Holy Roman Empire
Chapter 364: Two Countries on the Brink of Bankruptcy (Bonus Chapter)

Vienna Palace

The Foreign Minister, Wessenberg, smiled as he said, “Your Majesty, in seeking our support, both Russia and Prussia have offered almost identical conditions.

The Russians promise that if we support them, we can obtain Silesia after the war; Prussia promises that if we remain neutral, they will cede Silesia after the war.”

The Russians’ promise showed a blatant disregard for others’ interests, as the Russian government did not hesitate to trade away Prussia’s interests to win over Austria.

Meanwhile, the Prussian government’s promise was made out of desperation. They were also unwilling to give up Silesia but to win the war, they had to appease Austria.

If they win this war, all their efforts can be repaid twofold; if they lose the war, Galicia cannot be retained at all.

Despite the years that have passed, Austria still harbored resentment over Silesia. Especially in recent years, as its strength increased, the voices in the Austrian government calling for the recovery of Silesia grew louder.

Once the Kingdom of Prussia shows signs of weakness, Austria will definitely kick them when they’re down. Now, the Prussian government has no choice but to first stabilize Austria.

Looking at Felix, who seemed hesitant to speak, Franz asked, “Prime Minister, what do you think?”

Prime Minister Felix replied, “Your Majesty, neither of these options is ideal. What we need is for both Prussia and Russia to be weakened.

Currently, our alliance with Russia is already causing discomfort, with various European countries working to dismantle this alliance. If the Russian government continues to succeed, we will only encounter more trouble in the future.

For us, the current Russian Empire is already powerful enough. It is hard to say whether the Russo-Austrian alliance will still have value once the Russian government completes its internal reforms.

Similarly, a stronger Kingdom of Prussia does not serve our interests. Europe is too small to accommodate so many powerful nations.”

The ideal scenario is for both Prussia and Russia to be weakened. Not only can this disrupt Alexander II’s reforms by using the Prussians’ hands, making the Russian government’s reforms less thorough than in history, but it can also thwart Prussia’s ambitions, leaving them with no chance of rising up after this failure.

However, achieving this is extremely difficult. At least Franz does not believe that Austria can play this balancing act.

The Kingdom of Prussia would be ruined if it lost once, while on the surface it seemed that Russia could lose many times. In reality, this was not true. The Russian government has too many internal problems, and Franz is also unsure of their capacity to endure losses.

This is unlike the Near East War, where the Russian army reached the gates of Constantinople. All classes within the country supported the war, and no matter how great the losses, the Russian government had to persevere.

Franz pondered for a moment before stating, “Let’s dispense with these idealistic plans; they’re too prone to failing, ultimately pleasing neither side. Based on practical needs, we only need to accomplish two things:

First, utilize the Prussians to disrupt the Russian government’s reforms. As long as the Russians cannot achieve victory in the short term, Alexander II will concede to the conservatives, and the reforms will not be thorough.

Second, the Kingdom of Prussia must not be allowed to expand. One powerful nation in Germany is sufficient; there’s no need to add another competitor.

The task of strengthening Prussia’s power can be left to England and France. Our role is simply to provide support to the Russian government when necessary, bolstering their resolve to continue the fight.”

It was impossible to please both sides. If they really tried to do that, the most likely result would be both sides hating them, rendering the situation untenable.

The role of the Austro-Russian alliance is diminishing, but as long as the treaty remains in effect, Austria cannot openly betray Russia.

This concerns Austria’s credibility in international politics and diplomacy. A country without credibility will never earn the respect of others.

Fortunately, the Prussian government was smart enough not to wage any undeclared wars or invade Russia directly. Otherwise, according to the pact, Austria would also have been dragged into the war.

Currently, the situation involves the Kingdom of Prussia’s invasion of Denmark, prompting Russia to declare war on Prussia to protect its ally.

Such a scenario falls outside the scope of the Austro-Russian alliance’s mandatory participation in warfare.

The Kingdom of Denmark was an ally of Russia, but not necessarily an ally of Austria. The Austrian government did not need to stand with Russia.

The Minister of Finance, Karl, reminded, “Your Majesty, the financial situation of the Russian government is extremely dire. The slow action of the Russians is largely due to financial constraints.

Not long ago, bonds issued by the Russian government received a cold reception in the capital markets, with investors concerned that the Russians might default.

According to our analysis of the information available to us, if the financial situation of the Russians does not improve, the Russian government may declare bankruptcy again.”

Within the Austro-Russian alliance, there are provisions stipulating that, without harming its own interests, it is obliged to provide material assistance to its allies.

In theory, under such circumstances, the Austrian government should provide assistance, but this is a matter of choice. However, the manner of support depends on the actual situation.

Providing loans constitutes assistance, as does donating supplies. The specifics depend on interests.

Without sufficient interest, they could just take some weapons and ammunition from the warehouses to make up the numbers.

The attitude of the Minister of Finance is very clear, indicating that the financial situation of the Russian government is extremely dire, and it is highly likely to go bankrupt after the war. Austria does not need to jump into this pit.

Government bankruptcy had never been anything new on the European continent, especially for the Russian government. Once government debt exceeded their ability to repay, they would declare bankruptcy.

Government bankruptcy meant that they would indefinitely suspend payment of previous debts, or in other words, not repay them. The Russian government had done this many times, leaving many creditors in tears.

Of course, not every country had the privilege of defaulting. In this era, there was still a way to collect debts — forcible debt collection.

Small countries, even if they declared bankruptcy, usually only defaulted on personal debts. The debts to great powers still had to be repaid, such as through monitoring of finances by the powers.

Mexico is just a negative example, lacking strength yet daring to emulate others in defaulting on debts. In 1862, President Juárez announced a suspension of debt payments, and then French creditors came knocking at the door.

This approach is ineffective against the Russians; no creditor has the capability to demand money in St. Petersburg. After numerous instances of default, no lenders were willing to loan money to the Tsar on the capital market.

Franz asked in surprise, “Has the Russian government’s finances deteriorated to such an extent?”

In his memory, while the Russian government’s finances were poor, they had not reached the point of collapse. Even in the event of a Russo-Prussian war, they would not immediately go bankrupt.

Finance Minister Karl explained, “Your Majesty, in recent times, ordinary European countries, as long as they can persevere, will try their best to repay debts and rarely default. However, the Russians are an exception.

Based on past experience, when the Russian government’s debt reaches a certain level, it will declare bankruptcy. Recently, we have gathered intelligence indicating that the Russian government has prepared a bankruptcy plan.”

Franz had nothing to say. In fact, during the Middle Ages, kings declaring bankruptcy and defaulting on debts was quite common, occurring almost every few decades.

Many capitalists were left in tears, with Jewish financiers being among the most heavily affected. This was largely due to their immense wealth; as the majority of money was concentrated in their hands, who else would people turn to for loans?

Of course, many kings were also victims. The Jewish capitalists attracted hatred precisely because they often included hidden clauses in loan contracts, and not a few borrowing kings fell into their traps, having to pay extra interest.

Facts proved that rulers were not to be trifled with, especially in the age of monarchies. Anyone who dared to cheat them out of money would have to pay the price. Most anti-Semitic movements on the European continent stemmed from this.

As we entered the modern era, the power of capital continued to grow, and governments around the world resorted to bankruptcy and default on debts less and less frequently. Especially for international loans with backing from great powers, defaulting became even more unthinkable.

During times when everyone defaulted together, it didn’t matter much, as everyone was in the same boat. However, when suddenly everyone else began to abide by the rules, being the only one left defaulting on debts became highly conspicuous.

Once creditors spread the word, the Russian government’s credibility was ruined. Without credibility, many things became difficult, leading to the awkward situation of Russia having to use gold and silver coins.

Franz pondered for a moment before saying, “Then we should also tighten the purse strings externally and remind the domestic financial sector to be more vigilant. Our support for the Russians should primarily be in the form of tangible assistance. All large loans to Russia must be backed by collateral.”

This could also be considered taking advantage of Russia’s difficulties. These restrictive conditions undoubtedly increased the difficulty for the Russian government to raise funds in the Austrian capital markets. However, as long as the Russian government did not default, providing collateral was acceptable no matter how much.

With collateral, even if Russia declared bankruptcy, they could not default on these debts. After all, the value of the collateral was usually higher than the loan amount.

Franz had no choice but to do this. It was only recently that the Russian government had used Alaska as collateral to offset 2.57 million guilders in debt, while also incurring a debt of gratitude. If they were not really struggling, the Russians would never have done such a thing.

……

While Austria worried about the possibility of Russia declaring bankruptcy, the British government faced the same issue. As the continent’s most impoverished and militaristic country, the Kingdom of Prussia was far from being wealthy.

Lending money to the Prussian government now carried no less risk than lending to the Russians. War bonds issued by the Prussian government met with a chilly reception in the London financial market.

If Prussia were to emerge victorious, there might still be a chance of repayment. However, if Prussia were to lose or if both sides were to suffer, these investments would all go down the drain.

Few held a positive outlook on Prussia, and people were unwilling to risk their money. Even though bond interest rates had been raised to 15.8% per annum, sales remained far from optimistic.

As the primary financier of the Kingdom of Prussia, the British government naturally could not stand idly by in such a situation. Without sufficient funds, how could Prussia wage this war?

Chancellor of the Exchequer Agarwal said, “The war bonds we have issued to the Prussians have only sold 1.869 million pounds so far, far from the 15 million pounds issuance target.

The public does not have confidence in their ability to win this war. Unless someone can provide them with guarantees, these bonds cannot be sold.

The financial situation of the Kingdom of Prussia is extremely dire. Since 1848, they have been running deficits continuously.

Several domestic financial institutions believe Prussia’s finances are on the verge of bankruptcy and refuse to provide them with loans.”

It was not easy being a financier, requiring a real investment of money. The cost of the Prussian-Russian War was bound to be an enormous expenditure, with a very real possibility of getting nothing in return.

Prime Minister John Russell rubbed his forehead and said, “So, you’re saying that our promised assistance to the Kingdom of Prussia has only raised less than one-fifth of the target in the past two months?”

According to the agreement, the British are supposed to provide a loan of 10 million pounds to the Kingdom of Prussia, in addition to issuing 15 million pounds in war bonds.

However, in reality, aside from the 5 million pounds advanced by the British government to the Prussian government, there has been no interest whatsoever in the capital market.

This is the aftermath of the Near East War; neither Britain nor France managed to defeat the Russians, let alone the Kingdom of Prussia.

Even the British government did not believe that Prussia could win this war. Supporting them is simply aimed at disrupting Russian reforms, not expecting Prussia to emerge victorious.

“Yes, Prime Minister. People lack confidence in Prussia, so they are cautious when it comes to investing,” the Chancellor of the Exchequer Agarwal replied.

The British public was still very supportive of backing Prussia against Russia, but it was different when they had to pay for it.

Some newspapers in London were betting on when the Kingdom of Prussia would fall.

The most optimistic estimated that the Kingdom of Prussia could only last a year before losing the war; the most pessimistic believed the Prussian government would surrender in less than a month.

It was widely believed that for the Kingdom of Prussia to win this war, nothing less than direct English and French participation would suffice. Otherwise, defeat was only a matter of time.