Holy Roman Empire

Chapter 364: Chapter 51, Two Countries on the Verge of Bankruptcy
Vienna Palace

Foreign Minister Weisenberg said with a smile, “Your Majesty, in order to seek our support, both Prussia and Russia have made almost identical offers.

The Russians promise that as long as we support them, we can obtain Silesia after the war; Prussia promises that as long as we maintain neutrality, they will cede the Silesia area after the war.”

The promise of the Russians is generous with someone else’s assets; the Tsarist Government wouldn’t mind using Prussian interests to buy Austria’s favor.

The promise from the Berlin Government is made out of desperation, as they do not wish to give up Silesia either. To win the war, they must ensure Austria’s stability.

If they win the war, they can recoup their investments many times over; if they lose, Silesia can’t be retained at all.

Despite the passing years, the Austrians still hold a grudge over the Silesia area. Especially in recent years, with the increase in power, calls within the Vienna Government to reclaim Silesia have grown louder and louder.

If the Kingdom of Prussia shows any sign of weakness, Austria will definitely take the opportunity to kick them while they are down; now the Berlin Government must stabilize Austria first.

Seeing Felix hesitate to speak, Franz asked, “Prime Minister, what do you think?”

Prime Minister Felix answered, “Your Majesty, neither of these is the best choice. What we need is for both Prussia and Russia to be mutually weakened.

Our alliance with Russia is already conspicuous, and European countries are all working to dismantle this alliance. If the Tsarist Government continues its victories, we will only face more troubles in the future.

For us, the Russian Empire is already strong enough. If the Tsarist Government completes its internal reforms, the value of the Russian-Austrian Alliance might become questionable.

Similarly, a more powerful Kingdom of Prussia is not in our interest either. Europe is too small to accommodate so many great powers.”

A mutual weakening of Prussia and Russia is the ideal state. Not only could we use the Prussians to disrupt Alexander II’s reforms, making the Tsarist Government’s reform even more incomplete than in history, but we could also curb the ambitions of the Prussians. After this failure, they would not have another chance to rise.

However, achieving this is very difficult; at least Franz doesn’t believe Austria has the ability to play this balance.

The Kingdom of Prussia would be finished if it lost just once. On the surface, it seems like Russia could lose many times, but in reality, that’s highly deceptive. With so many internal issues, Franz isn’t sure about their capacity to sustain losses.

This is different from the Near East war, where the Russian Army reached the gates of Constantinople and all social classes supported the war internally. No matter the losses, the Tsarist Government had to persevere.

After some thought, Franz said, “Let’s abandon such idealistic plans; they are too risky and could easily collapse, leaving us displeasing both sides.

Based on actual needs, we just need to achieve two things:

First, use the Prussians to disrupt the Tsarist Government’s reforms. As long as the Russians cannot achieve a quick victory, Alexander II will have to concede to the Conservative faction, and the reforms won’t be thorough;

Second, the Kingdom of Prussia cannot be allowed to grow too large. Having one strong power in the Germany Region is enough; there’s no need to add another competitor.

Let England and France take care of strengthening Prussian power. What we need to do is provide the Tsarist Government with support when necessary, to reaffirm their determination to continue the fight.”

Pleasing both sides is impossible, and attempting to do so would likely result in mutual disgust, leaving us in an unfavorable position with everyone.

The usefulness of the Russian-Austrian Alliance is diminishing, but as long as the treaty isn’t dissolved, Austria cannot openly stab Russia in the back.

This concerns Austria’s credibility in international politics and diplomacy. A nation without credibility can never hope to gain respect.

Luckily, the Prussian Government is wise enough not to start an undeclared war or invade Russia unprovoked; otherwise, Austria would have been dragged into the conflict by the treaty.

The current situation is that the Kingdom of Prussia has invaded Denmark, and the Russians, to protect their ally, have declared war on Prussia.

Under these circumstances, it’s not mandatory for the Russian-Austria Alliance to participate in the war.

The Kingdom of Denmark is an ally of Russia, but that does not mean they are also an ally of Austria. The Vienna Government doesn’t need to stand with Russia.

Finance Minister Karl reminded, “Your Majesty, the financial situation of the Tsarist Government is very bad. The sluggishness of the Russians is largely due to financial constraints.

Recently, the bonds issued by the Tsarist Government were coldly received in the capital market, as investors worried about Russia defaulting on its debts.

Based on the data we have analyzed, if the financial situation of Russia doesn’t improve, there is a high possibility that the Tsarist Government will declare bankruptcy again.”

The Russian-Austrian Alliance stipulates that without harming one’s own interests, it is obligatory to provide material assistance to an ally.

Theoretically, under such circumstances, the Vienna Government should lend a hand, however it’s a matter of choice. The level of support depends on the actual situation.

Providing loans is a form of assistance, as is donating supplies; the specifics still depend on interests.

Without sufficient interest, simply taking some weapons and ammunition from storage to make up numbers can also pass muster.

The attitude of the Finance Minister is very clear: the finances of the Tsarist Government are very bad, and they are very likely to go bankrupt after the war. Austria doesn’t need to fall into this pit.

Government bankruptcy is nothing new on the European Continent. Especially with the Tsarist Government, once their government debt exceeds their capacity, they declare bankruptcy.

Government bankruptcy means an indefinite suspension of previous debts, which can also be understood as not repaying them. The Tsarist Government has done this many times, leaving many creditors in tears without recourse.

Of course, not every country has the luxury to default on its debts. In this age, there is another method of collecting debts: military enforcement.

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Even when a small country declares bankruptcy, it usually just defaults on individual debts, but it still has to pay back the debts of the major powers, such as supervision of its finances by those powers.

Mexico is a prime example of a nation that dared to default on its debts without the strength to back it up. In 1862, President Juarez announced a suspension of debt payments, which promptly brought the French creditors knocking on the door.

This strategy doesn’t work on the Russians, as no creditor has the capability to march to St. Petersburg to demand repayment. After being burned multiple times, capital markets stopped lending money to the Tsarist Government.

Franz asked in surprise, “Has the financial situation of the Russians deteriorated to such an extent?”

In his memory, though the finances of the Tsarist Government were poor, they had not reached a point of collapse. Even if they fought a Prusso-Russian war, they wouldn’t go bankrupt immediately.

Finance Minister Karl explained, “Your Majesty, in modern times, as long as they can keep going, ordinary European countries try to repay their debts as much as possible, and there are few defaulters, but the Russians are an exception.

Based on past experience, when the Tsarist Government’s debt reached a certain level, they would declare bankruptcy. We’ve recently received intelligence that the Tsarist Government has already prepared a bankruptcy contingency plan.”

Franz was left speechless. Indeed, throughout the medieval period, kings declaring bankruptcy and defaulting on their debts was a frequent occurrence, almost every few decades.

Many capitalists, especially Jewish ones, have been swindled mercilessly, mostly because they were too wealthy and most of the capital had accumulated in their hands—who else could one borrow from?

Of course, many kings who defaulted were also victimized. Jewish capital attracted hatred because they often drove hard bargains in loan contracts, and many kings were duped into paying exorbitant interest rates.

Experience proved that rulers were not to be trifled with, especially in the age of monarchy; cheating them of their money was always with consequences. The majority of antisemitic movements in the European Continent originated from this.

Entering modern times, as the power of capital grew steadily, governments’ engagements in bankruptcy and defaulting became less common, particularly regarding international loans backed by major powers that dared not default.

In an era where everyone defaulted together, there was no issue, since all were as black as ravens. However, when others began to follow the rules and only one remained a defaulter, it became conspicuously problematic.

Once creditors publicized it, the reputation of the Tsarist Government was ruined. With a shattered reputation, many things became difficult to manage, hence the awkward situation in Russia of resorting to gold and silver coins.

After some thought, Franz said, “Then we should also tighten our monetary policy on silver, and remind the domestic financial sector to be more vigilant.

Support for Russia should primarily be in the form of material aid. All large loans to Russia must be collateralized.”

This too was adding insult to injury. These restrictions certainly increased the Tsarist Government’s difficulty in financing through the Austrian capital market. However, as long as the Tsarist Government didn’t default, providing ample collateral was no issue.

With collateral, even if the Russians declared bankruptcy, it would be impossible to default on these debts. After all, the value of the collateral typically exceeds the loan.

Franz had to take this step. Not long ago, the Russian Government used Alaska to offset a debt of 2.57 million Divine Shields and incurred a favor in the process. The Russians would never have done so unless they were truly desperate.

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While Austria worried about a Russian bankruptcy, the London Government faced a similar issue with the Kingdom of Prussia, the most bellicose, yet not wealthy, nation on the European Continent.

Lending money to the Berlin Government now carried risks no less than those lending to the Russians. The war bonds issued by the Prussian Government received a cold reception on the London Financial Market.

If the Kingdom of Prussia won the bet, it might have a chance to repay; but if it lost the war or both sides were severely weakened, those investments would be lost.

Not many believed in Prussia’s success; people were hesitant to risk their money. Even as the bond interest rates were raised to an annual 15.8%, the sales were still far from optimistic.

As the Kingdom of Prussia’s financier, the London Government certainly couldn’t just stand by and watch this unfold. Without sufficient funds, how could Prussia wage the war?

Finance Minister Agawar said, “The war bonds we’ve issued for the Prussians have so far only sold 1.869 million British Pounds, a far cry from the target of 15 million.

The public doubts their ability to win this war. Unless someone can provide a guarantee, these bonds cannot be sold.”

The financial condition of the Kingdom of Prussia is very poor. Since 1848, they have been constantly in deficit.

Many domestic financial institutions believe Prussian finances are on the brink of bankruptcy and refuse to provide loans.”

It’s not easy being a major financier; the cost of the Prusso-Russian War is bound to be a colossal expenditure, with the prospect of a total loss looming large.

Prime Minister John Russell rubbed his forehead and said, “So you’re telling me, the assistance we promised to the Kingdom of Prussia, we haven’t even raised a fifth of it in two months?”

According to the agreement, the British were to provide a loan of 10 million British Pounds to the Kingdom of Prussia, along with issuing 15 million in war bonds.

The reality was, apart from an advance of 5 million British Pounds provided by the London Government to the Prussian Government, the capital market had shown no interest at all.

This was a setback from the Near East war, as neither England and France beat the Russians, let alone the Kingdom of Prussia.

Even the London Government didn’t believe the Kingdom of Prussia could win the war. If they were supported, it was merely to disrupt the Russian reforms, not because Prussia was expected to triumph.

“Yes, Prime Minister. People do not trust Prussia, so they remain cautious in their investments,” replied Finance Minister Agawar.

The British public is very supportive of striking against the Russians, but it’s a different story when it comes to spending money.

Some London newspapers are betting on when Prussia will fail.

The most optimistic estimate is that Prussia could hold out for a year before losing the war; the most pessimistic believe that Berlin could surrender within a month.

The general consensus is that for the Kingdom of Prussia to win the war, England and France would need to enter the battle themselves, otherwise failure for Prussia is just a matter of time.

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