The House of Rothschild (89 page)

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.
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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).
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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:

The response from the German Foreign Secretary Prince Bernhard von Bülow, Balfour recalled, was “immediate”:

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.

Many historians cite the German naval programme initiated in 1897 as the key to the “rise of the Anglo-German antagonism.” Bülow, so the argument runs, wished to keep a “free hand,” which meant in practice that he wished to build a navy capable of challenging Britain’s maritime supremacy. There is, of course, no question that Tirpitz’s navy was regarded as a direct threat in London. And as we shall see, even so keen a proponent of good relations with Germany as Natty was not immune to the dreadnought mania of the period. Yet it is too easily forgotten that Britain won the maritime arms race. As early as 1905, with the completion of the First Sea Lord “Jackie” Fisher’s initial naval reforms, the Director of Naval Intelligence could confidently describe as “overwhelming” Britain’s “maritime preponderance” over Germany. This was quite right: the number of German battleships only increased from thirteen to sixteen between 1898 and 1905, whereas the British battle fleet rose from twenty-nine to forty-four ships. This did not maintain the 1889 two-power standard, but it sufficed to check a purely German threat. Although naval “scares” recurred thereafter, the Germans were in fact never able to reach the target set by Tirpitz of a navy big enough to make an Anglo-German naval war too risky for the western power to contemplate. By 1912 the naval race was effectively over because the Germans—economically strong but fiscally weak— could not afford to match the British rate of construction. In the light of all this, the project of an Anglo-German alliance was far from an idle dream.

It is important to remember that it was not only in China that British and German interests seemed to be complementary. The protracted haggling with Portugal over the future of her African colonies (and especially Delagoa Bay) finally produced an agreement in 1898 whereby Britain and Germany jointly lent money to Portugal secured on her colonial property, but with a secret clause dividing the Portuguese territory into spheres of influence. Nor were the Rothschilds unrealistic in urging compromise in London with respect to German claims in West Africa: there was no real conflict of interest there. The Samoan crisis which blew up in April 1899 was resolved by the end of the year, with Alfred and Schwabach acting as unofficial intermediaries. The two countries even co-operated over Venezuela’s external debt in 1902.

Another more strategically important region where Anglo-German co-operation seemed viable was the Ottoman Empire. The Germans had begun to show an interest in Turkish finance even before 1889, when the Kaiser made the first of his visits to Constantinople. The year before, Gustave heard a rumour that the German government wished to establish a Turkish administration of the public debt “the same as in Egypt, however, with Germany predominant.” So long as Russia seemed to menace the Straits—as the Rothschilds were convinced was the case—the prospects for some sort of Anglo-German co-operation in the region remained good. Thus the two countries worked closely together following the military defeat of Greece by Turkey in 1897, hammering out the details of a new financial control over Athens. In revealing terms, Natty urged McDonnell that

A better known opportunity for cooperation came in 1899—a year after the Kaiser’s second visit to the Bosphorus—when the Sultan agreed to the proposal for an Imperial Ottoman Baghdad Railway, the brainchild of Georg von Siemens of the Deutsche Bank (hence the “Berlin—Baghdad railway”). Siemens and his successor Arthur von Gwinner always intended to secure British as well as French participation in the venture; the problem was the lack of interest in the City, which had largely lost faith in the future of the Ottoman regime. Remembering the example of the Suez Canal, Natty advised the government itself to “take a part of the ordinary shares” in the enterprise, but the Foreign Secretary Lord Lansdowne was sceptical, preferring to tempt private finance with subsidies. In March 1903, an agreement was drawn up for an extension of the line to Basra which would have given the British members of a consortium—led by Sir Ernest Cassel and Revelstoke—25 per cent; but the fact that German investors would hold 35 per cent prompted a barrage of criticism in right-wing journals like the Spectator and the National Review, and Balfour—now Prime Minister—chose to pull out. To those whose memories extended back to the 1870s, this was a bizarre decision: on that basis, Disraeli’s purchase of the Khedive’s Suez Canal shares would have been disavowed because French shareholders were in a majority.