The House of Rothschild (35 page)

Even if Bismarck did win the King’s backing, however, the question remained how was he to pay for such a war. Bodelschwingh was down to his last 40 million thalers; and on May 2 the Cabinet ruled out the sale of the Saar mines. Under the circumstances, it did not seem unreasonable to hope for Bismarck’s fall. The disarmament proposals put forward by Austria on April 7 merely added to his difficulties: two weeks later, he had to accept them. As for his decision to don the mantle of revolutionary nationalism by proposing a parliament for the Confederation elected by universal suffrage, this seemed to run counter to everything Bismarck had stood for since 1848. As late as April 27, Bleichröder still did not rule out the possibility that Prussia would give in and Bismarck would resign. The second and third weeks of May saw the Prussian government in disarray: an assassination attempt against Bismarck, the dissolution of the Landtag, crisis on the Berlin bourse, and Roon’s calculation that the cost of mobilising nine army corps would be 24 million thalers with a further 6 million per month as long as it remained on a war footing. On May 18 emergency credit institutes had to be set up and currency convertibility suspended; three days later, when the Seehandlung attempted to sell treasury bills in Paris, James once again intimated his opposition to Goltz. As late as June 9—fully a week after Bodelschwingh’s successor had failed to sell the Cologne-Minden shares to a consortium led by Bleichröder and Oppenheim—Lehmann was sent back to Paris “to ask us if we want to make an advance of gold bars or silver to the Bank, either on Cologne-Minden shares or on drafts on the Seehandlung.” Once again he was turned away. As Alphonse put it, the deal would have yielded “a pretty profit”; but James was “little disposed at this moment” to oblige a government which Lehmann himself portrayed as tottering.

Not content with denying Bismarck money, James also sought to deny him something he believed Prussia needed just as much: an alliance with Italy. The Italian position was in many ways similar to both the Prussian and Austrian. Rothschild confidence in Italy’s financial stability had declined sharply since the 1850s and James was still selling Italian bonds in August 1865. He and his sons were genuinely shocked when the Italian government announced a deficit of 280 million lire in September 1865. Yet there were good reasons for continuing to do business with Italy. Firstly, if the transfer of Venetia from Austria to Italy was to be achieved peacefully, Italy would require financial assistance to make the purchase. Secondly, and perhaps more important, Italy now controlled a large area of territory covered by the Lombard company’s rail network. The year 1866 therefore saw a second opportunity to secure concessions for the company in return for a loan to the government. The danger was that Italy, like Prussia, might use any money made available to her for war rather than a peaceful purchase of Venetia. When the Italian government approached James for short-term advances totalling 35 million lire in September 1865, he was therefore not averse to obliging; but he continued to watch carefully for evidence of Italian disarmament before going any further.

News of a 150 million lire bond issue in early 1866 at first seemed of minimal significance, as the government initially asked Landau to take just 14 million. In March, however, the government made a new approach, offering the Lombard company a new and more generous contract in return for an advance of 125 million lire. This seemed to give the Rothschilds the leverage they needed, though the announcement shortly afterwards of a tax on government bonds suggests that the Italians intended to use sticks as well as carrots to secure Rothschild co-operation. If the Italians could only be persuaded to adopt a peaceful policy—and ideally to use the proceeds of a loan to purchase Venetia from Austria—then Bismarck would be diplomatically isolated.
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Nigra, the Italian ambassador, alarmed James by telling him that Italy would join Prussia in the event of a war with Austria. However, on March 22 the Italian government unexpectedly invited Landau, the Rothschild agent, to act as an intermediary “to relay propositions for [the purchase of] Venetia and thus to avoid war.” Alphonse’s assessment of this proposition is revealing:

The Landau initiative was part of a British-backed bid to pressurise Austria and Italy into a peaceful agreement over Venetia. Other possibilities floated at the same time included the exchange of Venetia for Rumania, where a revolt had overthrown the elected Prince Nicholas Cuza, and the exchange of Holstein for Glatz (again).

In the first instance, these efforts failed because, once again, the Austrians would not hear of selling out. Even before he relayed the Landau proposal to Esterházy, Anselm urged that Landau should not accept the Italian mission, in the belief that the proposed sale of Venetia would be rejected out of hand. If Landau came to Vienna bearing such dishonourable proposals, he would bring the Rothschilds further into disrepute as “partisans of Italy”:

Esterházy’s rejection of the Landau offer and Prussian allegations of Austrian troop movements only served to confirm this gloomy assessment. By the time the British government formally proposed the sale of Venetia for £40 million, it was too late. The Italian announcement of a domestic bond issue worth 250 million lire could now only be construed as a measure to finance military preparations. On April 8 the Italians secretly signed an agreement with Prussia, binding for just three months, to go to war against Austria if Prussia did, in return for which they would get Venetia. This gave the Italians the confidence to withstand a barrage of Rothschild criticism—criticism which was only intensified by the Italian government’s decision to impose a levy on all bondholders. Accusing the Italians of having “dealt a death blow to the credit” by their foreign and financial policy, James issued an unveiled threat: if the Italian government attempted to raise another foreign loan, “I declare to you in the most formal manner that I, who have been the patron of Italian funds in Paris, would repudiate completely all new dealings with Italy and that I would refuse henceforth to charge myself with the payment of the interest on the Italian debt . . .” He was equally furious with Bismarck: the Italian alliance convinced James that he was “a fellow who just wants war. I do declare the fellow is too bad and I will stand by Austria with the greatest pleasure in order to topple that wretched Bismarck.”

Yet it was neither Prussian aggression, Austrian intransigence nor Italian insou ciance which finally defeated the efforts to avert war. In fact, for all their talk of honour, once the politicians in Vienna grasped the imminence of war they bent over backwards to find a compromise. On April 9 the Austrian ambassador in Paris, Metternich, intimated to James that Austria would “give in” if France sided with Prussia. It was a message he repeated the next day, as James recorded:

As that final comment suggests, James was increasingly sympathetic to the Austrian position. But the crucial point is that he expected an Austrian capitulation. And indeed that seemed to be on the cards, even after Bismarck had made his obviously unacceptable Gablenz proposals to give Schleswig and Holstein to a Prussian prince. It was not until May 28 that Austria finally rejected this “compromise”; and only on June 1 that she asked the Confederation Diet in Frankfurt to settle the question—the breach of the earlier Austro-Prussian accord on the duchies which gave Bismarck his
casus belli.
Even then, Austrian troops withdrew from Holstein without a fight.

In the end, it was French policy which prevented a peaceful outcome. From an early stage, the Rothschilds had realised that the role of France would be decisive: if she acted as honest broker between Austria and Italy, James reasoned, then an agreement might be reached; but if she encouraged the Italians to throw in their lot with Bismarck, war seemed almost inevitable. It was perhaps the most important decision of Napoleon III’s career; and, characteristically, he tried to have it both ways. In Vienna Anselm was given to understand that France would side against Prussia in the event of war; James and Alphonse too began to think in these terms, though they suspected Napoleon of merely wanting “to fish in troubled waters” rather than to deter Prussia. They were right: far from urging restraint, Napoleon was in fact secretly advising the Italians to accept Bismarck’s offer. Indeed, it was the realisation that Napoleon was fomenting war rather than discouraging it which prompted James to make his final, vain bid to preserve peace. The irony is that his success in reversing French policy may well have had precisely the opposite effect.

James did not need to invent a financial crisis to bolster his arguments against war: the European stock exchanges were already sliding into full-scale panic. This was only partly because of the fear of war: as it happened, the diplomatic crisis also coincided with a banking crisis in both England and France, which had its roots in the return of the international cotton market to normality following the end of the American Civil War. The Rothschilds were themselves affected by this crisis, but much less severely than the joint-stock and investment banks: indeed, the principal victims of the crisis were to be the London bank of Overend, Gurney and the Credit Mobilier. For Lionel and his sons, the crisis was bad enough to keep them at New Court during the Sabbath and the “immense city failures” dominated conversation from the House of Commons to Lady Downshire’s ball. To James, however, the fall in share and bond prices was almost welcome; unlike his rivals, he was “praise God in debt to no one”—indeed, he sent the London house £150,000 to ease its difficulties—and the crisis provided him with an ideal diplomatic lever. His aim was to persuade Napoleon III that the negative economic consequences of war would outweigh any international (and hence domestic political) gains it might bring.

He began his campaign on April 8, the very day of the secret Prussian-Italian alliance. As Natty reported, “he had a long conversation with the Emperor at the Tuileries last night and tried to impress on His Majesty the necessity of remaining at Peace.” It was an argument James repeated when he saw the Emperor again three days later, in an effort “to persuade him that war would be the greatest misfortune for the economy”—a view seconded by Pereire. As Alphonse reported, Napoleon sought to reassure him:

Two weeks later, having been assured by Walewski that war was unavoidable, James went to see Napoleon yet again “to preach peace.” He now found the Emperor “very preoccupied,” as Alphonse recorded: