Winter Palace, Saint Petersburg
The contract for the Russo-Austrian arms trade, as well as docunts stating that the loan application was not accepted and Austria’s suggestion to issue bonds, had arrived on Nicholas I’s desk.
Regarding the purchase of weapons production lines, Nicholas I had no objections and directly approved what was on the docunt.
There was a huge gap between the Russian Empire’s military industry and that of various European countries, a gap that cannot be bridged in the short term. Purchasing production lines was the only choice to quickly narrow this gap.
Nicholas I asked: “What do you think about Austria’s proposal to issue bonds?”
Finance Minister Fyodor Vronchenko analyzed: “Your Majesty, this could be very troubleso. We have issued bonds before, but our previous bonds faced a cold reception in the capital market.
Now to sell the bonds, aside from Austria’s proposal of collateral, sufficiently high interest will also be needed to attract capital.
This would significantly increase our financial costs. Previously, we obtained loans from Austria with a monthly interest rate of only 0.2%. If we issue bonds, the interest rates would likely need to be substantially raised.
The military expenses for this war far exceed our estimates, and if we further increase financial costs, our future fiscal pressure will be trendous.”
The Russian governnt had not anticipated direct military intervention from Britain and France. All plans were made assuming they would be fighting the Ottoman Empire alone.
According to the initial plan, with control over the Black Sea, the Russian military could receive supplies at sea, significantly reducing logistical pressure. This would allow a substantial increase in Russian forces deployed to the Balkan Peninsula.
In theory, with a significant advantage, the Russian forces could defeat the Ottoman Empire in 1852 and conclude the war in the Balkan Peninsula by 1853. Subsequently, they could launch a dual offensive into the Anatolian Peninsula.
But plans could not keep up with changes. The British and French participation disrupted their deploynt. The war spiraled out of control from the very beginning, leading to a substantial increase in military expenses.
Nicholas I continued to inquire, “Is it possible to continue obtaining low-interest loans from the Austrian governnt?”
Foreign Minister Karl Nesselrode answered: “Your Majesty, if it’s a small loan, there is no issue. However, obtaining a loan of 200 million rubles at once is likely impossible.
Although Austria has not directly refused our loan request, they have made it clear that the amount is too large and exceeds their capacity.
Our analysts believe that the Austrian governnt can raise this huge sum, but it would impact dostic developnt, so they will not provide it without us paying a heavy price.”
Two hundred million rubles was an astronomical sum, equivalent to the annual fiscal revenue of the Russian Empire. Under normal circumstances, the Austrian governnt would not have the financial capacity for such an amount.
However, the current situation was different. Russian loans don’t require the actual transfer of gold and silver. All the funds remain within Austria and would be gradually introduced into the market through the purchase of goods, deposited initially in Austrian bank accounts.
To illustrate, in a transaction involving the purchase of 1 million worth of goods, the governnt would receive around 200,000-300,000 in combined transaction tax, value-added tax, corporate tax, customs duties, and other taxes. In the second round, suppliers of raw materials also pay transaction tax, value-added tax, corporate tax, and other taxes, amounting to tens of thousands.
This business, in turn, stimulates the developnt of transportation, food and other related industries, generating additional tax revenue. As capitalists profit and workers receive wages, they engage in consumption, further driving the developnt of other industries, all of which contribute to tax revenue.
This was just a simplified example of the circulation of goods, as industrial cycles in reality involve more complex responsibilities. Few enterprises directly purchase raw materials and sell industrial products; most industries operate in cycles of three or more rounds, where funds circulate through taxes back into the governnt’s finances.
In reality, the amount the Austrian governnt would need to spend from this loan was only half or even less, thanks to these advantages.
Without these advantages, relying solely on the small interest from those few points, powerful nations like Britain and France would not be eager to engage in high-interest loans.
Furthermore, by accelerating the circulation of goods between the two countries through loans and gradually perating various sectors of a country, especially the financial industry, it becos more susceptible to penetration.
Nicholas I thought for a bit and said: “Is it because of the interest? We can pay according to international standards, even if it’s a bit higher, it doesn’t matter. It will still be below bond interest.”
Foreign Minister Karl Nesselrode replied: “Your Majesty, I’m afraid interest is not the issue. Austria did not ask for higher interest, so they likely have funding difficulties.
The Austrian governnt places great importance on dostic economic developnt and won’t interrupt it for a slight increase in interest. Unless we make significant political concessions, they won’t provide this money.”
Nicholas I nodded. Relations between nations are very pragmatic; even allies cannot sacrifice their own interests to help others.
If economic growth had to be sacrificed for a few percent of interest, the choice was obvious.
“Austrian loans cannot be given up; we should strive for as much as possible. The Finance Ministry will formulate a bond issuance plan, not just in Austria but in all of Europe.
We don’t know when this war will end, so the governnt needs to raise funds as much as possible, and a slightly higher interest rate is acceptable.”
Nicholas I was a wise man. He avoided increasing dostic war taxes.
In history, Russia faced joint resistance from major European powers, making it unable to raise funds from the international capital market and forcing it to levy taxes dostically.
The consequences of raising taxes were also severe. After the failure of the Crian War, the foundation of the Russian governnt was shaken.
Nicholas I, who was in good health after the war, suddenly died. Most historians believe he committed suicide by poisoning to take responsibility for the war’s failure, providing an explanation to the outside world and stabilizing the Russian governnt’s rule.
“Yes, Your Majesty!” the Finance Minister replied.
……
Nicholas I’s exact cause of death was unclear to Franz, but regardless, his death led to a complete deterioration of Russo-Austrian relations.
Whether from a personal or national perspective, Franz hoped that Nicholas I could live a long life.
Nicholas I had good character and was a reliable ally. The Russian governnt he led had so credibility.
Moreover, the longer he lived, the later the Russian governnt’s serfdom reform would be, making the reform more challenging.
A good ally was one who can’t pose a threat. Recalling historical information, Franz couldn’t help but be grateful for the fortunate timing.
If nothing unexpected happened, the future generations of Russian Tsars would likely be more subdued. This ant that Austria’s rear would be secure for several decades.
As Russia prepared to issue bonds, Franz also prepared to issue bonds. Having more money is better, especially during warti when it’s crucial to stockpile ammunition.
Unlike the Russians, who attracted capital through high-interest rates, Franz was planning to leverage the patriotic sentints of the nation.
To support Prussia in reclaiming the two duchies in the north, people could donate tens of millions of guilders. Now, for the unification of the German territories, Franz believed that people would be even more enthusiastic.
Franz chose not to add the word “German” in front of the “Unification Bonds”, mainly to accommodate other ethnicities within the country. If possible, he wouldn’t mind adding the words “Holy Roman Empire” at the beginning.
This bond was still confidential and would be issued simultaneously when the war for unification begins. Since they were for national unification, discussing interest was too vulgar.
The annual interest rate of the ‘Unification Bonds’ was only 1%, which can be considered barely better than nothing. But Franz remained fully confident they would sell.
Under his influence, Greater Germany nationalism still dominated Austria, and people were very interested in the restoration of the Holy Roman Empire.
To build public opinion, the Austrian governnt has invested millions of guilders in propaganda for two consecutive years.
Not only Austria but also all the federal states in the German territories are within the scope of propaganda.
“Rebuilding the Holy Roman Empire” had beco the hottest topic in the German territories. Whether in support or opposition, this concept has been instilled in everyone’s minds.
University of Munich
A debate on the future path of the German territories unfolded here.
Ever since the forr king, Ludwig I, issued a royal declaration that the monarchy would strive for the unification of Germany, discussions about the unity of the German territories have been legalized.
Greater Germany nationalism, Lesser Germany nationalism, the division of Northern and Southern Germany, and the recently proposed restoration of the Holy Roman Empire and various miscellaneous plans — all can be openly discussed.
Not only the Kingdom of Bavaria, but also many federal states in the German territories can discuss these issues. The governnt must also express support; this is a right obtained by the people during the 1848 revolution and was also politically appropriate.
Simply put, one could support any German unification plan, but not oppose unification itself.
Supporter of the Holy Roman Empire, Christian, delivered an impassioned speech: “The German territories have been divided for far too long, and the developnt models of each federal state are different. It’s extrely difficult to imdiately integrate these regions and establish a large empire.
Since this is so, why not compromise? First restore the Holy Roman Empire, gathering everyone under one united imperial frawork.
Other issues can be slowly discussed. If one year is not enough then two, if ten years not enough then twenty. After decades, the German territories will have beco one.”
After the secret propaganda by the Austrian governnt, there was strong support for the restoration of the Holy Roman Empire. Even so rulers of small federal states were supporters of this idea.
The Holy Roman Empire is not frightening; this empire has never truly unified. The major federal states below all conduct their own affairs, and the central governnt only exists in theory, with almost no binding force on the federal states.
If unification was inevitable, such unification could best protect their interests.
For those who prefer peaceful days, talking about the unification of the German territories may sound simple, but in reality, it brings the prospect of war.
Whether Greater or Lesser Germany, military might was needed to force unity and accomplish this great task.
Restoring the Holy Roman Empire was much simpler. Everyone gathers for a eting, votes for an Emperor, and the German territories would unify.
People’s interests won’t be significantly hard, and each federal state can continue to operate independently. The only difference is an enhanced economic exchange, and when dealing with external matters, everyone can unite.
If the German territories are unified once again, even if it’s only in na, this empire would be the most powerful empire in the world.
A young student opposed, saying, “This kind of unity is too slow. European countries won’t give us the ti to integrate the entire nation. Once a unified German Empire erges, we will imdiately face resistance from various countries.
We might even be besieged by them. Only when the German territories are completely unified, and we beco a cohesive whole, can we defeat the enemies and achieve the great revival of Germany.”
As soon as he finished speaking, another person objected, “Don’t forget the lesson of Napoleon. Any country attempting to confront the entire Europe is inviting its own destruction.
In the current international situation, we simply cannot afford to complete national unity step by step. Once there is any sign of unity in the German territories, European countries will inevitably interfere.
Britain, France, Russia, Spain... None would accept German unification. Opposing Europe alone is foolish.
We need to learn to take it step by step. Let’s do the unification of Lesser Germany first. Once the integration is complete and our strength is formidable, we can then aim for the unification of the entire German territories.”
Another person objected, saying, “Unification of Lesser Germany? If that’s the case, we might as well go for the division of Northern and Southern Germany. We can still avoid the joint attacks from the major powers and accumulate strength for the eventual unification of the entire nation. Why should we care about Prussia’s face?”
“No, that divides the nation rather than unifying it. Whether it’s establishing a Lesser Germany or dividing it into Northern and Southern Germany, the ultimate result is the destruction of this empire.
Is a divided Germany still our Germany? Reestablishing the Holy Roman Empire and creating a nominally unified empire is the key to our gradual progress.”
……
Without a doubt, Franz was instruntal in spreading these chaotic ideas. Many originated from him personally.
To achieve the goal of their propaganda, it certainly wouldn’t work to directly say, “Austria aims to unify the German territories, and everyone should unite under the banner of the Habsburgs.”
If promoted in such a way, it would likely face suppression from various governnts as soon as it started.
By throwing out all these various unification proposals, it dilutes the presence of Austria, and people would perceive it as a spontaneous initiative among the people.
To most, the ideology of Greater Germany and restoration of the Holy Roman Empire might be supported by the Austrian governnt, and the latter could even represent the intentions of the small German states.
On the other hand, the remaining Lesser Germany ideology and the ideology of dividing into Northern and Southern Germany are obviously concocted by the Prussians, and these two ideas are most widely spread in the Prussian region.
Real or fake, true or false, what is the true political stance of the Austrian governnt? Franz would say that the actual political stance that align with Austria’s interests was the one the Austrian governnt would adopt.
In the face of interests, national strategies, and political ideologies were subject to change. The reason they haven’t changed yet was that the interests at stake weren’t substantial enough.
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