The House of Rothschild (41 page)

Even after this victory, rival French banks continued to vie with the Rothschilds for influence in Madrid. But they had only partial sucess. In 1871 a consortium led once again by the Banque de Paris successfully issued a new Spanish loan, allowing the Rothschilds only “a very small slice.”
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Something similar happened the following year, prompting over-confident talk at the Credit Lyonnais of “Rothschild” having “lost Spain.” On the other hand, long-term lending to Spanish governments remained as risky a business as ever. The years 1866 to 1882 saw a Spanish debt explosion: the public debt rose from 4.6 billion pesetas to 12.9 billion pesetas. The bulk of the new debt was taken by foreign lenders: the percentage of total debt held abroad rose from just 18 per cent in 1867 to 44 per cent in 1873. This was an unsustainable increase: as a percentage of GNP, total debt rose from around 70 per cent to a peak of 180 per cent in 1879. The collapse of the constitutional monarchy in 1873 knocked down Spanish bonds to below 18, compared with prices of above 30 in 1868, and the position deteriorated still further in the succeeding years. While their rivals retreated to lick burnt fingers, the Rothschilds were more than content to continue the traditional system of advances against the output of the Almadén mines, the value of which was as dependable as the value of Spanish paper was not. This continued to be a reliable source of income until the 1920s. The early 1870s—when political uncertainty was at its height and bond prices were slumping—saw a dramatic leap in the price of mercury from a norm of £6-8 per bottle to a peak of £22 in 1873. Fearing that such prices would encourage other producers to open uneconomic mines, the Rothschilds hastily stepped up the output of the mines: between 1873 and 1887 production very nearly doubled.

So well did the Almadén system seem to be working—Alphonse described it as a “milch cow”—that the possibility was raised in 1872 of extending it to the Spanish government’s copper mines at Rio Tinto. The republican interlude of 1873 put this plan on hold; but the Bourbon restoration at the end of the following year led to the sale of the mines to a British company for £3.7 million (rather more than the Rothschilds thought they were worth). It was only later that the Rothschilds became interested in Rio Tinto as major shareholders—an involvement which proved exceedingly profitable as world demand for copper soared. The same, however, cannot be said of the French house’s continued involvement with the Zaragoza railway. Despite steadily swallowing up smaller lines like the Córdoba—Seville, the “MZA” (Madrid-Zaragoza-Alicante) never paid a dividend to its shareholders. The prolonged rivalry between it and the Pereires’ Norte network, which lasted into the 1920s, must rank as one of the least profitable of Rothschild campaigns—despite state subsidies totalling £24 million, compared with a total French investment of £70 million.

More than anything else, this sustained economic interest in Spain explains the French government’s political interest in the country in the wake of the 1868 revolution. No sooner had Queen Isabella been ousted than speculation began about a possible successor from one of the other European royal houses. Shrewdly, the Rothschilds took care not to drop the Bourbons: indeed, the Paris house’s direct involvement in the finances of the royal family seems to date from the weeks immediately before the revolution which overthrew them. But a Bourbon candidate was out of the question in the short term, despite Napoleon III’s preference for Isabella’s son, Alfonso, the Prince of Asturia. As usual on such occasions, there was a Saxe-Coburg candidate, Ferdinand. But several other names were discussed in the long interregnum between the revolution and the final acceptance of the throne by Amadeo of Savoy (the son of the Italian King Victor Emmanuel) in October 1870.
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One of them was Leopold of Hohenzollern-Sigmaringen, a relative of the Prussian King. It was, of course, the French effort to prohibit his candidature, implying as it seemed a new Prussian threat from the south, which precipitated the fateful war of 1870.

If Belgium and Spain were non-powers, Italy was at least a contender. James had sought with little success to exert financial pressure on the Italian government during the 1866 crisis: in the end his plan that Italy should buy Venetia from Austria was realised, but only after the war he had hoped to avert. In the period after the Peace of Prague, the possibility of an anti-Prussian alliance between France and Italy was raised more than once, with Austria as a possible third. Bismarck called such a combination “conjectural rubbish”; nevertheless, it should not be dismissed out of hand. In February 1869 Nat heard it alleged that “his Majesty will determine upon war, in order to divert public attention from internal affairs” and that the Italian ambassador in Paris was returning to Italy “with a political motive, viz that of inducing his Government to make an offensive [and] defensive treaty with this country.” Two months before, the Italians had in fact secretly offered their neutrality in the event of a war, proposing the Tyrol as the price. And when war broke out in 1870, Victor Emmanuel seriously considered joining France against Prussia; it was unusual for him to be overruled, as he was on this occasion, by his ministers.

From a financial point of view, Italy was biddable. The costs of war—both external and internal—had pushed up spending from 916 million lire in 1862 to 1,371 million in 1866; but revenue lagged drastically behind, rising from just 480 million to 600 million, so that by 1866 more than half of all expenditure was being financed by borrowing. In the four years after 1861, the national debt more than doubled to around 5,000 million lire (approximately 55 per cent of GNP). Not only did the price of Italian rentes slump from around 66 to just above 50 in 1867; in 1866 the convertibility of the lira had to be suspended, leading to a marked currency depreciation. Against sterling, for example, the Italian currency fell some 12 per cent between 1862 and 1867. Italian politics continued to perplex foreign observers (Cavour’s “disciple” Quintino Sella was about the only post-risorgimento figure the Rothschilds had a good word for; the arch-intriguer Urbano Rattazzi was their
bête noire).
As in Spain, there was nevertheless considerable competition between French bankers for a share of whatever financial operation the Italians chose to make to extricate themselves from their financial difficulties. The beginning of 1867 saw the latest steps in this direction by the maverick prophet of Catholic finance, Langrand-Dumonceau, with the Rothschilds hard on his heels.

Yet bedevilling any possible alliance between Italy and France was the question of the relationship between the Italian Kingdom and the Roman Catholic Church. The diplomatic key to this was the status of the city of Rome itself which, despite the agreement struck with France in 1864, Italian politicians continued to covet. But the ramifications of the enmity between the Italian state and the Pope also extended to the realm of finance. When the Italian government proposed to raise money through the sale of ecclesiastical properties, there was considerable interest from foreign banks. In the course of several months of negotiations, a syndicate emerged—made up of the Rothschilds, the Société Générale and the Credit Foncier, with Langrand tagging along—to advance the government money ahead of the sale: the talk was of a loan of 600 million lire in return for a 10 per cent commission and Church lands supposedly worth over 1,000 million. But as it emerged that the sale of Church lands was vehemently opposed by the Pope and, more important, that the Italian government wished to transfer at least some of the repon sibility for the act of expropriation to the bankers, the Rothschilds began to draw back.

This withdrawal was partly for business reasons, it is true: there were various aspects of the proposed deal which James disliked, not least the need to share it with “swindlers” like Langrand. But the principal reason, as the private letters to London show, was that James was loath to incur the wrath of the increasingly influential Ultramontane party in France. This sensitivity to Catholic opinion was an intriguing feature of James’s later years. He had already shown signs of it in 1865, when he argued against selling Spanish bonds on the ground that “to act against the government and minister [of] a Catholic country like Spain, where Jews are not even allowed to have synagogues, could do no good in the long run.” Now he used the same argument again:

Even the pragmatic Alphonse agreed that “to associate oneself with a political act, which might well be convenient, but which is neither just nor equitable, would, I believe, be to sacrifice one’s good reputation to the love of gain, and to stir up against the Jews of Italy all the passions of the Middle Ages.”

The Roman obstacle proved insuperable. Renewed negotiations with the Credit Foncier and the Rattazzi government about a more straightforward advance of 100-120 million lire in July 1867 were blown off course by the renewed crisis over Rome that autumn. In a piece of sheer
opéra buffe,
Rattazzi encouraged Garibaldi to make a second attack on Rome, then had him arrested, and then resigned when the French despatched new troops to Rome. Garibaldi then escaped from his island retreat at Caprera, only to find the population of Rome apathetic and the Italian regular army siding with the French: his volunteers were duly defeated at Mentana, just as they had been at Aspromonte five years before.

In the wake of this fiasco, which momentarily raised the spectre of a war between France and Italy, the Church lands issue resurfaced, but once again James and Alphonse declined to become involved, despite the obvious frustration of the London partners. As usual, there were business reasons for this reserve: talk of a tax on Italian rentes annoyed James, as did the Credit Foncier’s increasingly independent style of negotiation. But fundamentally it was the religious problem which was decisive. “We are in a Catholic country,” declared Alphonse regretfully, “and one cannot go against the religious prejudices of the country where one lives, especially when one belongs to another faith oneself.” Nat agreed: it would be “a very difficult matter for our Paris house to go into the Ecclesiastical business.” “The Church people,” he argued, “would tear us to pieces if they could and nothing in the world would make us so unpopular. For my part let the profit be what it may I most sincerely hope we may have nothing to do with it.”
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Pointedly, Alphonse reminded his London cousins that “in almost analogous circumstances” they had “refused to make the Russian loan, because of liberal sentiment in England, which in those days sincerely pronounced itself in favour of Poland and against Russia.” Moreover, there was also now the added political complication of the French presence in Rome. In February and March 1868 Alphonse and James were in close consultation with Napoleon and Rouher, who saw an understanding over Rome as the precondition for a loan of any sort to Italy. Such an understanding was never achieved.

Even more than the closure of the Naples house in 1863, the abortive negotiations of 1867-9 were the turning point in the history of the Rothschilds in Italy. Mayer Carl was right when he complained that it was “a great pity that all our enemies & those who constantly oppose us everywhere should get hold of such a prof itable business.” True, the sales of Church land raised less money than had been intended; their main effect was to depress Italian land prices. And the Rothschilds continued to be the dominant force in the management of the Italian external debt until the 1880s: between 1861 and 1882 over 70 per cent of interest payments on foreign held rentes went through the Rothschild houses. It was also to the London house that the Italian government turned for a 644 million lire stabilisation loan when it was decided to resume specie payments in 1880-81. Yet Alphonse would never wield the influence over Italian governments which James had enjoyed in the 1850s and 1860s.

From the point of view of French diplomacy, the difficulties raised by the sale of the Italian Church lands were more ominous. For the Roman imbroglio not only precluded Rothschild involvement in the sale of Church lands; it also effectively ruled out the possibility of an anti-Prussian partnership between France and Italy. Each time the French Rothschilds retreated from the Church lands business, it was German bankers like Erlanger, Oppenheim, Hansemann and Bleichröder who stepped into the breach.

Another sign of the declining influence of French capital in Italy was the gradual disintegration of what had been one of James’s proudest creations: the South Austrian Lombardo Venetian and Central Railway Company. Compared with the Zaragoza line, the Lombard was a success story: it actually paid dividends to its shareholders. Its future prospects also seemed rosy: the Austrian Brenner pass was opened for rail traffic in 1867, and in 1871 the Fréjus tunnel was opened, sharply reducing journey times from Italy to France. When members of the English family travelled on the Lombard network they were suitably impressed by these developments. Moreover, there seemed no reason why the Lombard should not continue to extend its geographical reach. In 1867 it secured control of a number of Roman lines for a modest advance to the Italian government of 11 million lire. Two years later, the company’s bonds were boosted by talk of extending its network into the Balkans and towards Constantinople.

Yet there were undeniable problems. Natty and his uncle Anthony both complained about overmanning on the Italian part of the network. More seriously, the company’s financial needs seemed insatiable. The amounts of money absorbed by the Lombard company, even after government subsidies, were staggering. According to Gille, the French house poured over £5 million into the company between 1864 and 1870, with more being needed each year. Ayer’s figures indicate that the London house issued Lombard bonds with a nominal value of £24.6 million between 1866 and 1871. The issue price of these bonds tells its own story: in the first issue of 1866 the price was 93 per cent of par; further issues later the same year were for an average price of 79; in 1871 the price was down to 43. In 1874 alone, payments made by the London house on the company’s account totalled £893,000. In the 1860s cash-flow crises were more or less an annual event. Inevitably, the financial weakness of the company gave its major shareholders less political leverage than they had enjoyed in the past. Straddling the Austrian-Italian border as it did, paying substantial sums on a regular basis to the governments on each side, the line had once given James real political influence. By the late 1860s that had ceased to be the case. The old game of advancing moneys due to the government could still be played; but increasingly the various states dictated to the company.