The House of Rothschild, Volume 1

by Niall Ferguson

  Momentarily, when Prussia occupied Luxembourg in order to force the Belgian government into submission, James hesitated: “the sound of cannon fire” had its usual effect on the Paris bourse. But, when it appeared that even this would not provoke a French intervention on the side of Brussels, he went ahead swiftly with the loan, aiming to issue it as quickly as possible in London, Paris and Brussels, before there could be any deterioration in the diplomatic position. Although the bonds proved slightly less easy to market than James had anticipated, the issue went ahead smoothly. The fact that the Belgian coal bubble also burst in 1838 may have strengthened James’s position, as the sudden slump in industrial shares very nearly broke the Banque de Belgique and put even the Société Générale itself under pressure. Now it was James who stepped in to bail the two banks out.

  James was right to anticipate that the negotiations might sooner or later run into difficulties, though fortunately for him this did not happen until the new Belgian bonds had largely been placed. There was considerable political opposition in Belgium (and in France) to the reimposition of the 1832 settlement. Yet the fact remained that the Belgians lacked the wherewithal to resist, for, although the bonds for the new loan had by now been sold, the Rothschilds had not yet finished paying over the money raised. To make the position unambiguously clear, in December 1838 James requested that a clause be inserted in the loan agreement to the effect “that if war were to break out or if any disputes were to arise then we would be at liberty to annul our contract.” Somewhat optimistically, the Belgians continued to negotiate with the Rothschilds in the hope of securing additional funds in the form of an advance against treasury bills. “Well, the Belgians are asses,” James commented on hearing reports of military preparations in Brussels. “I am not at all pleased to see all the troop concentrations, and they are quite capable of turning a joke into a serious affair, although as long as the major powers are opposed to war, they can’t do anything.” The request for an advance was turned down flat. Playing, as usual, on Metternich’s hostility to “revolutionary” regimes, Salomon (who was in Paris during the crisis) sent Apponyi a copy of his instructions to Richtenberger, the Rothschilds’ agent in Brussels:

  We do not in the least resent the fact that the [Belgian] Government is somewhat angry at our refusal with regard to the Treasury Bills. It is not at all a bad thing that these gentlemen should realise that they may count on us only as long as they mean to follow a policy of wisdom and moderation. We have certainly given sufficient proof of our intention to support and help the Belgian Government but our goodwill necessarily stops short of the point of providing the rod with which we are to be beaten, that is to say, providing the money wanted to make a war which would destroy the credit that we are applying all our energies and resources to maintain. You may tell these gentlemen what I have written freely and frankly and without mincing words.

  Lest there be any doubt in Austria about Rothschild policy, he followed this letter up with another to his Vienna office “for Prince Metternich’s information” detailing Richtenberger’s conversations with the Belgian government:

  They won’t get a farthing from me until they give way, and before I go away I shall leave similar instructions with my brother James . . . I hope that Belgium will now sign the twenty-four articles especially as they lack the “nervus rerum” and as long as the articles are not accepted the Belgian Government will not get a halfpenny from us, although they have been begging for money for months. Difficult though I [have] found it to keep on refusing, I shall feel compensated, should Belgium yield and peace be restored, by the reflection that I shall have done my best to contribute to such a result.

  It was, of course, as much the lack of a pro-Belgian government in Paris as the lack of 4 million francs from the Rothschilds which obliged the Belgians to give way. Still, the leverage which the Rothschilds were able to exert in Brussels had been considerable. Moreover, it seemed to present a perfect opportunity to consolidate Rothschild dominance in Belgian finance. Even before the treaty had been signed, James was urging his nephews that “a Belgian security is always marketable and I would suggest that one of you . . . should go to Brussels to make the acquaintance of the new Minister in order to establish a close relationship with him and to tell him that you are [now] prepared to make all the loans and to receive treasury bills”—something which had previously been refused. What James now aimed at was nothing less than a monopoly. As he put it bluntly: “[T]he arrangement of the Belgian question is going to be followed by a need for money and this will be a moment we ought to exploit in order to make ourselves the absolute masters of the finances of this country.” Even by Rothschild standards, this was strong stuff; but in many ways the position subsequently achieved was not far short of mastery over the government’s borrowing, even if it had to be shared with the Société Générale. In early 1840, when James travelled to Brussels to discuss the terms of a new loan of 60-80 million francs, he found the government “very well disposed”: “I left all the people there exceedingly pleased with my visit, and I lectured them about how to put themselves on a better footing, at least for a while. They are content enough to let us guide them, now that I have pointed out to them all the mistakes they have made in attempting to act without us.”

  After protracted discussions, a loan was duly agreed in November, and another (for 28.6 million francs) followed two years later. Whether to pay its indemnity to Holland or to embark on new railroad projects, the Belgian government seemed addicted to borrowing, and its reliance on the Rothschilds to find buyers for its bonds was almost complete. Typically, when James fell out with a Belgian minister in 1842, he requested Lionel “to go to Windsor on Sunday to see the King of the Belgians”:

  Constantin has written a letter which you will receive in due time explaining how matters stand at Brussels & you will be able to tell the King if . . . the present minister remains there will be no market anywhere for Belgn Bonds & no possibility of undertaking a large financial operation, you must be careful not to speak against [the minister] but only let his Majesty find out yr opinion.

  Altogether, Belgium raised five major loans between 1830 and 1844 with a combined nominal value of close to 300 million francs; almost all had been underwritten by the Rothschilds.

  Nor was it only Belgian finance which the Rothschilds now sought to control. In October 1840 Anselm visited the Hague, where the Dutch government was demanding the payment of a capital sum from the Belgians (as opposed to the annuity of 5 million francs they had agreed to pay in 1839). When the Dutch blamed their deficit on the fact that the Belgians were delaying these payments, Anselm obliged with a modest advance. Two years later, when an agreement was reached with Belgium to capitalise the money in the form of bonds, it was the Rothschilds who then offered to cash them (at a substantial discount) for the Dutch government. It was entirely typical of the Rothschilds to act on behalf of both parties in such an international transfer.

  In both Belgium and Holland, there was considerable opposition to the role played by the Rothschilds in public finances. For example, the Rothschilds were closely identified with the French government’s abortive scheme for a customs union with Belgium. Protectionists in Brussels detected a sinister French plan for economic annexation, though there is in fact no evidence that the Rothschilds supported the scheme. Anselm feared similar attacks by the liberal press in Holland when the possibility was raised of a conversion of the Belgian bonds given to Holland in 1841. The Dutch Finance Minister, he complained, was as

  well disposed for us [sic] as can [be], but he is so much under the influence of the public opinion & the newspapers which say that he is sold to us, that really the man has not the courage to contract with us, altho he is very well aware that no other one has the means, the credit, the influence we dispose of & has the power to raise so much the public credit of the country as we might possibly do it . . . Really the Man is so terrified by every stupid Article in the news papers saying that he has sold
himself to us, that he told me, “I wish most sincerely to do alone with you, if only I could save my reputation of an honest man or prove to others that they are in the impossibility [sic] of doing so well as you.”

  The Minister was right to worry; three months later he was forced to tender his resignation in the face of opposition pressure.

  Although Anselm was able to retain Rothschild control over the transfer of the 40 million guilders still owed by Belgium to Holland, both the Dutch and Belgian governments now sought to emancipate themselves from the Rothschilds in their capacity as underwriters by selling Belgian bonds by public subscription. Needless to say, the Rothschilds viewed this development with extreme hostility, fearing a precedent which (like the British income tax) other governments might follow. Nat was characteristically fatalist: “I fear folks have become too clever everywhere & governments will not pay commission when they can manage without.” “If the govt. succeeds,” he told his brothers gloomily, “which is most probable, they will be able to do without us at present & in future—We can not oppose them openly.” But his uncle James never gave up business without a fight. “The Baron wishes the thing not to succeed,” Nat reported, “& consequently avoids helping the minister thro”—cer tainly it is against our interest that the Government should make open loans & if we can prevent them so doing it is our duty to act accordingly.”

  It would seem that James’s aggressive view prevailed. “The Belgian Finance Minister will not find it a very easy job to get rid of his loan by subscription,” Nat wrote some days later. “I think he will be obliged to have recourse to us after all which will very much delight us all—Try & make Belg[iu]m flat by selling a few 1840 or 1842 bonds for the J[oint] A[ccount], it will be a good thing if they write to Brussels from every where that the market is flat.” This was a classic Rothschild tactic—selling off bonds to embarrass a recalcitrant government. The aim was to force the Belgian government to return to Rothschilds, cap in hand. This appears to have had its effect; for, although the public sale of the Belgian 4.5 per cents went ahead, it was not long before the government once again had to turn to Rothschilds. Meanwhile, Anselm’s indefatigable negotiations in the Hague had won over the new Dutch Finance Minister to the view that Rothschilds should after all handle the sale of the £6 million Belgian 2.5 per cents he wished to realise. In 1845 the Belgian government returned contritely to the Rothschild fold and James was able to exact tough conditions for relatively modest advances in 1846 and 1847. Without Rothschild, reported the French ambassador in Brussels, the Belgian government had “realised that it would be impossible for it to find a penny on any bourse, domestic or foreign.” This was only a slight exaggeration. To all intents and purposes, the Rothschild monopoly on Belgian public finance was complete—though the abortive attempt to sell bonds directly to the public was an intimation of how that monopoly might be challenged in the future.

  Roads to Damascus

  In many ways the most important aspect of the Belgian crisis of 1838-9 had been its impact in France. Along with its alleged foreign policy failures in Spain and Switzerland, the Orléanist regime’s unwillingness to stand up for Belgian interests was widely criticised as appeasement of France’s old enemies, conservative Austria and perfidious England. Ever since the revolution of 1830, the Rothschilds had fretted about the possibility of a French return to the old combination of internal radicalism and external aggression which had set Europe ablaze in the 1790s. When yet another international crisis—this time in the Middle East—confronted France with diplomatic isolation, that possibility threatened to become a reality. This was the first of many “Eastern Crises” the Rothschilds would have to weather. Its outcome—the fall of the bellicose Thiers government and the diplomatic humiliation of France—marked one of the high points of their political power.

  In fact, James had never really stopped worrying that international developments might lead to a change of government in Paris. “Rentes will fall because Thiers is in favour of a policy of intervention [in Spain],” he warned when it was rumoured that the latter might be about to return to government in April 1837, recalling his efforts to send troops across the Pyrenees the previous year. Indeed, the very thought of another Thiers ministry was enough to convince James of the need to “get out of the [French] funds, for the end will not be good.” “A good ministry,” according to James’s definition, was essentially one which would pursue pacific policies abroad and balance the budget at home: he liked the Molé ministry which ultimately emerged that April precisely because it was “weak.” When Molé survived the elections held the following November, James regarded them as having “gone well”; and he urged the government “to stay united and convince themselves that they are strong and powerful,” promising “firm and steadfast support” when Thiers mounted a new challenge in December 1838.

  The Rothschilds were nervous when Molé’s position finally crumbled following the elections of March 1839, fearing a ministry “composed of the Thiers party” and the doctrinaire liberals. “It is a very bad thing according to my opinion,” wrote Anthony uneasily, “and the King is obliged to give way & to do everything as Thiers wishes—I assure you that we become a little frightened.” As it turned out, Thiers’ insistence on a more aggressive foreign policy was still too much for Louis Philippe to accept and another moderate government was formed by Marshal Soult. But this proved short-lived, and on March 1, 1840, Thiers was at last back in office. His seemingly irresistible rise made James pessimistic:

  After a new Ministry has been formed no one gives this matter any further thought, especially so during the summer, but in the long run I am very sorry to say that France will only be able to extricate herself from her current predicament by means of war. As long as Louis Philippe, may God preserve him, remains [on the throne] I think that peace will be maintained but his son, I believe, will have no option but to wage war. Well, be that as it may my dear nephews, I intend to remain faithful to my previously voiced opinion slowly but surely to sell our 3 per cent rentes . . . It is a disgrace that no Ministry can be formed and whoever may eventually head the Ministry . . . we can expect to see the various Parties in the Chamber at each other’s throats, but if the securities suffer a fall then one can buy again because in France the people are just like in Spain, one day they fight each other and the next day they are good friends again.

  With Thiers as premier, he warned his nephews, he was “not too happy with the fundamental situation, that is, with the internal state of affairs.” The regime was “losing those friends who were most dedicated to her.” Although James was soon talking—in his usual, adaptable way—of “build[ing] up a friendly relationship with [Thiers],” this proved to be unrealistic.

  The issue which led to open war between the Rothschilds and Thiers is usually referred to as the “Eastern Question”: could the sprawling Ottoman Empire, which notionally encompassed most of North Africa, much of the Balkans and nearly all of the Middle East, be preserved intact? If not, what should take its place? Economically backward, religiously divided, administratively ramshackle and politically despotic—the Ottoman Empire was all of these things. So, of course, were the Romanov and Habsburg empires; but less so, and they were Christian states—hence the effective exclusion of Turkey from the “pentarchy” of European great powers in the modern period. At this time, four of the “big five” had interests in the areas where Ottoman rule appeared to be in decline. Austria and Russia, for obvious geographical reasons, had the longest history of territorial conflict with their southern neighbour; while Britain and France were becoming more and more interested in the region for a mixture of commercial, strategic and religious reasons.

  In the course of the nineteenth century the future of Ottoman rule came to hinge on the interaction of these powers: the consistent theme which links all the various Eastern crises is that, while each power had her own distinct objectives, none could achieve these alone. The Rothschilds came to play a vital role in the diplomacy of the
Eastern Question mainly because, whether the status quo was preserved or new structures created, money was needed; for one of the fundamental problems of governing the region was the chronic narrowness of its tax base. There was, however, a second and very different reason why the Rothschilds took an interest in Ottoman affairs: the position of their “co-religionists.”

  As we have seen, it was the successful Greek bid for independence which had first involved the Rothschilds in the Eastern Question. Once the diplomatic wrangles over the extent and constitution of the Greek state were over, they were only too happy to help provide the funds required to indemnify the Turks and set the new government in Athens on its feet. The loan looked at first sight a relatively straightforward business, as the Greek bonds were to be guaranteed by three of the interested powers, Britain, France and Russia. However, James had to fight hard in Paris to secure a satisfactory share from Aguado and d’Eichthal, who was in a position to dominate the transaction because of his close links—as a fellow Bavarian—with the new Greek King. Moreover, the execution of the transaction proved a good deal more difficult than had been anticipated. Essentially, 60 million francs were supposed to be issued, a third guaranteed by each of the powers. Of the money raised, 11 million francs were to be paid to Turkey through the Rothschilds, while the rest went to the Greek government via d’Eichthal.

  Renewed tension in the region almost immediately disrupted these arrangements, however. In November 1831 Mehemet Ali, ruling Pasha of Egypt, revolted against Sultan Mahmud II on the ground that he had been inadequately recompensed for his military efforts against the Greeks in the Balkans. Ali—himself an Albanian by birth—sent his son Ibrahim to invade Syria, the territory he most coveted. Within a matter of months he had taken possession of Gaza, Jerusalem and Damascus itself. The Sultan initially sought to enlist British support against his rebellious vassal, but Palmerston rejected the advice of his man in Constantinople, Stratford Canning, and refused assistance, seeking instead to broker some sort of compromise. The Sultan therefore turned to Russia, accepting the Tsar’s offer of military assistance in February 1833. Five months later, to British and French dismay, a treaty (that of Unkiar Skelessi) was concluded between Turkey and Russia which included a secret article binding the Sultan to close the Straits of the Black Sea to warships of all nations “au besoin”—in effect, if Russia requested it. The Russian diplomatic triumph was complete when Austria and Prussia endorsed the treaty at Münchengrätz.