The House of Rothschild (69 page)

Sources: Mitchell, British
historical statistics
pp. 396-9, 402f.; Crouchley, Economic development, pp. 274ff.: Shaw, “Ottoman expenditures and budgets,” pp. 374ff.; Issawi,
Economic history of the Middle East,
pp. 100f., 104ff.; Levy, “Brazilian public debt,” pp. 248-52; Mitchell, European historical statistics, pp. 370-85, 789; Martin, Rothschild ; Carreras,
Industrializacion Espanola,
pp. 185-7; Gatrell, Government, industry
and
rearmament, pp. 140, 150; Apostol, Bernatzky
a
nd Michelson, Russian
public finances,
pp. 234, 239; Hobson, “Wary Titan,” pp. 505f.

Strategic considerations had served to start the ball of indebtedness rolling. It was to support the Ottoman military position during the Crimean War that the first British loans to the Porte were made in 1854 and 1855 (the second of these through the London Rothschilds) and the Banque Ottomaine (later the Imperial Ottoman Bank) was set up in 1856. Both these loans were formally secured on all the Ottoman government’s tax revenues from Egypt. However, European loans to the Middle East after 1860 were principally based on economic calculations. In the case of Turkey, European railway promoters (led by Hirsch) envisaged an expansion of the Austrian railway network through the Balkans to the Bosphorus, thus opening up Turkish markets to new kinds of European commerce; while the French entrepreneur-cum-visionary Ferdinand de Lesseps saw that to realise the ancient dream of a canal between the Mediterranean and the Red Sea would create a vital artery of international trade, shortening the sea route between London and Bombay by more than 40 per cent. The artificial stimulus to Egyptian cotton exports provided by the American Civil War also played a part. Despite the obvious importance of the Suez Canal to British trade with India and the traditional importance attached by British diplomacy to strengthening the Ottoman Empire, it was not primarily British investors who financed the Turkish and Egyptian deficits. In Turkey the lead before 1875 was taken by French banks (notably the Société Générale); in Egypt by the Frankfurt-born financiers Hermann and Henry Oppenheim and the French brothers Edouard and André Dervieu. In the short run, this was presumably profitable business for the issuing houses: by 1877 the Turkish debt had reached 251 million lire, of which, after commissions and discounts, the Treasury in Constantinople had received just 135 million. Far from promoting Middle Eastern economic development, however, the hapless bondholders were merely bankrolling chronically profligate governments. Millions were squandered by the Sultan Abdul Aziz on his luxurious European tour of 1867; still more by his successor Abdul Mejid on the new Dolmabahçe palace, a cross between a seraglio and a Victorian railway station. And even the private undertakings like Hirsch’s railways and Lesseps’s canal proved less profitable than had been anticipated. Indeed, the concessions granted to Hirsch and Lesseps cost the two governments substantially more money than they received.
⁶

Source: as table 9e.

The Rothschilds’ abstention from involvement in the Middle East between 1855 and 1875 therefore looks prudent with hindsight. We know, for example, that Lesseps approached James seeking support for his canal project as early as June 1854—five months before he secured the necessary concession from the Khedive— but was rebuffed. Landau, the Rothschild agent in Turin, had a brother in Alexandria who worked in tandem with the Oppenheims and sought to lure the Rothschilds into lending to the Egyptian government in the mid-1860s, but in vain. Though the ageing James was tempted, this was one of the rare occasions when his nephew Nat’s risk-aversion prevailed—and with good reason. Although Lionel was directly approached by an Egyptian representative who came bearing gifts in 1867, he politely demurred. By 1869, even as the canal was formally opened, Alphonse was predicting the collapse of the Suez Canal Company and the assumption in London was that the Egyptian government would not be far behind it. The London and Paris Rothschilds took an equally dim view of Turkish financial prospects: Anselm’s interest in extending the Südbahn through the Balkans was evidently not shared by his cousins. When the Egyptian Finance Minister Ismail Sadyk Pasha sought financial assistance from the Rothschilds in 1874, the request was firmly turned down. The most they were willing to do was to make sure Verdi got his fee for conducting the world premiere of Aïda at the Cairo Opera House in 1871.

By the beginning of 1875, there was still no obvious reason for the Rothschilds to alter their view. Lesseps, on the verge of bankruptcy, had been touting around the idea of selling the canal to one or more of the European powers since 1871, but the Ottoman government vetoed all the schemes mooted, the Gladstone ministry had shown no interest and the future of the canal had become entangled in complex legal wrangles about its tolls. Disraeli’s return to power in February 1874 was the first crucial change which brought the Rothschilds into play. Always a romantic on Oriental matters—but also realistic in discerning the approach of a new “Eastern crisis” and the future strategic importance of Egypt—Disraeli asked Lionel to reopen the question of a British purchase of the canal, and Natty was duly despatched to Paris. For their part, the Rothschilds were keen, seeing the chance to repeat for the Egyptian canal what they had previously managed for European railways, namely the financing of a major asset sale. Yet, as Gustave reported, French political opposition to the idea of a British purchase seemed insuperable. When Disraeli proposed instead a direct offer through the Rothshilds to buy the Khedive’s canal shares, this opposition took on a financial dimension, reflecting the close links between the Credit Foncier, the Société Générale and the Anglo-Egyptian Bank.

It was the declaration of Turkey’s bankruptcy by the Ottoman prime minister Mahmud Nedim Pasha on October 7 which transformed the situation by suddenly weakening the position of both the Khedive and his French bankers.
⁷
With Turkey bankrupt, it would be no easy matter for Egypt to borrow more money; yet Ismail needed—so he said—between three and four million pounds to meet payments due by the end of November. Schemes were devised by both the French banks and Dervieu to advance the Khedive money on the security of his canal shares, but the rival syndicates soon became deadlocked. This gave Disraeli his chance. A request for assistance from the British Treasury to “reorganise and control” Egyptian finances on November 10 had already signalled the readiness of the Khedive to turn to London as a last resort. Four days later, Frederick Greenwood, the editor of the
Pall Mall Gazette,
heard from Henry Oppenheim—recently settled in London—about the negotiations with the Anglo-Egyptian Bank and Dervieu, and suggested (not quite correctly) to the Foreign Secretary Lord Derby that the Suez Canal shares were about to pass into French hands. In fact, the Credit Foncier did now propose to buy the shares for 50 million francs (£2 million) and indeed acquired an option to do so, but the French Foreign Minister, the duc de Decazes, chose not to proceed without Derby’s blessing and this was flatly denied. The Khedive therefore had little option but to sell to Britain, and on November 23 offered to relinquish his shares for £4 million, pledging to pay an additional 5 per cent on the purchase money until the pawned coupons were restored and dividend payments resumed. Derby and the Chancellor Sir Stafford Northcote were against accepting the offer, arguing that the canal should be controlled by an International Commission; but, when the matter was discussed in the five Cabinet meetings held between November 18 and 24, Disraeli eventually prevailed.

Four million pounds was a huge sum in 1875: the cost of the purchase was equivalent to 8.3 per cent of the entire UK budget net of debt charges. Moreover, as Disraeli told the Queen in his letter of November 18, there was “scarcely breathing time” as the Khedive required the money “by the 30th of this month.” The difficulty was that Parliament was not sitting and it was unclear whether the government could raise the money from the Bank of England without its authority. This explains why it was that on November 24 (or possibly the day before), as soon as he had the Cabinet’s agreement to buy the shares, Disraeli sent his principal private secretary Montagu Corry to see Lionel, an episode which Corry was later heard to recount with all the narrative verve of his master:

This was partly fantasy. In all likelihood, the Prime Minister had already privately discussed the matter with Lionel, so the decision was not a split-second one (Disraeli himself later told the Prince of Wales that the Rothschilds had “4 & 20 hours to make up their minds”). The terms agreed were that money was to be advanced to the British government—to be held at the disposal of the Egyptian government (beginning with £1 million on December 1 and the rest by January)—in return for a commission of 2.5 per cent; the government was also to be charged 5 per cent per annum interest until the money was repaid (though this was effectively passed on to the Khedive, who had to pay the Treasury 5 per cent interest until the shares once again yielded a dividend). On November 25 the contract was signed by the British consul-general, General Stanton, and the Egyptian Minister of Finance; and four days later Lionel telegraphed to the Egyptian government that he would hold £2 million at its disposal from December 1 (double the first instalment originally envisaged), £1 million from December 15 and the last million from January 1, 1876. By January 5, N. M. Rothschild & Sons had paid the full amount due (£3,976,582 2s 6d), much of it directly to the Egyptian government’s creditors.
⁸
Parliament voted the payment of £4,080,000 on February 21 (the bulk of it raised by the creation of 3.5 per cent Exchequer Bonds), and the advance was repaid from the proceeds in the course of March, along with the commission of £99,414. The interest due (£52,485) was finally paid on June 2.

Two different accounts of this quite unprecedented transaction have passed into the historical record. The first is Disraeli‘s, as relayed in his letters to Queen Victoria at Balmoral. Ownership of the shares, he told her, “wd. give the possessor an immense, not to say preponderating, influence in the management of the Canal. It is vital to Her Majesty’s authority & power at this critical moment, that the Canal should belong to England.” Having succeeded, he was triumphant and quite happy to share the glory with Lionel:

He was even more extravagant in his account to Lady Bradford:

To add to the impression of a diplomatic triumph at the expense of France, Disraeli later told the Prince of Wales that Lionel had not been able to “appeal to their strongest ally, their own family in Paris, for Alphonse is
si francisé
that he wd. have betrayed the whole scheme instantly.”
⁹
According to Lord John Manners, Disraeli had been “much elated” by his coup and “anticipate[d] a great revival of English influence abroad in consequence.” It also suited Bismarck to portray what had happened as a blow to French prestige; and the idea that Disraeli had outwitted the French government with Rothschild support was, as we have seen, later taken up by French anti-Semites like Chirac.