The House of Rothschild

by Ferguson, Niall

  Italy

  The alliance between Russia and France was far from being the only diplomatic development of the pre-war decades which had a financial subtext. The case of Italy—the only other power as reliant as Russia on foreign finance to fund her deficit—was not so very different. Italy had become closely tied to the Paris capital market even before her unification, thanks to James de Rothschild’s shrewd backing of Cavour and Piedmont and his ambitious schemes to link north Italy to the rest of Europe by rail. However, by the late 1880s the financial influence of France in Italy was declining relative to that of Germany. In both Paris and Berlin this tendency was seen in strongly political terms at a time when Italy was closely aligned with Germany and Austria through the Triple Alliance and at odds with France over the Mediterranean and trade policy. In July 1889, for example, the German ambassador in Rome complained that “the so-called Rothschild group” (which as usual included Bleichröder and the Disconto-Gesellschaft) had been “able to present itself as the principal group” in Italian business, despite the fact that its “relations must be called French rather than German.” His hope was that a purely German group of banks led by the Deutsche Bank and the Berliner Handels-Gesellschaft would be able to take over Italy’s bond-issuing business, and this was duly agreed with the Italian Prime Minister Francesco Crispi in September 1889. Conversely, the French government wished de Rothschild Frères to refuse any request for financial assistance from Rome. In October 1890 there was delight at the Quai d‘Orsay when Alphonse reported the following exchange between Padoa, the Rothschild agent in Rome, and the Italian Finance Minister, who had evidently been discomfited by the German group’s terms for supporting the price of Italian bonds:The minister did not conceal the distress in which the Italian Treasury found itself. He spoke bitterly about the exigencies of the Germans and their bad faith. He demanded forcefully that the Rothschild representative should himself decide to buy secretly six million [lire of] Italian 5 per cent rentes [that is, 120 million lire nominal] from the government’s pension fund. M. de Rothschild’s response was negative ... [His letter] explains that it would be impossible for him to involve himself in a clandestine operation and that unfortunately the rapprochement which, seems to be developing between the two countries is not sufficiently advanced to permit a public operation.

  Needless to say, the French Foreign Minister Ribot “enouraged M. de Rothschild to maintain this attitude. Our policy... must consist in being friendly towards Italy, not to make difficulties for her, to avoid needlessly offending her, but also not to make our bourse available to her and not to open our market to her until she has properly learnt the lesson she is learning at the moment about the benefits of the Triple Alliance.”

  With the lira exchange rate and bond prices sliding sharply between 1890 and 1894, the French had good reason to gloat over the Italians’ predicament. However, it proved harder to break the link between Rome and Berlin than Ribot had anticipated. In 1891, following Crispi’s fall from power, a rather unsubtle attempt was made to woo his successor the Marquis di Rudinì. When the latter approached Padoa for a loan of 140 million lire, the suggestion was made that this would be forthcoming if Italy altered her policy over North Africa and tariffs in a pro-French sense. Rudinì recalled that his first impulse on hearing this suggestion was “to take the dirty Jew by the neck and kick him downstairs,” but he restrained himself on the grounds that such conduct “would have been unbecoming in a Marquis di Rudinì.” The Triple Alliance with Germany and Austria was renewed three months later, and in the years up until 1896 the German role in Italian finance continued to grow at the expense of the French. Partly for this reason, Alfred’s claim that Italy was about to desert the Triple Alliance in 1897 was viewed with scepticism by McDonnell and Salisbury.

  Anglo-German Amity

  If France and Russia could be brought together partly on the basis of floating Tsarist bonds on the Paris bourse, it is worth asking what economic factors might have contributed towards an Anglo-German rapprochement. An encouraging precedent seemed to be set by the 1890 agreement between Britain and Germany, which gave Britain Zanzibar in return for the North Sea island of Heligoland and a narrow strip of land affording German South-West Africa access to the Zambezi River. Nor should the failure of this and other colonial agreements to develop into an alliance be seen as leading necessarily to war.

  It was over China that some form of Anglo-German co-operation seemed most likely to develop. Since 1874, the date of the first foreign loan raised for Imperial China, the Chinese government’s principal source of external finance had been two British firms based in Hong Kong, the Hong Kong & Shanghai Banking Corporation and Jardine, Matheson & Co. The British government, in the person of Sir Robert Hart, also controlled the Imperial Maritime Customs. In March 1885, however, Alphonse heard rumours of “the great master of the world”—Bismarck—“wishing to meddle in the Chinese question.” The intelligence was soon confirmed when Hansemann approached New Court and the Hong Kong & Shanghai Bank with a proposal to divide Chinese government and railway finance equally between the British and German members of a new syndicate. The Rothschilds had no objection to this: as Alphonse said, it was “much to be desired that the excessive growth of German activities and ambitions should be directed to the Far East and we shall not feel uneasy about their conquest in that direction.” The only concern at this stage was that Hansemann might aim at something more than a 50:50 partnership. Relaying information about a visit to Germany by the Chinese ambassador in London, Natty urged the Foreign Secretary Lord Iddesleigh to take “such steps as will tend to secure for English manufacturers a fair proportion of any future contracts with the Chinese Goverment.” Reassurance came, however, when Hansemann involved Wilhelm Carl in the negotiations which culminated with the creation of the Deutsch-Asiatische Bank in February 1889, a joint venture involving more than thirteen leading German banks including the Frankfurt house. When one of the younger Oppenheims travelled to China to investigate its economic prospects on behalf of this group, the London Rothschilds actually financed his trip.

  The period between 1888 and 1893 saw a series of important changes of personnel in Berlin which threw German foreign policy into confusion and put the idea of Anglo-German co-operation in China temporarily on the back-burner. The first was the succession of William II as Kaiser in 1888, following the belated death of his grandfather and the premature death of his father after just ninety-nine days on the throne. For the French Rothschilds, this was nothing less than a “nightmare” given the new Kaiser’s reputation for instability and bellicosity. Indeed, Gustave went so far as to make a remarkable prediction:Should the Emperor Frederick III die and his son Prince William ascend to the throne there would be no change of policy as long as M. von Bismarck is alive and carries on; however, should he retire voluntarily or die, it is believed that nothing could then prevent Prince William from pursuing his warlike objectives and this would mean a world war.7

  In fact, as Alphonse anticipated, Bismarck’s departure was involuntary: by March 1890 the differences between the Chancellor and the new monarch on both foreign and domestic policy could no longer be bridged and Bismarck was forced to resign. “[C]apricious, adventurous and imperious, confident in his destiny,” William seemed to pose a threat to a European order of which the Rothschilds had come to see Bismarck as the custodian. “[I]n the interest of world peace,” Alphonse told Bleichröder, “we deeply regret his departure, because we are convinced that to a large extent its maintenance in the last years was his doing.” The sense of discontinuity was heightened three years later when Bleichröder himself died.

  It is tempting to see these anxieties as prescient, and it is undeniable that German foreign policy after 1890 became clumsy and often self-defeating in a way that it had never been under Bismarck. In the context of the 1890s, however, it would be more accurate to say that Alphonse and Gustave were tending to idealise Bismarck—who only two decades earlier had seemed to them the p
ersonification of caprice and adventure—and to demonise the Kaiser. As early as September 1891, the French partners were admitting that their fears of William had been exaggerated; in truth, the defects of Wilhelmine foreign policy may have owed as much to the influence of the excessively devious Friedrich von Holstein—the éminence grise at the Foreign Office—than to the Kaiser, whose power was always a good deal more institution-ally circumscribed than he himself realised. Nor was the death of Bleichröder an irreparable loss: as we have seen, the Rothschilds had tended to rate Hansemann above him, and the essentially diplomatic function Bleichröder had played was carried on without much interruption by Paul Schwabach. It did not therefore take long for the idea of an Anglo-German overseas partnership to resurface.

  As usual, the key was imperial rivalry between Britain on the one hand and France and Russia on the other. By raising the spectre of increased Russian influence in the Far East, the Japanese defeat of China in 1894 created a perfect opportunity for co-operation between Berlin and London; and as before it was the Rothschilds and Hansemann who were the driving forces. In essence, Natty and Hansemann sought to promote a partnership between the Hong Kong & Shanghai Bank and the new Deutsch-Asiatische Bank which they hoped, with suitable official backing from their respective governments, would prevent Russia from gaining an excessive influence over China. To be sure, the aspirations of the bankers were far from being the same as those of the diplomats and politicians. Holstein, for example, wanted Germany to side with Russia and France rather than with Britain, and joined in their objections to the Japanese annexation of Liaotung at Shimoneseki in April 1895. Other officials in the Wilhelmstrasse wrongly suspected the Rothschilds of wanting to exclude the German banks from the Chinese market. Nor was Ewen Cameron of the Hong Kong & Shanghai Bank convinced of the necessity of giving up his firm’s traditional monopoly in Chinese finance. But events bore out the wisdom of the Hansemann-Rothschild view. The announcement in May 1895 that China would finance her indemnity payment to Japan with a Russian loan of £15 million—as opposed to the multinational loan favoured by Natty and Hansemann—was, as Alphonse remarked, “a bitter pill” for both the British and German governments. The loan of course could not be financed by Russia herself, given that Russia was an international debtor; in effect, it was a French loan, issued by the Banque Paribas, Credit Lyonnais and Hottinguer, but the benefits were divided evenly between Russia and France, the former gaining the right to extend its Trans-Siberian Railway through Manchuria, the latter securing railway concessions in China. There was even a new Russo-Chinese bank, founded by the Russian banker Rothstein with predominantly French funding, and a formal Russo-Chinese alliance in May 1896. The only British financial success was a £1 million gold loan issued by the Chartered Bank of India, Australia and China, which had been arranged by Ernest Cassel.

  In the wake of this reverse, Hansemann’s proposal that the Hong Kong & Shanghai Bank should join forces with the Deutsch-Asiatische looked a good deal more attractive, and an agreement between the two banks was signed in July 1895. For Natty, the main aim of this alliance was to end competition between the great powers by putting Chinese foreign loans in the hands of a single multinational consortium, as had been done in the past for Greece and Turkey, though with an implicit Anglo-German predominance. After much diplomatic manoeuvring, this was finally achieved when a second Chinese loan (this time for £16 million) was issued in 1898. There continued to be difficulties, admittedly. Natty was unable to persuade Salisbury to give the loan a government guarantee, with the result that the British share of the loan proved embarrassingly hard to place. The diplomats also remained suspicious of one another’s territorial ambitions, especially when Britain seemed willing to risk war with Russia over Port Arthur in March 1898.8 A few months later, a bitter dispute broke out between Cameron of the Hong Kong & Shanghai Bank and Hansemann over a railway concession in the Shantung province. However, by August these tensions had been substantially dispelled thanks in large part to the efforts of Alfred and Natty.

  At the height of the Port Arthur crisis in March, Alfred held a dinner attended by Chamberlain, Balfour, Harry Chaplin, Hatzfeldt and Eckardstein, at which the Germans had a chance to voice their grievances about China in a “friendly, private, and quite unofficial conversation ... on strictly neutral territory.” This occurred on the very day that the majority of the Cabinet overruled Chamberlain on the question of Port Arthur, agreeing to rest content with the “territorial or cartographic consolation” of Wei-hai-wei (the harbour opposite Port Arthur).9 A similar conciliatory function was performed by Natty with respect to Hansemann, whom Cameron had enraged by accusing him of breaching the Deutsch-Asiatische Bank’s contract with the Hong Kong & Shanghai. At a conference of bankers and politicians in London at the beginning of September it was agreed to divide China into “spheres of influence” for the purpose of allocating rail concessions, leaving the Yangtse Valley to the British banks, Shantung to the Germans and splitting the Tientsin-Chinkiang route. Interviewed by McDonnell in January 1899, Natty assured the Prime Minister of Germany’s sincere “desire to combine with England (and possibly with America and Japan) for commercial purposes in China.”

  Disputes about railways continued—Hansemann and Carl Meyer crossed swords on the subject at the end of 1899—but the pattern of collaboration had been established. When the Germans sent an expedition to China following the Boxer Rising and the Russian invasion of Manchuria in 1900, they used the Rothschilds to assure London that “the Russians won’t risk a war,” and in October Britain and Germany signed a new agreement to maintain the integrity of the Chinese Empire and an “Open Door” trade regime. This was without doubt the high watermark of Anglo-German political co-operation in China; but it is important to recognise that business co-operation continued for some years to come. Further disagreements (prompted by the intrusion of the so-called Peking Syndicate into the Hoangho region) were resolved at another bankers’ conference arranged by Natty and Hansemann in Berlin in 1902. As late as 1905, when the Times correspondent in Peking attacked the cosy arrangement between the British and German banks, Natty complained to his editor.

  The dinner at Alfred’s at the time of the Port Arthur crisis in March 1898 illustrates the way minor imperial issues could be seized upon as the basis for much more ambitious diplomatic proposals. Easy though it is to dismiss such “amateur negotiation,” Balfour’s account suggests that it was on this occasion that new life was breathed into the idea of an Anglo-German alliance, ten years after Bismarck had first bruited it:[B]etween the courses ... there was an infinity of talk, out of the nebulous friendliness of which I really gathered very little except that the Germans ... felt aggrieved at our protest about Shantung railways. This took place on Friday the 25th [of March]—the day on which, at an afternoon Cabinet, the Government took their courage in both hands and (Joe [Chamberlain] dissenting) agreed on the Wei-hai-wei policy. The next incident was that Joe informed me that he had been asked to meet Hatzfeldt under like conditions. I raised no objection and (again I believe at Alfred’s) another unofficial and informal conversation took place. Joe is very impulsive: and the Cabinet discussion of the preceding days had forced on his attention our isolated and occasionally therefore difficult diplomatic position. He certainly went far in the expression of his own personal leaning towards a German alliance; he combated the notion that our form of Parliamentary government rendered such an alliance precarious (a notion which apparently haunts the German mind), and I believe even threw out a vague suggestion as to the form which an arrangement between the two countries might take.

  The response from the German Foreign Secretary Prince Bernhard von Bülow, Balfour recalled, was “immediate”:[H]is telegraphic reply (paraphrased to Joe at a second interview) dwelt again on the Parliamentary difficulty,—but also expressed with happy frankness the German view of England’s position in the European system. They hold, it seems, that we are more than a match for France, but not more than a m
atch for Russia and France combined. The issue of such a contest would be doubtful. They could not afford to see us succumb,—not because they loved us, but because they know that they would be the next victims—and so on. The whole tenor of the conversation (as represented to me) being in favour of a closer union between the countries.

  This was the start of a protracted period of diplomatic toing and froing between Berlin and London in which the Rothschilds played a pivotal role. Not only did key meetings take place in the “neutral” dining room of Seamore Place; Hatzfeldt sent his son to spend weekends at Tring “in order to stay as much as possible ‘au courant’ of Rothschild’s news,” while Alfred and Paul Schwabach soon came to be regarded by Bülow as a “safe and useful ... channel” for diplomatic communication.

  It is usually argued that Hatzfeldt and Chamberlain were talking at cross purposes: where the former wanted Britain to join the German-Austrian-Italian Triple Alliance, the latter had in mind a more limited “Treaty or Arrangement between Germany and Great Britain for a term of years ... of a defensive character based upon a mutual understanding as to policy in China and elsewhere.” But one might conceivably have led to the other, as happened with the Anglo-French entente which came later. Another familiar objection is that colonial disputes elsewhere—over Portuguese Mozambique and the Samoan Islands, for example—militated against Anglo-German rapprochement. But this is not persuasive for the same reason: Britain’s relations with France were bedevilled by as many if not more colonial flashpoints and, as we shall see, most of the points at issue between London and Berlin had been amicably settled by 1903.