The House of Rothschild

by Ferguson, Niall

  It was not until 1878 that these difficulties seemed to have been overcome, with the creation of a committee composed of the Caisse representatives, Lesseps, Rivers Wilson and one Egyptian, and their recommendation that an “international” government be appointed under Nubar Pasha, with Rivers Wilson as Finance Minister and the Frenchman Eugène de Blignières as Minister of Public Works. Simultaneously, the English and French Rothschilds agreed to float an £8.5 million loan, to be secured on a large tract of the Khedive’s domain lands. Apart from the confidence it gave investors, the significance of this lies in the impression it gave of Anglo-French amity, the Journal de Débats going so far as to describe it as “almost equivalent to the conclusion of an alliance between France and England.” This was undoubtedly the impression the Rothschilds wished to convey. However, like investors’ confidence in Egypt, it proved ephemeral.

  British and French policy in Egypt cannot be viewed in isolation; it was in truth merely a sub-plot in the bigger story of the Ottoman debt crisis which, as we have seen, had been a precondition of the sale of the Suez Canal shares by the Khedive. The Ottoman debt crisis too needs to be seen in the context of great-power diplomacy; it had after all been precipitated by a revolt against Ottoman rule in the provinces of Bosnia—Hercegovina and Bulgaria. This was a “Christian” cause which Russian diplomats sought to exploit for foreign political reasons, and British Liberals sought to exploit for domestic political ones. If the Rothschild role in Egypt had been politically sensitive, their position in the Balkan crisis of 1875-8 was much more so. Their sympathy with Disraeli naturally inclined them to support his essentially pro-Turkish policy; but their financial commitment to Russia ran directly counter to this.

  Russia had been pursuing a “forward” policy towards Turkey from October 1870, when the Tsar had repudiated the Black Sea clauses of the 1856 Treaty of Paris. True, the ending of the neutralisation of the Straits—one of the few concrete results of the Crimean War—had to be sanctioned by the other powers at an international conference in London; and Bismarck’s policy of reconciling Germany, Austria and Russia under the banner of the “Three Emperors” League“ (Dreikaiserbund) tended to restrain Russia’s Balkan policy in the early 1870s. However, some kind of confrontation between Russia and Britain over Turkey was a strong possibility, especially with Disraeli dreaming about breaking up the Three Emperors’ League. No sooner had the revolt broken out in Bosnia-Hercegovina in the summer of 1875 than Disraeli began to accuse Russia, Austria and Prussia of fomenting the disintegration of the Ottoman Empire. In reality, both Andrássy, the Austro-Hungarian Foreign Minister, and Gorchakov, his Russian counterpart, would have been content with a six-power agreement to impose ”effective measures“ on Turkey, and Derby would probably have accepted this (as France and Italy did). But Disraeli was not interested.

  On May 26, 1876, Lionel wrote to Disraeli: “I hope very soon to be able to congratulate you on the conclusion of an arrangement, which will ensure peace for a good many years owing to an energetic and determined policy.” In truth Disraeli’s “energetic policy” of sending the fleet to Besika Bay and seeking to split the Three Emperors’ League came close to embroiling Britain in war. The Sultan abdicated in May 1876, Serbia and Montenegro joined the anti-Turkish revolt the following month and the “Bulgarian atrocities”—in which up to 15,000 Bulgarian Christians were allegedly killed by Ottoman irregulars known as Bashi-Bazouks—gave Gladstone a perfect opportunity to emerge from retirement, filled with righteous indignation. When Disraeli met the Russian ambassador Shuvalov at a dinner at Lionel’s on June 9, his unease at Britain’s diplomatic isolation was evident. Indeed, when the Indian Secretary, Lord Salisbury, went to Constantinople to attend the international conference called by Derby, he came close to agreeing with the Russian plenipotentiary Ignatiev that Turkey should grant autonomy to a partitioned Bulgaria; while Disraeli’s crude attempt to buy Austria out of the Three Emperors’ League—“How much money do you want?” was his blunt question—came to nothing. Lionel’s letter to Disraeli of September 8, one of a series which offered the Prime Minister encouragement as well as City intelligence, confirms that he was having “a very difficult uphill fight.” If Britain and Russia had indeed gone to war in June 1877, the responsibility would have been as much Disraeli’s as Gorchakov‘s, and perhaps more so. As it was, he lost two senior ministers (Derby and Lord Carnarvon) over the issue.

  To the Rothschilds, the prospect of such a war was alarming in the extreme for one good reason. Between 1870 and 1875, the London and Paris Rothschilds had jointly issued Russian bonds worth a total of £62 million, thus finally securing that influence over Russian finances which had eluded them for so long. It had been a profitable business: the price of Russian 5 per cents had risen from 85 in March 1870 to 106 in August 1875, a 24 per cent increase. The Eastern crisis of 1875-7 more than wiped out this improvement, driving the price down to 74 in October 1876 and 68 in April the following year when Russia declared war on Turkey. The effects were felt on most government bonds and on all the major European bourses. Natty himself later called the 1878 banking crisis, which began with the collapse of the City of Glasgow Bank and culminated in the failure of the West of England Bank, the biggest “ever known in the history of English banking.” The dilemma which faced Lionel and Natty (as he prepared to succeed his ailing father) was acute: should they support Russia, at the risk of seeing the Ottoman Empire humiliated and even broken up, with all that might imply for Egypt and for Britain herself?

  They chose Turkey, leaving the 1877 Russian loan to a consortium of German bankers led by Mendelssohn, with the French joint-stock banks—notably the Comptoir d‘Escompte and the Credit Lyonnais—vying for a share.12 The Rothschilds, Disraeli was able to assure the Queen in August, were “extremely hostile to the present Russian policy, & have refused to assist the Czar in his present exigency.” 13 This was a real sacrifice, as it more or less excluded the Rothschilds from Russian finance for a decade and a half. It cannot merely be explained in terms of their economic interests in the Ottoman Empire, because these were almost non-existent at the moment of crisis in 1877. The major railway concessions in the Balkans were largely in the hands of Hirsch; they continued to spurn requests for financial support from Constantinople; and the first big loan to Egypt was over a year away. The only credible explanation is therefore a non-economic one.

  There is little doubt that Gladstone’s and Lowe’s attacks on the Rothschilds’ role in the Suez Canal share purchase had done much to undermine Lionel’s sense of party-political loyalty. More important, the Rothschilds regarded a Slav nationalist triumph in the Balkans as undesirable from the point of view of their “co-religionists.” From the moment he published his pamphlet Bulgarian Horrors and the Question of the East in September 1876, Gladstone had made his campaign against Disraeli’s policy a religious crusade. By its very nature, this appeal on behalf of the Balkan Christians was of limited interest to the Rothschilds (and other wealthy Jews like the Goldsmids), especially when it reminded voters of Disraeli’s Jewish origins—and those of his supporters. As Derby commented, “Gladstone ... deplores the influence of ‘Judaic sympathies,’ not confined to professing Jews, on the eastern queston: whether this refers to Disraeli, or to the Telegraph people, or to the Rothschilds ... is left in darkness.” Lionel was scathing about “all these public meetings” where the Turks were attacked but nothing was said “about the cause of the insurrection & disturbances.” His concerns were quite different, as can be seen from the letter he wrote to Disraeli which was read aloud at the Congress of Berlin: it was the persecution of Jews in Eastern Europe (particularly Rumania) to which he wished to draw attention. Alphonse sought to exert similar pressure on Bismarck through Bleichröder. Article 44 of the final Treaty of Berlin, which guaranteed religious toleration for all faiths in the Balkans, manifestly counted for more in the Rothschilds’ eyes than the convoluted compromise over Bulgaria.

  Lionel therefore gave Disraeli’s pol
icy his unequivocal backing. “[H]ow truly I rejoice,” he wrote at the end of March 1877, “at the success of a patriotic and just policy—Owing to your great firmness and statesman-like views we have arrived at a point when we may confidently expect soon to be able to congratulate you on the prospects of a general peace.” Natty too assured Montagu Corry of his firm “Turkish” sympathies.14 Throughout the crisis, they sent Disraeli regular summaries of their intelligence from the continent and offered to act as a channel of informal communication to Vienna. In August, for example, Disraeli informed the Queen that he had “made up his mind to consult Messrs. Rothschild confidentially on the matter” of Russian undertakings to Austria with regard to the neutrality of Serbia and Bulgaria. “They are intimately connected with Austria and the Austrian Imperial Family. Baron Rothschild consented to telegraph to the head of the family at Vienna, & requested, that, before any advance was made, he shd. obtain from Count Andrassy an explicit declaration on the matters in question ... Two days after th[e]y. received a reply ... [containing information] different from the impression then afloat. Such was the Rothschilds’ intimacy with the Prime Minister that other key diplomatic actors—including the Russian ambassador and the British Foreign Secretary himself—felt positively marginalised. ”Schou. [Shuvalov] tells L[ad]y D[erby]. that he finds the Rothschilds acquainted with everything that goes on,“ complained Derby in December 1877:even more so than the ministers: he is convinced that they are in daily communications with the Premier, hear all that passes, & use it for their own purposes. From other sources I am certain that the leakage of cabinet secrets, of which we have so often complained, is mainly in that quarter: for when Ld B[eaconsfield]. goes out of town there is generally but little gossip of that kind ... the Rothschilds no doubt get their news direct from himself.

  Nor did the Disraeli—Rothschild relationship go unnoticed by the Liberal leadership. “The Rothschilds are behaving abominably,” Granville reported to Gladstone in August 1877, three months after Gladstone had moved his “Resolutions [for] a vital or material alteration of the declared policy of Her Majesty’s Government” in the Commons. Four months later, Granville was incensed to hear “that N. Rothschild (a red hot Turk) ridicules the notion of Dizzy intending war. He says that the Turks have placed themselves in his hands (a charming trust to have) and that Russia will yield.” According to Natty, “Dizzy does not mean to go to war against the Straits being opened to all vessels of war.” That was not what he later told the historian J. A. Froude, whom he unsuccessfully tried to persuade to write a biography of Disraeli “in accordance with his (Ld R’s) views.” Looking back, Natty admitted “that he (Ld B[eaconsfield]) had determined in favor of war: that it was necessary to his policy: that the Queen pressed him on ... and that he was checked only by the opposition which he met with both in and out of the cabinet.”

  Whether bluffing or not, Disraeli was lucky. Firstly, Bismarck chose not to support Gorchakov and Ignatiev, fearing that too complete a Russian success would fatally demote Austria-Hungary from great-power status. Secondly, the Russians stumbled militarily when their advance was checked at Plevna in December 1877. Thirdly, they overplayed their hand in trying to create a new “Big Bulgaria” by the treaty of San Stefano while reneging on their earlier undertaking to let Austria-Hungary have Bosnia-Hercegovina. All this made Salisbury’s task when he succeeded Derby as Foreign Secretary in the spring of 1878 a good deal easier than it might have been. By concluding a series of bargains with Russia (which secured Bessarabia and Batum), Turkey (which surrendered Cyprus to Britain in return for a guarantee of her Asian territory) and Austria (which was allowed to occupy Bosnia—Hercegovina and the Sanjak of Novibazar between Serbia and Montenegro), Salisbury paved the way for Disraeli’s diplomatic “triumph” at Berlin.

  How far Berlin really represented a victory is in fact debatable: the division of Bulgaria into three—Bulgaria, which became autonomous, Eastern Rumelia, which remained under Turkish suzerainty and Macedonia, which remained part of the Ottoman Empire—did not have the look of a lasting solution; and Turkey had been made to surrender all but a vestige of her power in the Balkans. To be sure, Russian troops were withdrawn from the Balkans by the end of 1879, and Disraeli had undoubtedly reasserted British leadership in the diplomacy of the Eastern Question. He also had the satisfaction of seeing Russia at odds with Germany and Austria-Hungary. The Rothschilds’ warm praise for Disraeli was not wholly unjustified. Nevertheless, the open-ended nature of the settlement was confirmed within less than a year of the Congress of Berlin.

  In April 1879 the Khedive dismissed the “international” government, which had predictably made itself unpopular with Egyptian taxpayers. The result was a sharp drop in the new Rothschild-issued bonds. It has often been suggested that from this point onwards Natty agitated for a British military intervention in Egypt. This is incorrect. Natty accepted Rivers Wilson’s argument for “the immediate removal of the Viceroy by a firman from the Porte, supported by the Powers, and at the same time the nomination of his eldest son,” Tewfiq. But he opposed the idea of suspending the 1877 loan, which the former minister believed would help bring this enforced abdication about, declaring that he and his French cousins “object[ed] strongly to Wilson’s proposal to withdraw the loan, which they would consider a very dishonourable proceeding.” Once again, their objective was one to which Gladstone could scarcely have objected: a concerted action in partnership with the other interested powers to depose Ismail and replace him with Tewfiq. However, the old conflicts between the different creditor interests soon resurfaced. Naturally, the Rothschilds’ first priority was to re-establish the security of their 1877 bonds, an object not shared by the holders of earlier Egyptian paper. It took until December 1879 to secure the consent of the Austrian and Greek governments to a compromise which ring-fenced the domain lands on which the Rothschild loan was secured, without demoting the other creditors’ claims. Nevertheless, the new regime—effectively under the control of a new Anglo-French-dominated Commission of Liquidation, was to prove almost as short-lived as its predecessor. Within a matter of months, the system of “dual control” was to fall apart, never to be restored.

  From Investment to Invasion

  Gladstone lost no time in fulfilling the Rothschilds’ worst expectations following his election victory in the spring of 1880. He came to power in the wake of another Turkish declaration of bankruptcy, and almost immediately sought to organise some kind of economic sanction on behalf of that large and disparate group of Turkish creditors of which he himself was a member (see below). In addition to withdrawing British military consuls from Turkey and compelling the Porte to make the concessions to Greece and Montenegro which had been agreed at Berlin, he contemplated seizing the port of Smyrna. This appalled the Rothschilds, not least because, as Natty pointed out to Disraeli, the revenues of Smyrna were already hypothecated to the guaranteed loan which the Rothschilds had issued in 1855. Warning Disraeli that only Russia and perhaps Italy were likely to support this policy, Natty predicted international complications arising from Gladstone’s “arrogance”: “In the stock exchange they say tickets for the European Concert are very much offered.” “If the other powers disagree,” he told Bleichröder on October 8,nobody knows what will happen. As passionate and irritable a man as Gladstone may do anything. If he goes on alone with Russia and Italy, this would make the worst impression and be very unpopular. There is only one man who could manage this damned business—it is Prince Bismarck who has to put into order the Egyptian business. It is desirable that he should take matters in hand.

  When Granville called on the German ambassador Count Münster that morning he found Alfred already there. “He and Alfred Rothschild looked rather sheepish at being found together,” Granville told Gladstone. “I asked what did R. want to know. Münster said he came to tell me that he knows it is Smyrna.” Natty felt sure that “Gladstone would like to go it alone” but was confident that he would not be able to do so “without aski
ng the other ministers [foreign ambassadors] for their advice. England will not act without Germany, and never alone with Russia—I have good reason for my opinion. The best informed people tell me that Bismarck is stronger in foreign policy than ever before.”

  As it turned out, Gladstone was able to secure his objective without needing to occupy Smyrna. On December 20, 1881, the Sultan promulgated the Decree of Muharrem which reduced the Turkish debt and annual charges15 and established a new Administration of the Ottoman Public Debt. Formally, this was a pre-emptive action agreed with the bondholders to prevent direct intervention by the great powers under the terms of the resolutions passed at the Congress of Berlin. In practice, the various national representatives on the Administration were appointed with government approval; and, with the chair of the Administration being taken alternately by a British and French representative, it looked at first sight like an extension of the Egyptian system of “dual control” (though with anomalies like the farming out of the tobacco monopoly to a consortium including the Vienna Rothschilds, the Creditanstalt and Bleichröder). Not for the last time, Gladstone had ended up delivering a solution to which the Rothschilds could hardly object. Despite Alphonse’s continuing reservations about the stability of Turkish finance, they themselves issued two major loans under the new dispensation, one in 1891 for £6.9 million and another three years later for £9 million (in partnership with the Ottoman Bank). Significantly, both were secured on the Egyptian tribute, like their previous Turkish loan of 1855.