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:Disraeli had arranged with him that he should be in attendance ... just outside the Cabinet room and, when his chief put out his head and said “Yes,” should take immediate action. On this signal being given he went off to New Court and told Rothschild in confidence that the Prime Minister wanted £4,000,000 “to-morrow.” Rothschild ... picked up a muscatel grape, ate it, threw out the skin, and said deliberately, “What is your security?” “The British Government.” “You shall have it.”
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:It is just settled: you have it, Madam. The French Government has been outgeneraled. They tried too much, offering loans at an usurious rate, & with conditions wh: would have virtually given them the government of Egypt.
The Khedive, in despair & disgust, offered Yr Majesty’s Government to purchase his shares outright—he never would listen to such a proposition before.
Four millions sterling! and almost immediately. There was only one firm that cd do it—Rothschilds. They behaved admirably, advanced the money at a low rate [what appears to be “five percent” scored out], and the entire interest of the Khedive is now yours, Madam.
Yesterday the Cabinet sate four hours and more on this & Mr Disraeli has not had one moment[‘]s rest today; therefore this despatch must be pardoned, as his head is rather weak. He will tell the whole wondrous tale tomorrow.
He was in Cabinet today, when Yr Majesty’s second tel: arrived, wh. must be his excuse for his brief & stupid answer—but it was the crisis.
The Govt. & Rothschilds agreed to keep it secret but there is little doubt it will be known tomorrow from Kairo.
He was even more extravagant in his account to Lady Bradford:We have had all the gamblers, capitalists, financiers of the world organized and platooned in bands of plunderers, arrayed against us, and secret emissaries in every corner, and have baffled them all, and have never been suspected. The day before yesterday, Lesseps, whose company has the remaining shares, backed by the French whose agent he was, made a great offer. Had it succeeded, the whole of the Suez Canal would have belonged to France, and they might have shut it up ... The Fairy [Queen Victoria] is in ecstasies ...
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.
The opposing interpretation—to be precise, the Opposition interpretation—was confused, suggesting that Disraeli had, if nothing else, outwitted the Liberals. Gladstone was immediately up in arms. “I am aware of no cause,” he wrote to Granville, “that could warrant or excuse it, except its being necessary to prevent the closing of the canal. But ... the closing of the London and North Western [railway] would be about as probable.” Even if the purchase had been done “in concert with the other Powers” it was “an act of folly, fraught with future embarrassment”; if it had been done unilaterally, it was “an act of folly fraught with personal danger.” He foresaw “grave consequences.” According to Gladstone, the proper course of action would have entailed parliamentary consultation and the involvement of the Bank of England. But Granville’s letter to Gladstone on November 28 was little more than a succession of half-baked questions. “As regards my first impressions,” he wrote, “which I mistrust, it appears to be very foolish.” But he was uncertain why. Was it “without precedent ... that the Gov should become part shareholders of a private undertaking over which by normal means they can have no control?”:Is it not enough of a political measure, to induce and justify other countries in taking precautionary means [?]
Is it not possible that Lesseps and the Rothschilds have duped the Govt into giving this great impetus to the value of the Suez Canal shares, by threatening them with a purchase by French Capitalists[?]
Is it the intention of the Gov to buy in the open market another 100,000 shares at enhanced prices, in order to have an effective control [?] If they do so, cannot the remaining Shareholders still get them into endless difficulties[?]
Will it not give rise to all sorts of international difficulties, & questions [?]
Is the canal to remain subject to the discretionary powers, which we have always maintained, belonged to the Sultan[?]
Ought so great a responsibility to be taken without immediately consulting Parliament[?]
“I suppose,” he concluded after starting these decidedly lame hares, “that the quieter we keep about the Suez Canal at present the better.” This was a view echoed by Lord Hartington, who was now formally the leader of the Liberals following Gladstone’s resignation and who discerned the popularity of Disraeli’s coup.
It therefore fell to the former Chancellor, Sir Robert Lowe, to give full vent to Gladstone’s instinctive sense of disapproval. In what Disraeli sarcastically predicted would be “a great invective against a stock-jobbing Ministry,” Lowe argued that the Rothschilds’ total charges—£150,000 for a loan of £4 million for three months—amounted to 15 per cent per annum
interest, a figure more appropriate for an Egyptian government than a British one. (This view was evidently shared by some at the Treasury, including the Secretary to the Treasury W H. Smith.) Liberal critics also took up Granville’s suggestion that the purchase of the shares had given rise to “gambling on the Stock Exchange”—that is, speculation in Egyptian bonds by those in the know, namely the Rothschilds. This was subsequently given credence by Disraeli’s solicitor Philip Rose, who believed the Rothschilds had “benefited largely,” having “bought to the extent of millions of Eyptian stock.” Disraeli himself heard rumours that they had made “at least 1/4 of a million,” though Montagu Corry heard from another source that “the Rothschilds had not made the slightest use of the intelligence, as they considered themselves standing in the position of the Government.” Another Opposition claim was the old chestnut that, as an MP, Natty was prohibited from profiting from a government loan; this was more easily rebutted by the argument that Natty was not yet a full partner in the bank, while Lionel had lost his seat in Parliament in 1874.
The truth lies somewhere between these two extremes. Politically, it was not quite true to suggest that Britain had secured control and thwarted the French government in the process. According to Wolf, the French government had decided against attempting a French purchase and therefore saw the British intervention as a welcome solution to the Egyptian crisis. Nor did ownership of 44 per cent of the Canal Company’s original shares give Britain control over the canal itself (especially as the shares had no voting rights until 1895 and had only ten votes thereafter). On the other hand, the Khedive’s pledge to pay 5 per cent in lieu of dividends on the canal shares gave the British government a new and direct interest in Egyptian finances. Disraeli was wrong to suggest that the Canal Company was in a position to close the canal to British shipping; in law, that was not the case. On the other hand, there was no guarantee that the law binding the company to keep the canal open to all shipping would always be respected, and, as Disraeli rightly said, the ownership of the shares gave Britain an additional “leverage”—a stronger justification to retaliate—in the event of a threat to her communications. This view was accepted by The Times and by other bankers (including Lord Overstone), and with hindsight it seems justified. If the French government had been entirely content with the purchase, it would not have been necessary for the Rothschilds to maintain such strict secrecy between November 23 and 25. Gustave’s letter of December 31 indicates that there had initially been “panic” in Paris at the thought of a British takeover of Egypt. Two weeks later, his elder brother relayed a veiled warning from the French government: “Should England now accentuate even more her policy of intervention in the Egyptian affairs by coming to the rescue of the Khedive by means of another financial operation and by taking hold of the Country’s principal revenues, the position of the French Govt. might become very delicate ...”
Financially too, the Liberal criticisms were ill-founded. As Disraeli pointed out in a withering response to Gladstone and Lowe in the Commons, Lowe’s arguments understated the opportunity-cost to the Rothschilds of immobilising at such short notice so large a sum even for three months, especially when (as the Rothschild letters from Paris and Frankfurt confirm) the possibility of a French or Russian diplomatic reaction could not be ruled out. When it was suggested by the stockbroker Arthur Wagg that the Rothschilds should have provided the money free of charge, Lionel was dismissive. “Arthur Wagg,” he retorted, “you’re a young man and will learn better. I’ve made £100,000 out of the deal, I wish it had been £200,000.” As he pointed out to Corry on February 19, there had been a real risk involved: the Khedive might have insisted on payment in gold; “unforeseen events” might have tightened the money market; another government “accustomed to do business with the Rothschilds might have called upon that Firm to undertake a transaction involving large ready money payments, and finding the Firm unable to meet the demand, have transferred the business to other hands.” Nor was it guaranteed that the Bank of England would have been willing to furnish the money, had it been approached.
As Corry told Disraeli after his interview with Lionel, that was:a point ... which could only have been determined by the full Board, at the obvious sacrifice of dispatch and secrecy ... Baron Rothschild imagines that the Government might, possibly, have compelled the Bank to find the four millions (and at a lower rate of commission). But this would have been a violent act, before the commission of which, he maintains, they were bound to use every endeavour to obtain the money from independent Firms. He declares too, without hesitation, that the Bank of England could not have found the required sum without grave disturbance of the money market.
It was, Lionel concluded, “the entire absence of such disturbance” which provided the best “vindication of the commission charged.”
These arguments cannot be dismissed as mere special pleading. Rothschild profit and loss accounts also refute the charge of large-scale speculation in Egyptian bonds suggested by Granville and Lowe: the 1875 accounts show a sale of £12,682 of 1873 Egyptian bonds, but even if these had been bought at 55 and sold at 76 on November 26, the total profit would have amounted to just £3,505. The real financial significance of the transaction may have been the breathing space it gave to the French banks like the Credit Foncier whose holdings of Egyptian bonds were much larger. In this sense, the purchase of the canal shares was far from being a blow to French interests. Finally, the purchase of the shares proved a much better deal for the British taxpayer than the critics anticipated. By January 1876 they had risen from £22 10s 4d to £34 12s 6d, a 50 per cent increase. The market value of the government’s stake was £24 million in 1898; £40 million on the eve of the First World War; and £93 million by 1935 (around £528 a share).10 Between 1875 and 1895, the government received its £200,000 a year from Cairo; thereafter it was paid proper dividends, which rose from £690,000 in 1895 to £880,000 in 1901.11
Another Eastern Question
As Overstone and others realised, the purchase of the canal shares was merely the prelude to a large-scale British involvement in Egyptian finance and, ultimately, government; it also signalled a renewed British determination to exert influence on the Eastern Question as a whole. As early as July 1876, it was rumoured in Berlin that “the English Government had purchased the suzerainty of Egypt for £10 million.” However, it would be wrong to portray the road from 1875 to the military occupation of 1882 as a straight one; and it would be equally misleading to suggest that the Rothschilds were eager to go down it. In the immediate aftermath of the Suez coup, Derby despatched the Paymaster-General Stephen Cave to Egypt in a belated response to the Khedive’s earlier request for British financial assistance. Cave’s first objective was to establish some kind of control over Egyptian finances, if only to ensure that the 5 per cent interest due on the newly acquired canal shares continued to be paid. The corollary, it soon emerged, was that the Rothschilds should assist with the consolidation and conversion of the Egyptian regime’s multiple debts—a view strongly advanced by Charles Rivers Wilson, comptroller-general of the National Debt Office and the British government’s representative on the Suez Canal council. However, their private correspondence shows what reluctant imperialists the Rothschilds were. From an early stage, they advised against the publication of Cave’s report and emphasised to Disraeli “the difficulties of putting ourselves at the head of a large financial operation.” Their reluctance was partly based on narrow financial considerations: although happy to speculate in small amounts of Egyptian bonds, Lionel and Alphonse plainly felt that Cave and Rivers Wilson were underestimating how difficult it would be to stabilise Egyptian finances while Ismail remained Khedive.
There was a further political reservation, however. Lionel and Alphonse continued to attach more significance to maintaining harmonious relations between the great powers—in this case France and England—than to imposing foreign financial control on Egypt. Indeed, it was through Alphonse that the British governm
ent was first informed of the French President MacMahon’s compromise proposal: a multi national commission to oversee Egyptian finances, on which England, France and Italy would be equally represented. From Paris, Alfred relayed Decazes’ “anger” at Derby’s prevarications and warned the government not to “throw cold water” on the French proposal; Lionel relayed Disraeli’s reponse: “[T]hey want the French to make a good plan and not one that will put money into their pockets and without doing the Khedive any good.” The difficulty was that there was a conflict of interest between those who held interest-bearing Egyptian bonds and those—mainly the French and Egyptian banks—who had been advancing money short-term to the Khedive. In essence, the bondholders refused to accept that the short-term lenders had an equal claim and so vetoed a generalised writing-down of all Egyptian debts by 20 per cent—a position endorsed by the British government. This paralysed the new Caisse de la Dette Publique which had been set up in May. In the absence of Anglo-French accord, the Rothschilds simply refused to take on the task of restructuring the Egyptian debt, and it was left to a commission of inquiry to fix the consolidated debt at £76 million (a figure which did not include £15 million of private debts secured on the Khedive’s lands and a substantial floating debt which may have been as much as £6 million).
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