Alphonse returned to discuss the next step with Thiers and Favre, but Bismarck was not finished: “A little later [he] reappeared with the following proposal. A billion payable within a year, the rest in three years ...” It was now ten o‘clock at night, and time for Alphonse to return to Paris. The final discussions, as he recalled in the letter he dashed off the next morning, had been “extremely lively and Bismarck had come close to saying that if war was resumed he would wage it horribly, as it had never been seen before.” Even Bleichröder confessed to being shocked at Bismarck’s “monstrous brusquerie and intentional rudeness.” Had anyone ever spoken in this fashion to a Rothschild? With magnificent understatement, Alphonse summed up his position as “difficult”:Under a political façade they really wanted me to intervene in order to be the pivot of a financial combination which appears ruinous ... It is not necessary to make a group of bankers intervene directly in a political matter, thereby bringing upon themselves all the opprobrium of a negotiation, the moral responsibility of which they ought not to bear.
In one sense, Bismarck’s bluster had worked. The next day, as Alphonse anticipated, Thiers and Favre agreed to the 5 billion franc figure. To be precise: under the terms agreed on February 26, France was to owe Germany 5 billion francs, with interest accruing at 5 per cent, less the value of the French railways in Alsace and Lorraine and not including the Paris indemnity and other occupation charges already levied.11 The schedule of payment was tight: 500 million was due in the first month after the definitive peace treaty was signed (May 10); 1 billion by the end of 1871; then 500 million by May 1872; and a further billion due each March during the succeeding three years. These were terms which Alphonse could only regard as “disastrous” and “shameful”: 5 billion, he exclaimed, was a “fabulous figure” and “scarcely possible to pay within three years.” Rather like Keynes in 1919, he vehemently and repeatedly disputed the possibility of paying the sum demanded; at first he regarded even 2 billion as “absurd,” though he was later prepared to contemplate 2.5 billion. And like Keynes he warned cleverly that excessive reparations not only would plunge the defeated country into economic chaos but would disrupt the European economy as a whole: the difficulty of effecting such a large unrequited transfer would create turmoil on the international financial markets. But unlike Keynes Alphonse failed to persuade anyone. When the French government reluctantly accepted the peace terms, there was no serious intention to default on the indemnity payments in the way that there was in Berlin throughout the 1920s. Indeed, within days of warning his English cousins of the impossibility of paying 5 billion francs, Alphonse himself was hard at work preparing the ground for the transfer of the first instalment.
The best explanation for this shift from despair to action is that Alphonse had in fact won important concessions at Versailles, though at the price of bearing the brunt of Bismarck’s wrath. The retention of the fortress of Belfort was one. More important, the possibility was recognised of discounted payment in advance of the envisaged time-limit; and if that proved possible, the phased German evacuation of the occupied départements of north-eastern France would also be speeded up.12 Above all, Alphonse ensured that, although the Germans fixed the reparations total and set a time-limit for its payment, it was agreed that—within certain limits13—the French would be free to organise the payment themselves. As he had explained to Thiers at Versailles, Bleichröder and Henckel wanted “to link a large financial operation to the conclusion of the peace treaty.” But Alphonse’s view was that:the two governments ought to agree on the size of the indemnity to be paid and the time in which it had to be paid, but that the French Government ought to reserve for itself absolutely the right to effect the payments as it saw fit. For otherwise that would lead to a confusion of particular interests with general interests and from every point of view that could have the most regrettable consequences.
Alphonse was his father’s son; for this was a classic Rothschild stroke. It was presumably this which persuaded Thiers to drop his objections to the 5 billion figure the next morning. Moreover, it ensured that the Rothschilds rather than the German bankers secured control of the financing of the indemnity.
At least six technical questions had to be answered if the indemnity were to be paid and the occupation ended. First, how far could payments be made without detrimentally affecting the French exchange rate in the way that the Paris payment had? Second, and closely related, should the Banque de France, which had suspended the convertibility of the franc into silver and gold during the war, aim to return to the bimetallic standard? Since Sedan, the French government had been relying heavily on short-term advances from the Banque against treasury bills to meet its financial needs.14 Clearly, the initial payments to Germany would have to be funded in the same way; but further issues of money against treasury bills risked, as Alphonse repeatedly warned, a “descent into paper money,” just as the need to convert francs into currency acceptable in Berlin risked an exchange rate crisis. The third question followed logically from this: how soon could rentes15 be floated in French and especially foreign markets in order to raise the money needed for the indemnity (and for the government’s own needs) in a non-inflationary way? Fourth, would it be possible to introduce new taxes and control internal government expenditure in such a way that the new debt incurred in this way could be serviced? This in turn raised the question of the form of any new taxation: should France now belatedly follow England in introducing an income tax; or should it revert to a policy of imposing duties on raw materials; or should the stock exchange itself bear some of the brunt of the costs of defeat in the form of a new stamp duty on securities transactions? Finally, what of those largest and most visible private concentrations of capital, the railways? Might their assets and revenues in some way be utilised, whether by taxing them or by using them as a guarantee for the debt to Germany?
These were extremely difficult questions for a government born of defeat to answer. From the point of view of the government’s financial advisers, the Rothschilds, their implications were complex and ambiguous. The chance to control the great indemnity transfer held out the promise of large profits, but these might be negated if it all failed, or if the price of success proved to be taxes on the Rothschilds’ own assets. Above all, it was an immense risk to become identified with paying such large sums of money to Berlin. The Jewish bankers and politicians who became identified with the policy of “fulfilment” in Germany in the 1920s paid dearly for doing so; it is extraordinary, with hindsight, how little contemporary criticism Alphonse incurred for playing a similar role in the 1870s (though in the 1880s, as we shall see, that changed).
Nothing illustrated the difficulties involved more starkly than the collapse of the new government’s authority in the city of Paris itself between March and May 1871, just as preparations were getting under way for the payment of the first instalment of the indemnity. Although Alphonse repeatedly reassured his cousins that the majority of Frenchmen were conservatively inclined—a view endorsed by the monarchists’ victory in the elections to the National Assembly held on February 8—the threat from the “parti rouge” in the capital had been real from the moment the perennial “red” Auguste Blanqui and the rest had emerged from hiding or imprisonment after the fall of the Empire. Twice they had led “the mob” to the Hotel de Ville following military reverses: on October 31, 1870, and again on January 19. By March the stage seemed set for a re-enactment of 1848; even the cast was unchanged, with moderate republicans led by Thiers and Grévy and the radical left represented in the Assembly by Louis Blanc, Delescluze and Ledru-Rollin. When, on March 18 Thiers sought to disarm the National Guard—enlarged and at the same time politicised during the war—history duly repeated itself, though as another tragedy rather than a farce. Heavily outnumbered, the government troops opted to fraternise with the crowds. Rather than risk further defections, Thiers decided to pull all his forces out to Versailles, leaving Paris in the hands of the Central Committee of the Nationa
l Guard.
On March 26 a new municipal government was elected, the Commune—its name redolent of 1792—and this was soon under the control of the Blanquists and Jacobins. Fighting broke out in early April and another full-scale siege was soon in progress. Reading from their crumpled historical script, the Communards set up a Committee of Public Safety on May 1, revived the old revolutionary calendar and began to put one another on trial. This time, however, the Terror was inflicted on the revolutionaries rather than by them. In the Bloody Week which ended on May 28, around 20,000 people died, around half of them Communard prisoners lined up and shot at the orders of the army commanders in improvised “abattoirs.”
For the French Rothschilds, the advent of the Commune proved to be the most serious threat to property, if not to life, of the entire period between 1815 and 1940. On March 26 Alphonse advised Gustave to leave Paris for Versailles, but intended to remain in the rue Laffitte himself. However, on his way back after paying his brother a visit on April 1, he was warned by the train driver that the Commune had ordered communications with Versailles to be severed and that the train he was travelling in would be the last into the city. He disembarked and returned to Versailles. This was a sensible decision; if he had proceeded to the city centre he might well have ended up a hostage and would unquestionably have found himself caught up in some of the most brutal street-fighting of the nineteenth century. It was only by a hair’s breadth that Rothschild offices and houses avoided being burnt down; to Alphonse’s relief, the Gare du Nord also escaped serious damage, unlike the Banque de France and the Finance Ministry. When Alfred visited Paris in late June, he was able to report cheerfully that:the various shots that found their way into this house, have only knocked off a corner of the ceiling in the smoking room and the only souvenirs of the revolution are a brush with which the blackguards were going to petrolize (a new verb) the house, and various photographs of these ruffians whose great pleasure was to be immortalized in various positions.
Even so, Ferdinand was shocked by the effect of the crisis on his cousins’ physical condition: he found Alphonse and Gustave “painfully green and yellow” when he met them in Paris in August—and disconcertingly secretive.
From the point of view of the indemnity payment, the descent of Paris into civil war was a setback, bringing financial activity to a near standstill. There were compensations nonetheless. Events in Paris could be portrayed as a threat to the governments of all countries, and further evidence of the unwisdom of a Carthaginian peace. Moreover, once military discipline had been re-established within the regular army, it gave the government a chance “to get rid of all those vermin, veritable gallows fodder who constantly threaten society”—to “purge France and the world of all these rogues.” Evidently, Alphonse shared the violent antipathy towards the Parisian “dangerous classes” which was at the root of the Bloody Week.
It is tempting to add that there was one further benefit: the defeat of the Commune reinforced Thiers’ position as President. But was this really advantageous? One of the puzzles of the early 1870s is the nature of the relationship between Thiers and the Rothschilds. Early on, Alphonse referred to Thiers as “our friend” and seemed happy to see him as “master of the situation”; and there is no question that he stood four-square behind him and the moderate republicans during and immediately after the “war against Paris.” To Alphonse, Thiers seemed the only man capable of reconciling republican Paris with the monarchist provinces. But “our friend” was a Rothschild euphemism devoid of emotional content. In truth, Alphonse had reservations about Thiers which soon resurfaced. Thiers, after all, had been no friend of Alphonse’s father in the days of Louis Philippe; and the old man evidently made Rothschild fils feel uneasy, perhaps on account of this. “It is really difficult to converse with him,” complained Alphonse after one encounter, “especially for people like me whom he knew as children.” Was Alphonse just a little afraid of Thiers? Alfred noticed that he “rather dreaded calling upon the little President of the great Republic.” More often, Alphonse articulated this sense of unease by criticising Thiers’ dictatorial tendencies (especially towards the Banque), or his fondness for political double-dealing. “A Proteus who, despite his great stature, always slips through our fingers” was his curious verdict. As early as June 1871, Alphonse predicted that, if Thiers were to fall, he would most probably be replaced by the duc d‘Aumale, paving the way for an Orleanist restoration.16
Nevertheless, Thiers had one quality which the Rothschilds did not underrate: he grasped the primacy of finance over all other factors under the circumstances of 1871—3. “Above all,” Alphonse told Thiers in early June, “the political situation must be clarified and for the present it must be completely subordinated to the financial questions.” Subsequent events were to confirm that Thiers accepted this. Despite his seniority, the President generally deferred to Alphonse’s advice on these financial questions. And despite repeated efforts by rival banks to challenge the Rothschilds’ position, he never really questioned the need for their leadership in the payment of the indemnity. This in turn may explain why, as he later told Gambetta, Alphonse acted to keep Thiers in power when his position seemed to be threatened in late 1872. According to one account, Alphonse told Gambetta:that he liked M. Thiers but that Thiers had nonetheless unjustly accused him of having been his enemy. For a whole year, he refused to see him. Thiers said: “It was Rothschild who overthrew me.” “He said that to me too,” Gambetta interrupted. “It isn’t true!” replied Alphonse de Rothschild vehemently ... “I obviously had a certain influence with quite a large number of deputies and I enabled Thiers to hold on for six months longer than he would have lasted without me. I told my friends in the Chamber, ‘Don’t overthrow Thiers; that would be a national disaster ... At least let the great loan operations finish, for on them depend the credit and fortune of France.’ I never said anything else.”
Whatever their suspicions about one another, the two men were united by bonds of interest, though in the strictly financial sense of both words.
Could other banks have handled the indemnity payment just as well—perhaps even more cheaply? It is arguable. Three per cent rentes looked undervalued in the first half of 1871 at prices of 50—53 francs. Bleichröder was far from being the only European banker who saw the opportunity for netting large profits from the “great operation,” not only in the form of commissions, but in the form of capital gains if the rentes could be taken firm at such low prices; given the track record of the rente as an investment since 1815, a substantial rise seemed inevitable. He and other German bankers swarmed around Paris in May, trying to secure a share of the action. Nor were they alone. The Banque de Paris also attempted to outbid the Rothschilds, and there was also competition from J. S. Morgan, who had taken the risk of financing the French war effort in October 1870.
However, none of the Rothschilds’ rivals could claim to match their international reach as an issuing house: as Mazerat of the Credit Lyonnais put it, “Rothschild’s great European relations and the power of his capital resources create for him an absolutely exceptional role.” This was the key. In order to raise the maximum amount of hard currency from the issue, Thiers and the French Finance Minister Augustin Pouyer-Quertier wished to sell as many of the new rentes as possible outside France, and ideally in London. The fact that Alphonse could legitimately present himself as the spokesman not just of the Parisian haute banque but also of New Court was his trump card. “Our opinion, I have no doubt,” he reported to London, “will have a very great influence over the decisions which the [Finance] Minister is in the process of taking and our attitude must necessarily be very influenced by yours.” “The minister has addressed himself to no one other than us,” he added later, “and I have no doubt that you can be assured of the conduct of the entire operation in England.” Alphonse also recommended that the issuing of rentes in Germany be handled through the Frankfurt house, rather than by Bleichröder and Hansemann, “particularly as it seem
s to me that it would be difficult for the government to open a subscription directly through German bankers, whereas the house of Rothschild has a cosmopolitan name.”17 Small wonder the Rothschilds’ rivals grumbled: as Mazerat put it, Alphonse had become “the pivot of all the financial combinations which are going to emerge. It is impossible to keep abreast of his projects.”
With the government thus committed to Rothschilds, all that remained to be agreed were the mechanics of the operation. Alphonse’s letters of June 1871 give perhaps the best insight available into the way such negotiations were conducted. The points at issue were numerous: the timing of the issue (before or after the elections of July 2?); the amount to be issued (2 billion francs or more?); the respective shares of the French, English and other markets; the interest and amortisation payable on the bonds; the issue price (figures discussed ranged from 80 to 85); the timing of subscription payments (how many monthly instalments?); the bankers’ precise role (should they take the bonds firm or underwrite part or all of the issue?); the size of their commission, brokerage and other charges; and finally the exchange rate for interest payments to foreign subscribers (should this be pegged against future depreciation of the franc?).
The House of Rothschild Page 38
