The House of Rothschild (40 page)

All the government’s efforts in this direction therefore encountered stiff political opposition. The Rothschilds themselves were against French rearmament: as James saw it, it would “make a very bad impression and people will believe in war.” He and his sons therefore shed no tears when the Army Bill was whittled down. Like most contemporaries, they seem to have believed that France was already strong enough to take on Prussia if, as Alphonse put it, Bismarck made “the biggest mistake of all, to give France a pretext to pick a quarrel with him, when the occasion for it seems favourable.” When the organisers of the Paris Exhibition (among them Alphonse) found it hard to borrow works of art from the provinces, a joke did the rounds “that the Prussians might come, and carry them away.” The significance of this is precisely that it was regarded as a joke. As James said, there were “inexplicable contradictions” in the French situation: “[W]e have just put on an Exhibition, we ought to direct all our capital to industrial projects to improve the country; instead we’re forced to borrow to pay for [defence] expenditures.” When the Finance Minister Magne announced a loan in January 1868, its object was as much to stimulate the economy as to finance rearmament.
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Alphonse repeatedly cast doubt on the wisdom of French rearmament in his letters to his cousins: indeed, he seems to have been an early subscriber to the (erroneous) theory that arms races cause wars. Mayer Carl took a similar view in Berlin; he too saw French rather than Prussian policy as to blame. Alphonse reported enthusiastically from Paris in December 1869 that the Minister of Finances had reported “a very prosperous situation with a surplus of 60 millions of which the greater part will have to be used for public works and the rest for reductions in taxes and the improvement of the position of the minor functionaries.” A month later, the talk was of new government subsidies for railway construction.

This fundamental military weakness would not perhaps have mattered if the regime had been capable of pursuing a wholly passive foreign policy. But it was not. And it was as Napoleon cast around for some way of matching Bismarck’s triumph in Germany that the full extent of French weakness became apparent—or should have done.

Throughout the nineteenth century, there was a tendency—there are too many exceptions to speak of a rule—for diplomatic ties to be cemented if not actually built on movements of capital. Britain, the first economy capable of generating large enough balance of payments surpluses to allow sustained capital export, had secured most of its allies against Napoleon this way; and after 1815 the formal and informal British Empire was erected on an increasing stream of overseas lending. France was the other nineteenth-century power to export capital on a large scale; indeed, the value of foreign government loans issued in Paris in the years 1861-5 came close to equalling that issued in London. As we have seen, many of the new banks and railways established in countries like Spain, Italy and Austria after 1850 were based on French capital. This process reached its peak in the 1860s. But whatever its economic rationale (and there were many who questioned even that) its diplomatic or strategic benefits proved to be limited. If the Prussian challenge to French power on the continent was to be met, France needed reliable allies. Increasingly, Britain invested outside Europe: between 1854 and 1870 the proportion of British foreign investment which went to the continent fell from 54 to 25 per cent; by 1900 the figure was just 5 per cent. This helps explain Britain’s increasing diplomatic “isolation.” Anthony spoke for both Cobdenite Liberals and isolationist Tories when he declared in the immediate aftermath of the Austro-Prussian war:

On the continent, meanwhile, French capital tended to flow to states which were either unable or unwilling to reciprocate with anything more than interest (and in some cases not even that).

The striking feature of European economic development after 1866 was the increasing regional segmentation of the capital market. France continued to invest heavily in and to trade with Belgium, Spain and Italy: this helps to explain the viability of the Latin Monetary Union established by France, Belgium, Italy and Switzerland in 1865. Austria, after the calamity of 1866, reorientated herself politically and economically towards Hungary and the Balkans. The proliferating banks of Prussian North Germany, meanwhile, began to invest substantial sums in other German states, Scandinavia and Russia. The implications for French foreign policy were as profound as they were unnoticed. For French capital was flowing to two states which were negligible quantities in the balance of power—Belgium and Spain—and to Italy which, because of the Roman conundrum, could never commit herself unequivocally to Bonapartist France. To be sure of checking Prussia, France needed Russia; or, failing that, an Austria willing to reopen the question answered so decisively at Königgrätz. Diplomacy may partly explain why neither of these alliances was achieved: as long as Bismarck could keep Russia and Austria-Hungary vaguely interested in the idea of a reconstituted Holy Alliance, France was forced to bid high for the support of either; and both Austria and Russia demanded a price Napoleon hesitated to pay—support against the other in the Near East. Yet the French bargaining position would have been much stronger if either Austria or Russia had been recipients of substantial amounts of French capital. Without that, France had only her military power to offer; and that, as we have seen, was doubtful.

The Rothschilds’ role in this process was vital, if to a large extent unconscious. The English Rothschilds shared the prevailing Palmerstonian view that France, not Prussia, was the power which threatened European equilibrium. In August 1866, a week before the Peace of Prague was signed, Charlotte expressed a widespread view when she told her son: “[W]e have known long and well that the Emperor Napoleon was the instigator of the war, and hoped to profit by it.” Lionel did not hesitate to pass on the criticisms of French policy he received from his uncle and cousins to Disraeli.

Nothing did more to reinforce British Francophobia than Napoleon’s inept efforts to revive the idea of some sort of territorial “compensation” for France, supposedly as a reward for her neutrality in 1866. Twice in that year, Napoleon had raised this issue only to back down. In March 1867 he tried again. Egged on by Bismarck to present Europe with a fait accompli, he struck a deal with the King of Holland to buy the Duchy of Luxembourg from him: yet another of those abortive real estate transactions which were such a feature of the 1860s. Luxembourg was an anomaly—the personal possession of the Dutch King, it had been a part of the post- 1815 German Confederation and its fortress had been garrisoned by Prussian troops. It was also a member of the Prussian Customs Union. The prospect of its annexation by France therefore aroused the ire of the German National Liberals (whom Bismarck tipped off) and seemed to raise once again the spectre of a Franco-Prussian war. James and Alphonse had not been involved in the negotiations between Paris and the Hague, but when they got wind of them they were predictably appalled, and bombarded London with frantic requests for English mediation. Less than two months after he had made it, James’s prediction that political liberalisation would lead France into a war seemed alarmingly close to being realised. Even when Napoleon once again backed down, the possibility that Prussia would opt for war could not easily be dismissed: Mayer Carl’s assurances of Bismarck’s pacific intentions were flatly contradicted by Bleichröder from Berlin. The war scare ended only when both sides agreed to submit the matter to an international conference in London; there it was decided to neutralise Luxembourg on the model of Belgium since 1839. Even then, the compromise merely seemed a postponement: Anthony was alarmed by the evidence of military preparations on both sides of the Rhine when he visited the continent later that summer. Mayer had formed the impression as early as September that the other German states would side with Prussia “in the event of a French action.”

The more encouraging aspect of the 1867 crisis was the apparent revival of the old Rothschild system of informal diplomacy. James and Alphonse saw the Emperor and Rouher repeatedly during April; Bleichröder and Mayer Carl relayed (admittedly contradictory) information from Bismarck; and Lionel passed it on to Disraeli, who sent it to Lord Stanley, who in turn passed it on to the Queen. Any British response was then transmitted back through the Rothschilds to Bleichröder’s “friend.” It was still apparently the case, as Stanley informed the Queen, that New Court’s “information as to what is passing on the Continent is generally quite as early and quite as accurate as that which can be obtained through diplomatic channels.” The decision to refer the matter to a conference in London was partly mapped out through these unofficial channels, with crudely coded telegrams between Berlin and London establishing the basic framework for negotiation. In many ways, Alphonse’s wish for effective English mediation had therefore been granted. Yet subsequent events prevented this process being repeated in 1870. Firstly, the Conservative government fell in London. Although Leo was friendly with the Foreign Secretary Clarendon’s son, and although Lionel and Charlotte saw Gladstone occasionally, relations were far less intimate than when Disraeli was in office. Secondly, James’s death and Alphonse’s increasing identification with the opposition meant, as Alfred observed in April 1868, that “the rue Laffitte [seldom] hears any news from the French Ministers.” Thirdly, the French government further antagonised British opinion in 1869 by embroiling itself in a scheme to acquire control of some crucial Belgian railways.

Once, this would have been a deal which would have greatly interested the Rothschilds. But their influence in Brussels had been waning for some years. This was partly because of the death in 1865 of their old friend and client Leopold I; relations were never so close with his son. More important, the Belgian banks (especially the Banque Nationale and the Société Générale) were now sufficiently strong to dispense with the Rothschild assistance they had relied on since the 1820s. When the Belgian government raised a 60 million franc loan in 1865, the Paris house was offered only 4 million francs. Two years later, when a further 60 million was issued, the Rothschilds’ share was only slightly more (6 million)—a figure Alphonse regarded as “almost derisory.” There was no Rothschild involvement in the French government’s abortive railway purchase, which was widely interpreted as having a strategic objective: to allow the swift movement of French troops into Belgium in the event of a war with Prussia. In London this was regarded as the diplomatic equivalent of sacrilege: preserving the neutrality of Belgium was becoming the holy of holies of British continental policy.

Nowhere was the incompatibility of French finance and diplomacy more obvious than in Spain. It was over the political future of Spain that France ultimately went to war with Prussia in 1870; historians rarely trouble to explain why this was. The answer lies in the sustained penetration of the Spanish economy by French capital in the 1860s, and the growing assumption of Bonapartist politicians that this entitled France to an informal imperial influence over the country. Far from disrupting the plans of the various French banks interested in Spanish finances, mines and railways, the revolution of September 1868 seemed to invite increased French involvement. Indeed, it was only after the revolution that it proved possible to reach an agreement on a loan to Madrid along the lines envisaged by James since 1866: not for the first time, the shift to a parliamentary regime seemed to encourage the Rothschilds, even if it was forcibly achieved. Though he died just days before it was concluded, the Spanish loan of 1868 was James’s last great coup, as Say wrote at the time in the
Journal des Economistes.
The Paris house took 3 per cent bonds worth 100 million francs (nominal) at a price of 33, reopening the Paris market to Spanish paper; in return, the Spanish government paid subsidies worth 30 million francs to the Zaragoza company. This was the first Rothschild bond issue for Spain in decades, and was intended to be the beginning of a sustained effort to put the country “back on its feet.”

Enthusiasm for the new parliamentary regime was short-lived, however, in Paris as in Spain. Apart from the usual post-revolutionary centrifugal tendencies, the new regime had to fight a long and costly war to retain control of Cuba: this precluded financial stabilisation. The classic Rothschild solution—the sale of the island to the United States—proved politically impossible, though Alphonse found the Prime Minister Prim personally sympathetic to the idea. This meant a return to the old pattern of declining bond prices, ad hoc advances on mercury or tobacco, continuing losses on “that devil of a railway”: in short, business as usual. Yet, as in the 1860s, other banks were eager to challenge the Rothschilds’ traditional dominance in Madrid. In particular, there was a vigorous campaign by the Banque de Paris, whose director Delahante envisaged “capitalising the revenue of the mines of Almadén, of [the copper mines of] Rio Tinto and a lot of other state properties and, in a word, more or less substituting himself for the state administration.” Although he presented this as a venture which he and the Rothschilds might undertake together, Alphonse had little doubt that Delahante dreamt of substituting himself for the Rothschilds too; in any case, a fresh outbreak of political instability and a further deterioration of the monetary situation put paid to the scheme. The culmination of this struggle came in 1870, when the Rothschilds narrowly managed to defeat an attempt by Delahante to gain control of the Almadén mines. Symbolically and financially, that would have been a heavy blow.
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