The House of Rothschild (26 page)

James’s concept was authentically supranational; he was more or less deaf to the rhetoric of nationalism, which he saw as part of a regrettable tendency to democra tise international relations—hence his suspicion of Garibaldi, whose every move seemed to weaken the bourse. In his eyes, it was a sign of Napoleon III’s weakness that he had to take account of popular feeling within France in making his foreign policy; just as later it was a sign of Bismarck’s unreliability that he was prepared to exploit German nationalist sentiment for Prussian ends. There was too much of 1848 in the events of 1860 and 1866 for his taste. On the other hand, James was no inflexible reactionary, wedded to the treaties of 1815. He preferred to think of states as businesses—not such an unreasonable elision considering how many Italian politicians (Cavour and Bastogi, for example) had banking backgrounds. Thus, where historians (following contemporary intellectuals) have seen nation-building, James saw mergers and demergers, and this illuminates his response to Austria’s predicament after 1859. Piedmont’s hostile takeover of Italy made sense and had succeeded; Austria was as financially weak in the wake of defeat as before; therefore she should sell her rights over Venetia or Holstein to the powers which could afford them—Italy and Prussia. It faintly puzzled him that the Austrian Emperor preferred to suffer further military defeats rather than to commercialise Habsburg decline in this fashion. After all, it made no difference to James whether Venetia was governed from Vienna or Turin or Florence; he continued to think of the map of Europe in terms of railways rather than borders. Indeed, as Shaftesbury quite rightly divined, the most important consequence of the Italian war for the Rothschilds was that it transferred a substantial part of the territory over which their Imperial Lombardo Venetian and Central Italian railway line ran from Austria to the new Kingdom of Italy. The crucial clauses of the Treaty of Zurich (November 1859) confirmed the validity of the existing concessions granted by Austria in Lombardy, substituting the new Italian state in the contracts where appropriate, and the same principle was applied to concessions granted by the old Italian states in July 1860. Formally, separate companies administered the tracks on either side of the Italian—Austrian border; in practice, the same shareholders still met in Paris to discuss the affairs of the whole north Italian network under James’s chairmanship.

It is in this light that we should understand the Rothschild response to Italian unification. James’s initial reaction was to offer his services to vanquished and victors alike. As early as August 1859, the Austrian government was surprised to see the Paris house issuing bonds for Tuscany, though this was in fact the balance of an earlier transaction. In March the following year, James intimated through Anselm that he would be glad to help the Austrian Treasury too as it struggled to finance its deficit. Typically, he took advantage of Habsburg weakness to spell out the first of many conditions. He would subscribe up to 25 million of the planned 200 million gulden loan, provided no other foreign bank were involved. “The Minister has always wanted to avoid entrusting this operation to our houses,” he wrote menacingly, “and he has no idea how much he damages his own credit and jeopardises the success of the undertaking. The public has now grown accustomed to our houses patronising all Austrian [loans?], one way or another.” If the operation were not entrusted exclusively to the Rothschilds, the public would assume “that we are withdrawing and have lost our confidence in Austria’s finances, which will make a very bad impression.”

In August he sent a similar signal to Turin, where a new loan of 150 million lire was issued in August 1860. Although he took some 17.5 million lire of the new 4.5 per cent rentes (at a price of 80.5), James felt that he should have been given more. It was, he declared, “a land where there is money to be made and they have work for us”:

As we shall see, the Rothschilds were able to use the aftermath of the Italian war to reassert their influence in France too, though such veiled threats proved unnecessary there.

James even sought to resuscitate his long-standing relationship with the Papacy, the interest on whose bonds he had rather hastily ceased to advance in December 1860. If this was done on the assumption that Cavour and Garibaldi would soon be establishing a new Italian capital in Rome, James soon realised his mistake: despite Napoleon’s willingness to leave the Papal states to Cavour, it proved politically impossible for him to withdraw French troops from Rome itself. On this question, the Emperor remained the prisoner of his own Ultramontane supporters. When the chronically insolvent Vatican was forced to turn back to the rue Laffitte in 1863, the Rothschilds were therefore ready to oblige, albeit on a small scale. From its very inception in the 1830s, this relationship had always seemed implausible. Given the aggressively reactionary stance of Pius IX in this period, it now seemed quite bizarre, and it is no wonder the Papal nuncio in Paris was mocked: “The thesis is to burn M. de Rothschild: the hypothesis is to dine with him.” But the reality was that those like Langrand-Dumonceau who dreamt of replacing “Juda” with “a Catholic financial power” did not have the Rothschilds’ financial strength; and that strength was sorely needed as the Vatican’s credit steadily sank during the 1860s. Moreover, at least some members of the family were notably respectful of Catholic sensibilities. Charlotte, as we have seen, was favourably impressed by the forms of worship and charitable institutions of the English Catholics; while in 1867 James showed himself sensitive to Catholic sentiment when he refused to ratify a major Italian loan which was to be secured on the temporal possessions of the clergy.

The decision to withdraw from the 1867 loan also needs to be seen in the context of growing Rothschild disenchantment with the financial policy of the new Italian state. As early as December 1861, James began to have doubts about the stability of the new state’s finances. The Finance Minister, he complained, seemed intent on “ruining” his own credit, attaching more importance to new military expenditures (in the anticipation of further battles to complete the unification process) than to the government’s existing liabilities. Throughout the 1860s, James never wholly abandoned his earlier optimism about the new state’s long-term economic prospects: Italy, as he put it, was “our hobby horse.” The problem was that, as long as the new government aspired to get its hands on Rome and Venetia, its military expenditures were likely to be inflated. The fact that there was serious resistance in southern Italy to the imposition of what was essentially Piedmontese rule further widened the gap between the new state’s expenditure and its revenue. Between 1859 and 1865 the new government borrowed no less than 1,875 million lire: current revenues from tax and other sources covered only half its expenditures. Inevitably, this had an impact on both Italian bonds and the new currency. The Italian rente, which James predicted in 1862 would rise to “75 ... if not 80,” declined to a nadir of 54.08 in 1866—below the price of Roman bonds. On May 1, 1866, a year after joining the bimetallic Latin Monetary Union with France, Belgium and Switzerland, and on the eve of renewed war with Austria, Italy had to suspend the convertibility of the lira.

The new Italian state was thus something of a financial disappointment. The Rothschild letters of the 1860s abound with abuse of the new Kingdom: the Italians were “rabble,” successive ministers were “asses” and “imbeciles,” Italy itself was no more than a “would-be great power.” In September 1864 Alphonse struck his cousin (and mother-in-law) Charlotte as “preoccupied because the house is overburdened with Italian stock. He says that the Kingdom of Italy cannot last”; he also anticipated growing “hatred between Naples, Sicily, Tuscany and Piedmont.” James had confidently anticipated something like a greater Piedmont; instead, as Alphonse commented sourly in 1866, Italy’s credit was approaching that of Spain or Mexico. “These Italians really are rogues,” he wrote angrily on hearing of a new tax on foreign capital, “and I at least can give myself the credit for having always considered them as such despite the lyricism of the discourses in their favour pronounced in England and France.”

On the other hand, a weak government could still be a source of good business. Despite James’s grumblings, the Rothschilds had helped to replenish the National Bank’s dwindling reserves of precious metal on a number of occasions beginning in September 1862. Six months later the London and Paris houses arranged a major rente issue worth some 500 million francs (nominal).
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It was not long before more was needed, however, and 1864 saw prolonged wrangling between the government and its bankers over the price at which it was prepared to sell its treasury bills. Having more or less committed themselves to a further issue of 150 million rentes, the Rothschilds were dismayed to see the Italian government selling short-term paper at prices which could only weaken the market for its bonds. Only in order to prevent a further slide did James and Lionel agree to an advance of 17-18 million lire in gold.

Although the inability of the Italian government to balance its budget and the resulting decline in the price of its bonds was somewhat embarrassing to its principal foreign bankers, all these transactions were far from unprofitable. Yet James and Lionel were not content with the resulting commissions. In addition, they sought to use the government’s recurrent cash-flow difficulties to force it to make concessions to their railway company. True, their hopes of a “fusion” of the Lombard line and all the incomplete lines south to Livorno, Rome and Naples were frustrated by political opposition in the new Italian parliament to foreign control of the national railway network; the deputies were naturally keen that Italy should have her own railways as well as her own state. But by 1865 the government’s financial needs overrode such economic nationalism: for 200 million lire it was agreed to sell the existing state-owned lines to the Lombard company. This put the company’s own finances under considerable pressure, necessitating short-term advances from both the Rothschilds and Talabot’s Société Générale while it sought to raise the necessary funds by issuing new bonds. However, in conjunction with similar acquisitions in Austria and Switzerland, it represented a strategic investment.

The year 1865 also saw renewed debate about the construction of railway lines through the Alps. While others debated the relative political merits of the Fréjus (France), Lukmanier/St Gotthard (Switzerland) and Brenner (Austria) passes, James could look on with equanimity, as he had almost all the options covered. For, while others unified nations, the Rothschilds were quietly unifying Europe. As James put it to Landau in December: “All these questions are connected.” “It is effectively beyond doubt,” he enthused in a letter to the banker d‘Eichthal, “that the Brenner line... will be the premier route through the Alps, at the very centre of Europe, and that it will divert to its profit the greater part of the general traffic of the Orient, the Mediterranean and the Adriatic towards the West of Europe ...” This was James’s map of Europe: a railway map.

The parallel Alphonse drew with Spain is a useful one, for there was indeed a superficial similarity between the Rothschilds’ dealings with Spain in this period and their dealings with Italy. Here too railways were the key, with the Zaragoza line playing the same role in James’s Spanish calculations as the Lombard line in Italy. Like the Italian government, the government in Madrid continued to run budget deficits—as it had done more or less without interruption since the 1820s. In both cases, Rothschild financial assistance tended to be made conditional on railway concessions. There were three differences between Spain and Italy, however. First, political instability was worse in the former: a military coup against the absolutist pretensions of the crown in 1854 had been followed by a full-blown revolution, but the old differences between Moderados and Progresistas—each with their own general—had led to a constitutional crisis in 1856. The Moderado regime of General Leopoldo O‘Donnell was overthrown in 1863 by another royal coup. Three years later there was an abortive
pronunciamento
by yet another general. Sometimes, this political chaos could be made light of. As James put it in December 1864: “Nothing new here. Just a change of government in Spain.” But by February 1867 he was pre sciently warning his sons to expect “a 1792” in Spain. ”In general,“ reflected Alphonse later the same year, ”Spain marches in the opposite direction to other countries. Spain is calm when the rest of the world is in trouble, and makes revolutions when the rest of the world is in repose.“ Spain was ”the country of surprises, where one cannot even count on tomorrow coming.“

The second difference between Spain and Italy was, as Nat never ceased to remind his brothers, that Spain had a much longer history of insolvency: each time the Spanish government approached the bond market, it encountered the disgruntled holders of old “passive” debts on which previous governments had defaulted. The acute deflationary crisis which gripped Spain in the mid-1860s hardly helped to increase Spanish creditworthiness. Finally, the Spanish railways were much less profitable than those of Italy. By the mid-1860s, when government subsidies dried up, the Zaragoza line had debts to the Paris house of as much as 40 million francs and was running an annual deficit of 1.5 million. The letters of the Paris house are full of laments about this financial “nightmare.”

All this helps to explain the relatively cautious attitude of James and his nephews when approached by successive Spanish governments for loans in the 1860s. A small advance was agreed in 1861-2; but a larger operation foundered in 1864, prompting attempts by rivals like the Pereires and Barings to step into the breach. Two years later James was prepared to countenance a new advance of 8 million francs only in return for tax breaks or subsidies for his railway company (an objective which temporarily seemed to bring Rothschild and Pereire interests into harmony). However, a rival group of French banks led by Fould and Hottinguer stole a march by offering the Madrid government a new bond-issue worth some 79 million francs. This was followed in 1867 by a further loan arranged by the Société Générale (with Barings in a supporting role) which was intended to convert the so-called “passive” debt on which interest payments had been suspended. Although the competition annoyed James, history was merely repeating itself: the English Rothschilds were as reluctant as ever to encumber themselves with new Spanish bonds, preferring to continue the system of modest advances against the output of the Almadén mines. Other forms of guarantee offered—the salt monopoly, the tobacco monopoly or colonial revenues from Cuba—did not have the appeal of mercury: the English Rothschilds always preferred metals, and the more precious the better.