The House of Rothschild

by Ferguson, Niall

  It was a financial reorientation which was encouraged by the low price of Russian bonds and propelled by Bismarck’s decision to prohibit their use as collateral for Reichsbank loans (the famous “Lombardverbot”). The striking thing—pace Cyon—is that, far from leading the Paris market, the Rothschilds followed it at some distance. It was a syndicate of rival banks including Mallet and Hottinguer which proposed creating a French bank in St Petersburg. The first major loan floated for the imperial government—for 500 million francs—was underwritten by a syndicate of deposit banks including the-Banque Paribas, the Credit Lyonnais, the Comptoir d‘Escompte and Herman Hoskier of the British firm Brown, Shipley. This occurred in the autumn of 1888, by which time the rise of Russian bonds seemed well established.

  What made the French Rothschilds change their minds about Russia? From an early stage they had admitted that it would be harder for them to take positive action in response to Russian anti-Semitism (beyond assisting Russian Jews to emigrate) than for their English cousins. The problem was partly, as Gustave explained, that religious “intolerance” was a more delicate subject in France than in England, because of the efforts of the Republican government to restrict clerical influence over education; in addition, however, he and his brothers had to take into consideration “our Government[‘s] relations with the Russian Government.” The French Rothschilds may also have been more susceptible to the argument which the Russians themselves liked to advance, that “there might be some reasonable improvement in this question of the Jews inside Russia and that ... our attitude respecting the financial operations with the Russian Government could contribute to such an improvement.” Secondly, the fall of Boulanger in May 1887 and the Republican victory in the 1889 elections seemed to be the harbinger of a more stable period in French politics. Thirdly, Alphonse had been genuinely alarmed in early 1888 by Bismarck’s attempts (as he put it) to build a “golden bridge for Russia, in order to break up, if not the alliance, at least the existing friendship presently between our country and Russia.” If anything was calculated to change his attitude towards Russia, it was the prospect of “a quadruple alliance of England, Russia, Germany and Austria” which would leave France out in the cold. Finally, there were strictly financial reasons for a change of policy. The crisis on the French market caused by the crash of the Comptoir d’Escompte enhanced the Rothschilds’ reputation in Russia: it appeared to be Alphonse who had intervened at the Banque de France to avert a complete collapse. The bonds which the Russian government now proposed to convert into 4 per cent paper had mainly been issued through the Rothschilds in the early 1870s. Under these circumstances, it is not wholly surprising that the Paris house agreed to undertake two major Russian bond issues in 1889 with a total face value of some £77 million. Rather less easily explained is the readiness of the London house to join in these operations, and to take a share in a third £12 million issue in 1890.

  True to past form, this new Rothschild-Russian connection was to prove a highly unstable one. Right away there was controversy in St Petersburg about the terms of the first loan: had Vyshnegradsky agreed to excessively generous terms in return for a private share of the business? As Girault has shown, the cost of the 1889 loan to the Russian Treasury was indeed slightly higher than that of the non-Rothschild loan the previous year; on the other hand, by reducing the margin between the price they paid for the bonds and the price at which they sold them to the public, the Rothschilds were able to attract more subscribers. Similarly, Vyshnegradsky’s “cut” was in reality intended for Hoskier, who had arranged the 1888 loan and insisted on being involved again. It is also worth bearing in mind that some German bankers, notably Bleichröder and Hansemann, acted as more or less equal partners in what was effectively a syndicate, so that the idea of a straightforward switch of Russian borrowing from Berlin to Paris is misleading. Indeed, the second loan of 1889 seems to have been initiated by the Germans—prematurely in the eyes of Alphonse—and by 1891 Bleichröder was keenly anticipating another major loan (of around £24 million) in which he expected to take a substantial share.

  Having re-established their financial links to St Petersburg, the Rothschilds now sought to exert pressure on the Russian government by renewing their criticism of its anti-Jewish policies. In May 1891 the French house unexpectedly withdrew from negotiations leading up to the issue of the new loan which Bleichröder had been anticipating. At the time, it was assumed in the Russian press that this was because “Messrs Rothschild of Paris [had] made certain demands upon the Russian Government regarding the Jews of Russia” and had pulled out when these were rejected. According to one newspaper, there had been “a strong pressure” on Alphonse “by the Israelite and Judaeophile party in England which, as it appears, has been irritated by certain administrative measures taken in Russian towards a portion of the Israelite population.” It has been suggested that this was merely a pretext: the real aim was not to force the Russian government to treat Russian Jews better, but to agree to a more binding military alliance with France than had hitherto been contemplated in St Petersburg. Another possibility is that the French premier Ribot regarded the Rothschild syndicate as too “German” precisely because of Bleichröder’s involvement. If either of these interpretations were true, it would be a classic illustration of the persistence of Rothschild financial power in the sphere of international relations. On close inspection, however, neither is persuasive.

  In the first place, there were a number of non-financial reasons for closer Franco-Russian ties, not least the increasingly unfriendly attitude of the German government following the accession of William II in 1888 and the dismissal of Bismarck two years later. The assurances of William and the new Chancellor Caprivi that Germany would support Austria in the event of a war with Russia and their blunt refusal to renew the secret Reinsurance Treaty made financial inducements superfluous: logically, France and Russia were likely to gravitate towards one another, even if the Russian Foreign Minister Giers was in less of a hurry to conclude a binding military alliance than the Tsar himself.

  Secondly, the Rothschilds’ sense of outrage at the Russian government’s continuing anti-Semitism seems to have been as genuine as ever. In August 1890 Natty’s son Walter wrote to Bleichröder urging him to “use your powerful influence at St. Petersburg to prevent the Government from putting into force the old cruel and senseless laws ... which are so harsh and oppressive that they may be the cause of many Jews becoming violent Nihilists.” It may be that Vyshnegradsky had made some kind of promise that the persecution of the Jews would be eased and that his failure to honour this was genuinely taken amiss. For their part, the London Rothschilds felt that “Alphonse could not have done otherwise” in view of the “mediaeval barbarities” which had been committed.4 Nor is there any reason to doubt Edmond’s sincerity when he decried “the never ending horrors to which our poor co-religionists are subjected in Russia.” In another private letter to his London cousins, Alphonse likened Alexander III’s religious intolerance to that of Louis XIV and Philip II of Spain and expressed deep scepticism about the attempt by the arch-reactionary Konstantin Pobedonostsev to strike a more conciliatory note in September 1892. It is hard to believe that the Russian and French press would have overlooked a diplomatic significance to the Rothschilds’ withdrawal from the 1891 loan if there had been any; instead there was agreement that the religious issue was the cause of the breach.

  Finally, the Rothschilds had strictly financial reasons for blowing hot and cold towards Russia. The large short-term deposits of Russian gold with the London house during the Barings crisis in 1890, for example, obliged the English partners to be circumspect in their political criticisms; by 1891 that constraint had been removed. The growing investments of the French Rothschilds in the Russian oil industry also need to be taken into account. Indeed, Girault has suggested that it was really disagreements about Russian trade policy—specifically its protective tariffs on imports of rails and its new tax on oil exports—which led
the Rothschilds to pull out of the 1891 loan. The catastrophic Russian famine of 1891, which was at least to some degree exacerbated by Vyshnegradsky’s policies, may have played a part too. Above all, it is important to notice that the renewed slump in Russian bond prices predated the Rothschild withdrawal from the loan by over a month. That in itself provides a plausible explanation for the decision.

  If there was a political subtext to the 1891 “incident” it related to French domestic politics and the difficulties of the Panama Canal Company, which helped to topple the Ribot government later the following year. The Rothschilds had kept a safe distance from the Panama affair, as we have seen; but there is some evidence to suggest they also viewed with hostility the far from disinterested efforts of Ribot to keep it afloat. The diplomatic significance of this governmental crisis in France was that it delayed the ratification of a Franco-Russian military convention, under which Russia agreed to assist France in the event of German aggression, until the beginning of 1894. Continuing political instability in France acted as an impediment to diplomatic convergence. Alphonse himself expressed pessimism to Witte’s agent Raffalovich about the ability of the French market to continue its support of Russia if the government continued with its protectionist policy and tax increases.

  It was the appointment of Witte as Finance Minister which persuaded the Rothschilds to resume financial relations with Russia. Once again the treatment of the Jews was a key issue. In October 1892 the German ambassador in Paris, Count Münster, gave an assessment which may not have been far wide of the mark:Whereas I have hitherto always assumed that His Majesty the Emperor of Russia will never bind himself to the Democratic Republic, or enter into a treaty of alliance, I am now no longer quite certain whether some agreements have not been entered into. The Rothschilds, who have so far always asserted that nothing of the kind existed, no longer so definitely deny this; and they have suddenly changed their attitude towards Russia and are negotiating a 500,000,000 [franc] loan. The Rothschilds who have so far been Royalists, have approached the Republic, and are now hand in glove with the Government whereby they regain their influence. The prospect of making a profit and, according to Alphonse Rothschild, the hope of attaining better conditions for the Jews in Russia, have induced the House here to enter into negotiations for a loan ... That the wife of the new Finance Minister, Witte, whom Russian ladies here have described to me as being an intelligent and very intriguing Jewess, is of great help in bringing about an understanding with the Jewish bankers, seems to me to be not improbable. The Paris Bourse is afraid of being overshadowed by the Bourse of Berlin, and the big Jews believe that if they can earn money they can best help the small Jews, with the result that although the French market is saturated with Russian securities, the French give their good francs for bad roubles.

  The fact that the Rothschilds privately alluded to the Jewish origins of Witte’s wife lends credibility to this interpretation. However, there were once again economic considerations at work. The loan which Münster heard discussed in 1892 did not in fact come off, and it was not until 1894 that the Rothschild-led syndicate issued a 3.5 per cent loan worth around £16 million (400 million francs). This was followed by a 3 per cent loan for the same amount in 1896, for which Alphonse was awarded the Grand Cross. By that time, the rise in Russian funds was beginning to look sustainable, though the second loan was only placed with investors slowly—even with the timely assistance of a visit by the Tsar to Paris. The Rothschilds may also have been attracted by Witte’s stated objective of putting Russia on to the gold standard, which accorded with their global interests in gold mining and refining. Indeed, there had been talk at New Court in 1891 of making an approach to Baron Gunzberg, the owner of the Lena gold mines.5

  There remains, however, a paradox. Confidential Rothschild correspondence shows that the London house participated in the 1894 loan and did not oppose the 1896 loan. Yet Münster and others had the strong impression that “the London House [would] have nothing to do with” Russian finance, an impression which was strongly confirmed five years later. To Münster, this was merely a proof of “how cunning these great Jews are. They always have a back door open.” More recently, historians have tended to argue that the British Rothschilds felt more strongly on the question of their co-religionists’ rights than the French. The archival evidence, nevertheless, suggests that more subtle considerations were involved. Essentially, the Rothschilds drew a distinction between Franco-Russian rapprochement, which they favoured, and Anglo-Russian rapprochement, which they were against. This might seem contradictory, but it was in many ways a rational application of the principle of the balance of power. In Natty’s eyes, an alliance between France and Russia might be acceptable; but its corollary was some kind of understanding between Britain and Germany. This explains the hostility he and his brothers expressed towards Russia when Witte was considering the possibility of floating a loan in London.

  This initiative originated in the fatigue of the Paris market. As we have seen, the price of Russian bonds peaked in August 1898 and when Witte visited Paris later that summer Alphonse indicated that he would be unwilling to contemplate a new Russian loan in the face of rising yields across the board.6 This refusal was made after consultation with Natty, who in turn had asked Salisbury, observing that “it would neither be in accordance with the interest nor the inclination of Ld. Rothschild to encourage M. de Witte, unless Y[our] L[ordship] thought it desirable that he should do so.” In a reply which perfectly illustrates how the bond market and diplomacy interacted, Salisbury agreed:that, as matters stand, it is not in our interest to encourage the borrowing operations of Monsieur de Witte. But it may by some unforeseen turn of events, become so: & therefore it would not be prudent to show reluctance to help him too manifestly. The most useful condition to bring him to is a belief that he has still a chance of getting our assistance.

  This hint was duly taken, and in January 1899 the Russians broached the idea of a loan in London.

  To understand the Rothschild response to this approach, it is necessary to bear in mind the role of Germany, whose policy towards Russia was in a state of flux at this period. Despite the anti-Russian signals of the early Wilhelmine years, the German banks had been positively encouraged by the German Foreign Office to participate in the 1894 and 1896 Russian loans, precisely in order to prevent a French monopoly on Russian finance. Indeed, by 1898 the German government was beginning to think in terms of a return to the Russo-German option. Thus, when the idea of a Russian loan in London was floated in 1899, it was closely linked to a parallel suggestion of a diplomatic deal between Russia and Germany, the implication being that, if Britain refused to lend to Russia, she should turn to Berlin. The dilemma for the Rothschilds was acute: on the one hand, they were against an Anglo-Russian rapprochement, but nor did they wish to see Berlin and St Petersburg reconciled in such a way that their own pet scheme for Anglo-German rapprochement fell by the wayside. This explains why the proposal split the London partners along lines summarised by McDonnell for Salisbury:The question will then arise whether or not the English market shall be permitted to raise a loan [of] probably £15,000,000 ... for Russia, Mr Alfred Rothschild, who is violently Russophobe, says No: on no account.

  Lord Rothschild is less decided: he thinks that his House could make or mar such a loan: if they brought it out, it would not be particularly lucrative: and his inclination is adverse to the operation.

  But if the London market remains closed he is afraid that Russia may learn her own financial strength ... [A]s a last resource [sic] Russia can find the money herself, though it would involve the depletion of her war chest.

  Natty was relieved to learn three days later that the proposed Russo-German agreement had foundered—partly, he claimed, because of the German “desire to combine with England (and possibly with America and Japan) for commercial purposes in China.” He warmed to this theme a week later, gleefully reporting that “Germany meanwhile is evidently alarmed at Russia’s re
cent proposal: she has sent a large order for Maxim guns and for quick firing field guns to Messrs Vickers of Sheffield.” “No one here,” he told the German ambassador in May, “would think of lending them [the Russians] money which would be used for armaments directed against England, and he regarded it as certain that all the efforts by Witte and his local agents in the city would remain unsuccessful.” Hatzfeldt attributed this “to the anti-Russian feeling by the family because of the Jewish question” (noting that this was not shared by other City houses); but diplomatic considerations were as important, if not more so. Between August 1899 and May 1901, the Russians reverted to Paris, with Delcassé’s broadening of the terms of the entente “to maintain the balance of power in Europe” reinforced by a new 4 per cent 425 million franc loan, floated by the old Rothschild-led consortium in May 1901. Again, it was symbolic of the interdependence of diplomacy and finance in the alliance system that Delcassé’s visit to St Petersburg in 1899 was followed by Edmond’s in 1901. Hatzfeldt’s report to Holstein on this loan speaks volumes for the continuing influence of the Rothschilds in international relations: “It is not easy to see how, even with the best will in the world, the French will find the necessary money, as they have already invested [so much] money in Russian bonds. But if Rothschild considers it possible, then it probably is possible.” The new German Chancellor, Prince Bernhard von Bülow, noted in the margin: “Yes.”