a certain sensitivity, I admit it, but one must give vent to one’s natural feelings if they are not sufficiently taken into account ... The fact that I do a lot of business hand in hand with the Creditanstalt is quite true and perfectly understandable. It was I more than anyone else who brought it into being ... and I therefore have a certain affection for the bank, which in any case, thanks to its capital of 50 million gulden ... has now become a financial power here which commands respect and which has to be reckoned with.
In April 1869 Ferdinand relayed to Lionel a similar message from his father:He is very pleased with the business he has been transacting. The Vienna house holds about 14,000 Credit[anstalt] shares on which there is a profit of £100,000. He is now transacting the sale of a bridge at Pesth with the Hungarian Govt [on] which he hopes to make £20,000.—He says there is an immense deal of business transacted at the bourse at Vienna, that the public follow him blindly, and that he is very satisfied with his position among his brother financiers.
This did not convince Anthony: when he visited Vienna in September 1869 his impression was of a speculative bubble fuelled by the National Bank’s lax monetary policy. Anselm further antagonised the French and English houses when the Creditanstalt became involved in a projected Banque de Paris loan to, of all places, Spain; his argument that he could not determine the lending policy of a joint-stock bank in which he was a large but not the controlling shareholder did not wash in Paris.
Nothing revealed more starkly the way Rothschild interests were diverging than the plan to extend the Austrian railway network through the Balkans to Turkey, which Anselm took up enthusiastically in early 1869. To his chagrin, the other Rothschild houses were deeply sceptical—partly on the ground of Turkish financial unreliability, partly because they considered their existing railway interests quite burdensome enough—and in the end Anselm had to withdraw from involvement, leaving the field to the Belgian banker, Baron Maurice de Hirsch. “The Turkish railways have no interest for us,” agreed Alphonse and Lionel emphatically. Anselm had been forced to listen to harsh words from his relatives in the years since 1866; but here he could with justice rebuke them. The plan for a rail link to Constantinople had been “a grand European enterprise in which the financial forces of France and England” could have combined with those of Austria. When Alphonse later objected to his becoming involved in the new Banque Austro-Ottomane, Anselm pulled no punches:I simply do not understand the feeling of aversion felt [by the Paris house] towards this enterprise which in no way prejudices the interests of our houses, and least of all those of the Paris house, which as you very well know maintains no agent at Constantinople and, so far as I am aware, scarcely has any business dealings with the Ottoman government. If it were otherwise, I would undoubtedly have abstained out of consideration for the other houses from even an indirect interest in the company which—it should be said in passing—is going very well and has already concluded several considerable advances to the government. The proof is that its shares stand at 40 to 45 per cent above par.
The Vienna house, he continued angrily,finds itself in a quite distinctive and abnormal situation; all the major transactions in London, Paris and Frankfurt are handled jointly by the houses there. As for Vienna, now and then we are allowed some scraps and it is certainly not with those that I am in a position to meet my constantly increasing costs and the pretensions which people expect on account of my surname. I have a certain ambition, which is certainly not reprehensible, to march if not side by side with the other houses then at least not too far behind them—and up until the present, with the help of God, this plan of campaign has not gone badly.
If the London and Paris house shirked the challenge of the Balkans and Turkey, could they reproach him for acting alone elsewhere? It was essentially the same question Beust had asked Napoleon III; and there was no real answer.
The Economic Origins of the German Reich
Whatever their views on Balkan railways, there was one East European question which did interest the other Rothschild houses in the 1860s and 1870s: the condition of the Rumanian Jews. The
Jewish population of the country had been rising for some time as a result of immigration from the Russian Empire. In 1866 there was a pogrom in Bucharest prompted by debates in the legislature on Jewish emancipation, and similar outbreaks of violence recurred in subsequent years. In Iasi (usually called Jassy at the time) the Jews were the objects of especially severe and sustained persecution. The Rumanian government seemed indifferent. Not for the first time, the Rothschilds therefore sought to use their international political influence on behalf of their “poor co-religionists.” In Paris James urged the French government to protest formally to the regime in Bucharest. In London too the Rothschilds mobilised official criticism of “the terrible jew-hunt at Jassy,” though Lionel doubted the wisdom of sending Moses Montefiore on yet another foreign mission, as proposed by the Board of Deputies. But it was above all in Berlin that the Rothschilds concentrated their efforts. This might at first seem strange; but it must be remembered that in April 1866 a Prussian prince (the second son of Charles Anthony of Hohenzollern-Sigmaringen) had become King Carol I of Rumania, and it was naturally assumed, as Goldschmidt put it to Bleichröder, that “Prussia has primacy and greatest influence with the governing Prince in Bucharest.” Ferdinand too hoped that Mayer Carl would use his influence in Berlin “in favour of the unfortunate Jews.” According to the Prussian ambassador in London, no fewer than “twelve Rothschilds [had] requested most urgently” Prussian intervention. Mayer Carl also seems to have written directly to the Rumanian Prince’s father.
The House of Rothschild Page 32
