The House of Rothschild

by Ferguson, Niall

  To understand the Decree of Muharrem, it is necessary to appreciate the shifting diplomatic relationships between the other European powers at this time. In the wake of the Russo-Turkish war, Bismarck had struggled to restore the Three Emperors“ League between Germany, Austria—Hungary and Russia, beginning with a secret defensive alliance with Austria in October 1879. Although this was in fact directed against Russia, he then encouraged the Russians to seek some kind of understanding with Austria, which culminated in the second Dreikaiserbund of June 1881. Essentially, this was a pact of neutrality if one of the three was involved in a war with a fourth power, but the terms with respect to the Balkans were its more important aspect. Conflict with Turkey herself was excluded from the terms of the alliance, but Austria—Hungary effectively gave Russia a free hand in ”unifying“ Bulgaria, while the Russians accepted the possibility of an Austrian annexation of Bosnia—Hercegovina (which she had occupied since the Congress of Berlin). In addition, Austria established what amounted to a protectorate over Serbia, recognising King Milan in 1881, and two years later securing a German commitment to the defence of Rumania against a Russian attack. At the same time, a quite distinct Triple Alliance was formed in May 1881 between Germany, Austria and Italy, which was partly directed against French Mediterranean expansion (signalled by the occupation of Tunis in 1881), but also bought Italian neutrality in the event of an Austrian war with Russia. There was plainly a contradiction between the Three Emperors’ Alliance and the Triple Alliance; but in the absence of conflict between Austria and Russia, it was a latent contradiction, and the Dreikaiserbund was renewed with little difficulty in March 1884. So swiftly were the agreements struck at Berlin in 1878 overhauled.

  Where did this leave Britain and France? The answer was potentially isolated if their relations deteriorated in Egypt—unless of course a pro-Russian policy were adopted by one or both. The chances of an Anglo-Russian understanding were whittled away as Russian influence extended through Central Asia towards Persia, Afghanistan and the North-Western frontier of the Raj. Despite the immense political differences between the Republic and Tsardom, Franco-Russian rapprochement was a more realistic possibility, and fear of such a constellation was in many ways the key to Bismarck’s elaborate system. In essence, he was able to cast Germany not just as a broker in colonial disputes but even as a potential ally.

  The English Rothschilds were evidently attracted by this. Rothschild policy after 1880 therefore became increasingly subject to a subtle Bismarckian influence, with Bleichröder at last able to play the role of intermediary which he had previously been denied. Bismarck, once the bane of financial stability, became in the 1880s its apparent guarantor. When the British ambassador Lord Ampthill called on Bleich roder in 1882 he reported seeing a telegram from the Paris Rothschilds asking for immediate news of the Kaiser’s health. “I asked Bleichröder what effect French financiers expected from the Emperor’s death upon the Paris Bourse. ‘A general baisse of from 10-15 per cent,’ he replied, ‘because of the uncertainty of Bismarck’s tenure of office under a new reign.’ ” A year later, the German ambassador in London was told by Natty that an Anglo-German understanding was what “most reasonable Englishmen, except for a few ministers” wanted. The fact that after 1881 a rising proportion of Turkish debt was absorbed by the Berlin capital market—with the Deutsche Bank playing a leading role—helps to elucidate this Germanophile tendency.16

  The disadvantage of an Anglo-German rapprochement from the Rothschild point of view was that it was likely to imply a deterioration in Anglo-French relations. In fact, that was already on the cards when a nationalist military revolt led by Arabi Pasha against the Khedive Tewfiq’s supine regime paralysed the system of “dual control” in Egypt. The flexing of French muscles in both Morocco in 1880 and Tunis the following year may explain the reluctance of the Gladstone ministry to embark on the policy of concerted Anglo-French intervention. It had little to do with Gladstonian squeamishness about intervention in Egyptian affairs per se, for within a remarkably short space of time he had given the order to shell Alexandria (July 1882) and overthrow Arabi (September).

  The Rothschilds’ role in this astounding sequence of events was essentially to mediate between the British and French governments. It was already difficult enough in London because of the suspicion between Natty and Gladstone; the political position in France might have made it a good deal harder, had it not been for the ramifications of the Union Générale banking crisis.

  The rise and fall of the Union Générale have already been touched upon as the inspiration for Zola’s novel L‘Argent. It is now time to relate it to the complex politics of the Third Republic and the Eastern Question, in which, for a brief period, it played a role as important as that played by the Suez Canal. At root, the Union Générale was a product of the effort, initiated by Langrand-Dumonceau and taken up by Hirsch in the late 1860s, to build a rail link—the Orient line—through the Balkans to Constantinople, an effort which ran into trouble when Turkey defaulted and the Treaty of San Stefano transferred parts of the original Turkish concession to the newly independent Balkan states. Paul Eugène Bontoux was an obscure French railway engineer who had worked for both the Staatsbahn and the Rothschild-owned Südbahn before beginning to build his own Austro-Hungarian business empire in the mid-1870s. Initially, he wished to channel French capital into a range of Central European businesses. By the time he quit the Südbahn in 1878, however, he had become convinced of the need to establish a new financial institution to challenge the dominant position of the Rothschild—Creditanstalt group in Vienna. If the first step was the relaunching of the Union Générale in 1878 with a capital of 25 million francs, then the creation of the Österreichische Länderbank in 1880 was the second. With the support of the Austrian Chancellor Taaffe, Bontoux acquired interests in Austro-Hungarian railways and coal mines and sought to replace Hirsch in the development of the rail links to Belgrade, Constantinople and Salonica. Later he diversified, so that the Union Générale ended up with a wide range of shareholdings throughout Europe.

  Yet the Union Générale was always more than just another investment trust on the Credit Mobilier model. Like Langrand-Dumonceau before him, Bontoux used Ultramontane and anti-Rothschild rhetoric to mobilise the savings of self-consciously conservative Catholic investors. The Legitimist Pretender, the comte de Chambord, was among those who invested in Union Générale shares. The scale of the enterprise should not be exaggerated: at its peak its assets amounted to little more than 38 million francs. However, Bontoux’s practice of increasing its nominal capital well beyond the genuine subscriptions he was able to raise meant that the Union Générale was a speculative house of cards, with insufficient capital for the kind of long-term investments and short-term deposits which made up its balance sheet. By December 1881 shares with a nominal price of 500 francs stood at 3,000, but the bank’s supposed profits were anticipated rather than real and, despite Bontoux‘s denials, a substantial proportion of Union Générale shares (over 10,000, worth some 17 million francs) were held by the bank itself. By the end of 1881, as the Banque de France began to push up interest rates, the speculative bubble was close to bursting. In the two weeks after January 4, the share price fell from 3,005 to 1,300 and on January 31 the Union Générale was forced to suspend payments. After his conviction for financial malpractice and flight to Spain, Bontoux repeatedly claimed that he was the victim of a “Jewish plot”; but there is no evidence to support this allegation. In fact only a large loan from the major Paris banks, to which the Rothschilds contributed 10 million francs, averted a domino-like financial collapse on the Paris market. (As we shall see, this form of collective rescue was to be used again in London when Barings crashed eight years later.)

  The historical significance of the Union Générale crash lies mainly in its timing. For in November 1881—on the eve of the crash—Léon Gambetta had become the French premier, committed (as it appeared) to a policy of external adventure and internal radic
alism. Although the proximate cause of his fall a mere two months later was a defeat in the National Assembly on the issue of electoral reform, it was arguably the financial crisis of January which really scuppered him, wrecking his plans for a large-scale debt conversion and railway nationalisation. The evidence remains circumstantial, but there is no question that the fall of Gambetta (and the return of Say to the Finance Ministry) was welcome to the Rothschilds from an international point of view. On January 25 Alphonse had written to Natty warning him that Gambetta was unwilling to co-operate with England over Egypt on the terms proposed by the British ambassador Lord Lyons and casting doubt on the Anglo-French commercial treaty also under discussion. Natty passed the letter on to Dilke (now parliamentary under-secretary to the Foreign Office) with the cryptic comment that it was “unsatisfactory.” The very next day Gambetta was forced to resign. Less than a fortnight later, Alphonse met Lyons at the French Foreign Ministry and asked him “what he would like me to say to M. de Freycinet with regard to the Egyptian question? After quite a moment of reflection he replied: ‘Tell him to effect the treaty of commerce.’ ” It seems that Natty and Alphonse were acting, as their fathers had before them, as an unofficial channel of communication to the new French government, Natty writing to Paris “in the sense [Dilke] indicate[d]” and Alphonse replying with the assurance that “there is no one in the whole French Cabinet who understands the importance of the commercial treaty with England better” than Say. Despite their habitual suspicion of Rothschild motives, Granville and Gladstone could not deny that this information was “interesting.”

  Even more interesting were the strong indications from Alphonse that the French government would not object to firm action by Britain to get rid of Arabi Pasha. As Alphonse argued, there would be too much opposition in the French Chamber for the French government to participate in full-scale “armed intervention”; what he and Say evidently wished was for Britain to go ahead on her own. This information reached London at a time when Gladstone was still hoping to arrive at a multilateral solution via a conference at Constantinople, despite pressure from members of his Cabinet (notably Hartington) for unilateral military action. When British ships bombarded Alexandria in July—a month after riots in the city had seemed to strengthen the case for military action—Alphonse was delighted, noting that “England can now no longer withdraw until law and order are re-established all over the country; this is the best guarantee ... to all those with legal interests in Egypt.” He took “the greatest satisfaction” from the news of General Wolseley’s victory at Tel-el-Kebir less than two months later. It is difficult to avoid the conclusion that the Rothschilds encouraged the British government to override Gladstone’s conscientious scruples and (as the Cabinet minute of July 31 put it) forcibly to “put down Arabi.” That decision was taken on the same day Gambetta’s successor Freycinet was defeated in the Chamber for proposing joint Anglo-French occupation of the canal zone. By September 7 Granville had more or less accepted Natty’s view that in Egypt “it was clear that England must secure the future predominance.” It is doubtful that this change of heart would have been possible in the absence of strong indications that France would acquiesce, and these the Rothschilds were happy to provide. In only one respect did Alphonse and Natty view the Egyptian occupation differently: for the former, it was intended as a signal to Bismarck of Anglo-French unity, while the latter was keen to act in accord with the German Chancellor.

  If the Rothschilds had wished to set a trap for Gladstone, they could hardly have done better than to lure him into the occupation of Egypt. Gladstone himself had accurately prophesied the complications which would arise from such an action; now he found himself beset by them. Firstly, it was not at all obvious how the Khedive’s government was to be reconstituted. Secondly, there was the long-standing financial question as to which creditors should have precedence. Thirdly, there was the domestic political difficulty that Gladstone had played into the hands of the Opposition by adopting imperialism so reluctantly. Finally, and perhaps most important, he had handed the other European powers a stick with which to beat Britain.

  The French acquiescence in the English takeover of a territory in which France had by far the greater economic stake was always bizarre; it did not last long. Within less than a month of Wolseley’s victory, as Gustave reported to Natty and Natty to Granville, rumours began to circulate in Paris that the British government was trying to buy Suez Canal shares on the open market with the intention of acquiring a majority holding. This seems to have been what Natty wanted the government to do; but Gladstone remained deeply suspicious of anything which resembled Disraeli’s original share purchase of 1875—he still felt aspects of the transaction were being concealed from him—and in any case it proved impossible to reach an agreement with Lesseps and the French shareholders in the Canal Company.

  The canal was only a part of the Egyptian problem. Perhaps not surprisingly, for reasons discussed below, Gladstone regarded Egyptian finance as a “holy subject”; but he was still determined to resolve the issue through the “concert of Europe.” In the era of Bismarckian Realpolitik this was an impossibility. Bleichröder was soon relaying signals from Berlin which seemed to imply a sudden German change of heart over English policy in Egypt, and the London conference on which Gladstone pinned his hopes ended in stalemate in the summer of 1884. Isolated, Gladstone had no alternative but to entrust the restructuring of Egyptian finance to the classic City combination of Rothschild and Baring. On August 4 the First Lord of the Admiralty, Lord Northbrook—a member of the Baring family, though never a partner in the bank—was despatched to Egypt to enquire into the country’s finances. As Randolph Churchill pointed out indignantly in the Commons, his cousin Evelyn Baring (later Lord Cromer) was already in Cairo as consul-general.17 “Therefore,” thundered Churchill,two members of the great house of Baring are to be entrusted, so far as I can make out, with the sole disposal and almost unlimited control of England’s political and financial interests in Egypt ... I should like to point out, in this connection, that there literally would be no difference whatever in sending out two members of the house of Rothschild to sending out two members of the house of Baring. The two are almost equal in greatness and in their great pecuniary interest in the East; and it stands to reason that if Her Majesty’s Government had proposed—supposing a member of the house of Rothschilds, by circumstances and his public position, fitted to undertake the task—to send out such a member, there would have been a great cry of displeasure from the House of Commons and the country. But there would have been no difference between the position of Rothschilds and Baring ...

  Given Northbrook’s political track-record (he was a former Viceroy of India) Churchill was scoring a cheap point, and his claim that “the public service of this country has hitherto been uniformly free from the least connection with the commercial and financial private enterprises of the City of London” was, of course, nonsense. But it is of some interest that he believed a Rothschild involvement in Egyptian policy would have aroused more public objection than a Baring involvement.

  What Churchill did not know was that, the very day after Northbrook was sent to Egypt, Natty gave Granville an assurance that his firm would provide a short-term loan of £1 million to meet Egypt’s immediate deficit, though he pointedly demanded to know “what will Govt. do to help to secure his debt?” The need to renew this loan gave the Rothschilds precisely the kind of financial leverage over policy which Churchill erroneously attributed to the Barings: talking darkly of an impending Egyptian bankruptcy, Natty told Granville on December 26 that he was willing to renew the loan only for two weeks, in order to speed up negotiations with the other powers. Even as he tightened the screw, Natty seems to have enjoyed tormenting the government with conflicting and irreconcilable messages from Berlin and Paris. “Our only chance is to come to terms with Bismarck,” he told Hamilton in August. On September 1, he warned Granville that “Bismarck is very angry, [and says] that he will
defend the rights of the German ... bond holders, that he will oppose illegal action on the part of the Egyptians and give us an ultimate [sic] ratio, the Mandate of Europe to France, & in his opinion we should not like to face this.” But when he dined with Gladstone three months later, he “scoffed at the French computation of Egyptian Land Revenue,” strongly endorsing the estimates in Northbrook’s report the previous month which had called for a sole British control of Egyptian finance.

  It is hard not to sympathise with Gladstone as he was inexorably driven towards a de facto British protectorate: so ubiquitous did the Rothschilds seem that he accused them of leaking critical information to the French government—at a time when Hartington was supplying Natty with details of Northbrook’s report to pass on to Bismarck. There was probably something in this: in October the French premier Jules Ferry told Bismarck’s son Herbert “that England was agitating the great financial houses, and especially the Rothschilds, and was giving them to understand that the Egyptian Loans would become valueless, and the bondholders would lose everything, if the British Government were to be driven to extremities ... The financiers were now really anxious and were trying to modify the French Government’s attitide towards England.” Small wonder Rosebery hesitated to join the Cabinet at this critical juncture: he doubtless imagined another fierce speech on the subject of financial families from Churchill. Even as it was, Churchill made a wild speech about “a gang of Jewish usurers in London and Paris seducing Ismail Pasha into their net” and alleged that “Gladstone had delivered the Egyptians back into the toils of their Jewish taskmasters.”