The House of Rothschild (49 page)

The first round of the struggle for control of the operation was fought over the payment of 200 million francs demanded by the German occupiers from the city of Paris in February. At this early stage, needless to say, tension between the French and German sides was high. If the Germans had been willing to accept French banknotes, the matter would have been straightforward: it was easy for the Banque de France to advance 210 million francs to the provisional city commissioners (one of whom, it should be said, was Léon Say). But, anxious that the French currency might depreciate, the Germans insisted on being paid in coin. This seemed so unreasonable to Alphonse that he assumed they were merely looking for a pretext to break off negotiations, end the armistice and march into Paris itself. In the end, despite the continuing difficulties of regular communication with London, Alphonse managed to hammer out a compromise: 50 million was to be paid at once in French banknotes; 50 million in gold or silver coin as soon as possible; and the remainder in commercial bills on London and Berlin. The operation was guaranteed by a Rothschild-led syndicate of French private banks and carried out with the assistance of the London house.
¹⁰
Most of the bills bought and handed over to the Germans (63 million out of 100) were in fact short-dated (one- or two-week) bills on London; the two bills for 2 million thalers which Alphonse gave to a dazzled Bleichröder were exceptional. This was the first sign that Alphonse intended London rather than Berlin to be the nodal point of the reparations process. Indeed, Alphonse made a hurried visit to New Court on February 21-2 to discuss how the same operation could be repeated on a larger scale for the impending national indemnity. As he had expected, the action of buying so much “London” weakened the franc slightly against sterling, though the Germans were protected against this depreciation under the terms of the agreement (as were the bankers: the Paris authorities had agreed to a fixed rate). At the same time, he foresaw the problems the Germans could create in London if they sought to convert their sterling bills into gold at one fell swoop.

The Paris contribution was merely an appetiser; the final total of the indemnity to be imposed had still to be decided. This proved less than easy. Figures bandied around at Versailles ranged from 3 to 8 billion francs; a “peevish” Bismarck himself initially proposed to Thiers a sum of 6 billion, which Thiers—leaping to his feet “as if he had been bitten by a mad dog”—denounced as “une indignité.” Even when he reduced this to 5 billion, the French continued to dismiss the figure as “exorbitant.” Still more galling to the French negotiators was Bismarck’s assurance that Bleichröder and Henckel had “devised a procedure by which this tribute, so burdensome in appearance, will be paid by you without your being aware of it.” As Favre remarked bitterly, the two German financiers “did their best to prove to us how much they wanted to carry out a colossal operation with our billions.” It was in order to head this off that Thiers requested the return of Alphonse from London to represent the views of both the Paris and London Rothschild houses. On February 25, with the two sides apparently deadlocked, Alphonse was summoned to Versailles. He was given an ominously frosty reception by the German Chancellor when he arrived that evening.

If Bismarck hoped that, as the son of a Frankfurt Jew, “Rothschild” would somehow be able to arbitrate, then he was disappointed. To be sure, Alphonse dissuaded the “exasperated” Thiers and Favre from “breaking off the negotiations and throwing themselves into the arms of Europe.” But when the German representatives proposed to him an initial annual payment of 1.5 billion francs, half in specie, half in bills, he “declared that he had no brief to discuss these [technical] questions as the French negotiators were not in agreement even on the first principles” of the peace. After an hour of inconclusive discussion, Bismarck appeared: “He was pale with anger and demanded what proposals we had agreed on. I replied that I had not been able to examine the questions since the two governments were not in agreement on basic principles. I thought Bismarck was going to devour me; he shouted, ‘But in that case peace is impossible!’ ”

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”:

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 limits
¹³
—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:

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 rentes
¹⁵
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 National 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: