The House of Rothschild (93 page)

“We can have no direct or financial interest in the Russian Loan” was Natty’s last word.

Perhaps as a way reinforcing his case for consumption in the rue Laffitte, Natty also added a financial objection: he suspected that Russia was heading for a financial crisis and might even have to abandon the convertibility of the rouble. The difficulty with this was, as he himself conceded, “that there are a great many people in the world who look at Russian finance with very different eyes from what we do. A friend of mine who was staying with me on Sunday, who is a prominent Radical in this country ... told me on Sunday that the Russian Government were rapidly getting the better of all their troubles & disorder. He acknowledged that their finances were at present in an awful state; but, with a chuckle, he said, time & the resources of the country will bring them through.” Both Revelstoke and Morgan had been in St Petersburg before the revolution broke out in 1905 and it was predictable that once order was restored they would resume negotiations for a Russian loan. With the blessing of both Asquith and Grey, they arranged to place £13 million of a massive £89 million Russian bond issue on the London market. The main source of financial support for Russia remained France, of course: as Natty might have realised, French banks and bondholders had already put too much into Russia to risk the collapse of the currency and the devaluation of their own investments. But in Berlin too there were eager takers, led by Mendelssohn. To make matters worse, it was widely reported in the financial press that the Rothschilds had covertly subscribed to the loan.
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Natty sometimes maintained that he opposed lending to Russia on “purely financial” grounds, quite apart from his religious scruples. He was firmly convinced that the new Russian loan would fail outright or that those who subscribed to it would soon lose out as a result of “renewed discontent [and] rioting which may be sporadic in various places but which will become general.” The political situation in Russia, he warned, remained “in a very critical and parlous state” and he predicted “periodic outbreaks of dynamite outrages, of bomb throwing and assassination.” He even went so far as to compare the election of the first Duma to the calling of the Estates General in 1789. Although in the medium term Natty was right to foresee another and much bigger Russian revolution, it might be thought that, at least in the short term, there was an element of wishful thinking in all this; even as he made the pessimistic argument, Natty could not conceal his envy of the “very magnificent profit” which he assumed Barings were making. Yet it soon became evident that the Rothschilds had been justified in refusing the loan on purely financial grounds: although it was relatively firm to begin with, by July the price of the new bonds had slumped and Revelstoke was left holding a large parcel at a loss. “As we have been wise enough to eschew Russian finance for some considerable time,” Natty was able to gloat, “& lucky enough not to be inveigled by false promises into taking any part in the Russian Loan, the fall in Russian securities only affects us indirectly & only so far as [it] may have a considerable effect on the price of other securities.—We are naturally more affected by the fate of our unfortunate co-religionists in Russia & by the barbarities which are again being practised.”

Nevetheless, the persistent political instability of Russia did not mean, as Natty fervently hoped, that “all these beautiful detailed accounts in the papers, of understandings between England and Russia are myths & inventions.” In June 1906, as news reached London of more “hideous slaughter” of Russian Jews, Natty went to see the Foreign Secretary to “ask him if international action cannot be taken, & on this ground, [that] the continuance of this monstrous policy will send fugitives in hundreds if not in thousands to countries where they are not wanted, & where there are already many seeking work.” But Grey was evidently not much moved by this argument; he attached a good deal more significance to strengthening the diplomatic links between Britain, France and Russia which he regarded as essential if German ambitions were to be kept in check. The most he was prepared to offer Natty was “unofficial & verbal communications to be made to the effect that a recurrence of these outrages would alienate public opinion & prevent the good feeling which ought to exist between the two countries.” Although Natty was pleased to see that “my friend” seemed “very nervous about the future of Russia,” this was self-delusion. Grey was already much too firmly committed to the policy of Anglo-Russian entente to be distracted by the plight of the Russian Jews.

As the extent of the government’s commitment to Russia emerged, there were moments when Natty and his brothers tempered their Russophobia. They donated a thousand guineas to a Russian Relief Fund established by Revelstoke in 1907 without specifying that their contribution should be for Jews only. They did not do anything positively to worsen the Russian financial position, for, as Leo said, “however much we may dislike the great Northern power, no one can wish to see a financial disaster on the Banks of the Neva.” At times, Natty even began to speak as if he felt the post-revolutionary reforms might endure. When the Anglo-Russian entente was formally announced in September 1907, he was lukewarm, but worried that excessive criticism in the Radical press might encourage the Russian belief that the newspapers were in Jewish hands and might therefore “be very prejudicial to the fate of our Russian co-religionists.” “Some of our co-religionists will not be over pleased with this rapprochement,” he admitted a few weeks later, “but I always tell them the cause of the Jews in Russia will not be improved if it is supposed that they stir up enmity between England and Russia.” He even seemed prepared to countenance the idea of a Russian loan on the London market (though in the end the loans of 1907 and 1909 were left to Revelstoke and Cassel).

Yet this was a momentary wavering. Taking advantage of a chance meeting at Epsom racecourse in June 1908, Leo buttonholed the King on the eve of his visit to St Petersburg. The upshot of their meeting was a long and carefully worded’ letter signed by all three English brothers. Blaming the recent pogroms on organisations like the Octobrists and the Union of the Russian People—though without denying the involvement of “a certain number of Jews ... in the Anarchical movement”—the Rothschilds complained that little had been done to punish the culprits and that there had consequently been:

Through his private secretary Sir Francis Knollys, the King “promised to take the matter into his serious consideration and [to] consult with Sir Charles Hardinge, who accompanies him and with the English Ambassador in St Petersburg what is the best course to pursue.” In the end, it was decided that the ambassador (Sir Arthur Nicolson) should raise the issue with the new Russian premier Stolypin;
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but Natty regarded the latter’s response as “most unsatisfactory”:

The King (or “Meilach,” as Natty liked to call him, recalling the old days of Hebrew codewords) put a more positive gloss on this response, insisting “that in a short time something will be done for the Jews and he was assured that there would be no Russian Loan this year which he considered a good sign.” But when the charge of ritual murder was revived in 1912 during a trial at Kiev any hopes of progress on the “Jewish question” were scotched, and Natty had to resume his campaign, corresponding publicly on the issue with Cardinal Merry del Val and drawing up a formal letter of protest which was signed by various political grandees including Rosebery and Cromer. Natty continued to hope that the Anglo-Russian entente would founder—if not over the treatment of the Jews, then on some traditional bone of contention like the Straits—but he underestimated Grey’s willingness to appease the Tsarist regime, and the City’s willingness to absorb new Russian bonds. From their low point in August 1906 of 71.5, Russian 4 per cents rose to a peak of 96.25 in December 1910, ensuring handsome profits to compensate Revelstoke and the other Russophiles for their losses on the first post-revolutionary loan.

It is tempting to conclude, then, that the direction of capital flows in pre-1914 Europe made the Triple Entente with France and Russia the most likely diplomatic combination for Britain. In that sense, the Rothschilds had been swimming against a powerful economic tide in trying to broker some kind of Anglo-German understanding, or in trying to keep Britain and Russia apart. Yet they did not give up. There remained one other possibility which had not been tried since the 1850s—namely, a renewal of the financial links between London and Austria-Hungary. Of course, the London house had been much involved in Hungarian finance in the 1870s and 1880s, so the once vital link between the London capital market and the Habsburg monarchy had not wholly faded from memory. But by the turn of the century Austro-Hungarian finance had become more introverted, reflecting the somewhat autarkic character of the post-1867 Habsburg economy—essentially a protectionist Central European customs and monetary union. As we have seen, the links between the Vienna house and the other Rothschild houses had tended to weaken after Anselm’s death: indeed, the surviving records of the Austrian bank suggest that such links were more or less non-existent by 1900. Moreover, the highly decentralised Austro-Hungarian financial system meant that arms expenditure remained relatively low compared with the other great powers, so that in theory there was less need for foreign loans than in Russia. Nevertheless, stagnating tax revenues, the increased military costs arising from naval construction and the annexation of Bosnia-Hercegovina, as well as the rising cost of governing a fissiparous, multi-ethnic conglomerate, led to recurrent deficits on both the Austrian and Hungarian budgets. “Notwithstanding all the new taxes,” ran one report to Holstein in the late 1880s, “the balancing of the budget is known to be a
pium desiderium.
Meanwhile they continue to borrow merrily from Rothschilds.”

Throughout the 1890s and into the early 1900s, new issues of Austrian and Hungarian rentes were more or less monopolised by a Rothschild-led consortium whose other members were the Creditanstalt, the Bodencreditanstalt and the Ungarische Creditbank. Indeed, even after 1900 the group was involved either solely or in partnership with Austrian and Hungarian issues worth around 2.8 billion crowns (c. £120 million). This so-called “Rothschild group” offered, even if it did not always deliver, access to foreign capital markets. Could the polarisation of European politics have been arrested by increasing British or French holdings of Austro-Hungarian rentes? The question is not wholly unrealistic. In 1907 and again in 1910 the idea of issuing a major Hungarian loan in Paris was seriously discussed, though in the end it foundered in the face of political opposition. In 1914 the London Rothschilds, in partnership with Schröders, successfully arranged two separate bond issues by Austria and Hungary worth a total of £ 19.5 million.

There were four reasons why the loans of 1914 were too little and came too late to extricate Austria-Hungary from the Dual Alliance with Germany. Firstly, despite repeated efforts to broaden the international market for Austrian and Hungarian rentes, investors in Paris and London were markedly less keen than those in Berlin. For most of the period, such external finance as was required came from Germany, and specifically Mendelssohn and the Darmstädter and Deutsche Banks. Indeed, so close were the links between the Vienna Rothschilds and these Berlin banks that in 1910 the British consul general in Budapest regarded the Rothschild group as “the chain which binds the Dual Monarchy ...
nolens
volens to Germany.” Secondly, the Rothschild group began to fall apart. Previously, Albert’s dominance had been more or less uncontested: as Alexander Spitzmüller of the Creditanstalt recalled, although he had “absolutely no well-defined influence,” his advice was hard to ignore when major decisions were being taken. This reflected the distinctive system of interlocking directorships which was such an important feature of Austro-Hungarian business. Albert, Spitzmüller later recalled, was “represented on the board of directors by many personalities from the world of business who were close to him ... [H]e used to make his influence, through the occupation of places on the board of directors, a sort of tyranny ... [and] always appeared to me to be a peculiar mix of gentleman and brutal potentate.” The situation was similar at the Bodencreditanstalt, where Albert “did not have a determining role but his word had weight.” In the eyes of Julius Blum, Albert was always the master of the Rothschild group. But under the leadership of Theodor von Taussig and his successor, the Bodencreditanstalt increasingly pursued a more independent course, as did the Creditanstalt when Spitzmüller took command in 1910. By the time of Albert’s death in 1911, the group had ceased to exist.

Thirdly, and partly because of this disunity, the Austrian and Hungarian governments succeeded in freeing themselves from the dominance of the Rothschild group by tapping new sources of domestic finance. After 1897, a share of any new issues of rentes had to be allotted to the Postal Savings Banks. Six years later, the Austrian Finance Minister Böhm-Bawerk allowed the big non-Rothschild banks like the Wiener Bankverein to participate in a major conversion operation; and in 1908 both Austria and Hungary finally adopted the system of public subscription for new bond issues which by this time was virtually the norm in most West European states. The last vestiges of the Rothschild group’s monopoly were swept away in January 1910 when a new Austrian issue of rentes was sold exclusively to the Postal Savings Banks, leading to the creation of a new and much more broadly based consortium. Despite Albert’s attempt to boycott the new system, the Bodencreditanstalt broke ranks; and although his son and successor Louis was able to construct a new Rothschild-led group embracing the Creditanstalt, the Wiener Bankverein and the Länderbank, it was never able to re-establish the previous group’s role in public finance.