The House of Rothschild (42 page)

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.
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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.

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.
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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:

In April 1869 Ferdinand relayed to Lionel a similar message from his father:

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:

The Vienna house, he continued angrily,

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.

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.