Holy Roman Empire

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By evening, the Russian Empire’s embassy in Vienna was brightly lit, with the occasional sounds of music drifting out—there was no doubt a diplomatic reception was underway inside.

There weren’t many attendees; the host had only invited envoys from countries with good relations with the Tsarist Government and some of the Russian nobility in Austria.

Such diplomatic receptions were held almost monthly and were hardly noteworthy. The only point of interest was that Foreign Minister Weisenberg had personally attended the banquet.

Before the rupture in the Russian-Austrian Alliance, Weisenberg’s presence here would not have been surprising. But times had changed; as Russian-Austrian relations began to cool, Weisenberg’s appearance merited deep contemplation.

...

With a snort, Weisenberg couldn’t help but spray the wine from his mouth. His eyes widened as he stared at the Russian Envoy Alexander Nikolayevich Her: "Your Excellency, are you certain this is no joke?" n/ô/vel/b//jn dot c//om

Niklaevich nodded seriously and assured him solemnly, "No!"

Having said that, he held Weisenberg’s gaze unflinchingly.

After a brief pause, Weisenberg flatly refused, "This is impossible!"

"How much does your country’s financial revenue amount to? 5 Billion Divine Shields far exceed your government’s debt capacity. Do not forget that your country still has a massive amount of debt unpaid."

Fortunately, the two were conversing in a corner, undisturbed by anyone unacquainted with tact. Otherwise, it would have caused a sensation throughout the venue.

"5 Billion Divine Shields" was no small figure, equivalent to 250 million British Pounds or around 1830 tons of gold, relative to the annual fiscal revenue of the combined England, France, and Austria.

As for loans, Austria had never provided Russia with such significant funds, not even during the heyday of the Russian-Austrian Alliance.

Of course, it’s not as if the Tsarist Government hadn’t considered borrowing earlier; it was mainly because Austria had not been wealthy in the preceding years. Despite its profound imperial history, Austria had only really prospered in the recent few years.

Capital accumulation takes time, and even as it became the world’s largest economy, Austria’s financial sector still had limited capital.

Now nearing France’s level and still a long way off from England’s, what propelled Austria was industrial wealth, not financial wealth.

5 Billion Divine Shields could be raised, but subsequent to that, Austria would face a domestic money shortage.

It was not just Austria— even Britain, with its wealth of capital, would disturb the entire financial market if it were to dispense such a vast sum all at once.

Wealth and cash are two different concepts; the gap between paper wealth and liquid assets is immense.

Of course, this difficulty is only immediate. Given enough time, England, France, and Austria would all be capable of assembling such funds.

One need only look at the Franco-Prussian War to see: the French lost 20 billion Francs (equivalent to approximately 1.6 Billion Divine Shields) during the war, and later paid reparations of 5 billion Francs (about 400 million Divine Shields), clearing the debt within a short three years.

Weisenberg rejected the offer outright, without even proposing conditions; the crux was the Tsarist Government’s lack of credibility. Lending money to the Russians now would be like throwing meat buns to a dog—a total loss.

The Russian Envoy Nikolayevich argued resolutely, "Your Excellency, we are very sincere this time. For the loan interest, we are willing to offer a monthly rate of 0.5%; this profit..."

Weisenberg cut him off, "Forgive me for being frank, but with your government’s reputation, not a single bank would dare lend you money.

It doesn’t matter if it’s a monthly rate of 0.5% or even a daily rate; who would dare to issue a loan that’s doomed to be irrecoverable?"

According to the conventions of international loans of that era, one would have to deduct fees for procedures, exchange, guarantees, plus principal and interest for one year and any recurrent lending; indeed, a monthly interest of 0.5% was very generous, let alone any additional conditions.

All the favorable terms matter little if the stake is "poor credibility." High returns are only meaningful if the money can be recovered.

Nikolaevich rushed to clarify, "We can provide real assets as collateral. If we fail to fulfill the debt later, your country may retain the pledged goods directly."

Weisenberg looked at Nikolaevich and said chillingly, "If your country can offer gold as collateral, there would naturally be no problem.

Not to mention 5 Billion Divine Shields—even 10 Billion would be lendable by me, and I could even waive the interest."

Nikolaevich frowned, a bitter feeling welling up inside. If they had so much gold to offer as collateral, the Tsarist Government would have already set their printing presses in motion.

In the age of the gold standard, gold was wealth. Whether it was used to back currency issuances or as currency itself, there were no issues.

"Your Excellency, this joke is not amusing at all. If we had that much gold, why would we need a loan?"

It was a fact; 5 Billion Divine Shields was about 1830 tons of gold. Aside from England and Austria, no third country had such a reserve of gold.

Private holdings aside, if one accounted for civilian gold, then India and the Far Eastern Empire would surpass that figure.

Nikolaevich’s remarks reminded Weisenberg that the Tsarist Government still had a significant amount of gold in its hands.

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"Your Excellency, the Envoy, that’s too modest. As far as I know, your country has always been a gold-exporting country; how could you possibly be in need of gold?"

"How about this? Your government can deposit the gold standard for ruble issuance into the Austrian National Bank and use this gold as a guarantee.

In consideration of the friendship between our two countries, I can decide to waive the interest for you. Your government can obtain a large sum of money for use without paying any cost."

"Gold-exporting country"—this was not what the Tsarist Government wanted. Even though the gold production of the Russian Empire was not low, the demand was also great!

Due to issues with credibility, the ruble, apart from being used domestically, was hardly recognized in international settlements, forcing the Tsarist Government to resort to using foreign exchange or gold for settlements.

In order to push forward with industrialization, the Russian Empire had been importing large quantities of machinery and equipment in recent years. To address the trade deficit, the Tsarist Government had no choice but to fill the gap with gold.

Wessenberg suggesting that the Tsarist Government deposit gold into the Austrian National Bank was naturally not out of consideration for the Russians but rather to amass more funds.

Withdrawing gold was easy, needing only a decision from the Tsarist Government. Redeeming it back? That was a joke.

The Tsarist Government was borrowing money now to raise funds for war. As soon as the Prusso-Russian War broke out, this money would quickly be consumed in the conflict.

Even if they won the war, for a long time to come, the Tsarist Government would not have the funds to redeem the gold.

One-way outflow—that was dangerous. It seemed like a financial maneuver to obtain a huge amount of funds, as if it was a gain, but in reality, this was completely based on the continuous friendly relations between Russia and Austria.

If one day the two countries turned against each other, and the Vienna Government swallowed up these gold reserves, the ruble would instantly become worthless paper.

After understanding the risks involved, Niklaevich immediately rejected the proposal, "That’s impossible. Your Excellency, the Minister, we can use territory as collateral, but not gold."

Wessenberg smiled faintly, not directly responding, and the two hastily ended their conversation.

...

The next morning, the documents for the Tsarist Government to raise war funds were placed before Franz.

"The Tsarist Government wants to start the war early, it seems Alexander II is really committed this time, even willing to mortgage his own territory.

If they had done this earlier, the last war wouldn’t have been such a disastrous defeat. People always need to suffer losses before they learn their lesson!"

Prime Minister Felix said, "Although that’s true, without experiencing failure, how can one understand the consequences of failure?

The Tsarist Government is learning from their past defeat, shedding their invincible arrogance, knowing now to be grounded in reality.

War is all about money. To some extent, the key to deciding the outcome of this Prusso-Russian War is no longer military but based on how much war funding both governments can raise.

With the size of the Russian Empire, as long as there is sufficient war funding, they could even wear down the Prusso Federation by attrition."

"Wear down the Prusso Federation," this concept flashed through Franz’s mind briefly. This was the ideal scenario without external interference. The Berlin Government wasn’t foolish; forming alliances was a must.

"Send people to watch the financial circles closely and monitor large capital movements. Both the governments of Prussia and Russia are penniless, without enough funds, a war cannot start.

War, like a gold-consuming beast, is hard to finance. Only we and England and France have the resources, and nobody’s money just falls from the sky.

Without sufficient interests, Prussia and Russia will find it very difficult to raise the necessary funds. Geo-politically, we are the ideal creditors, and only we dare to accept land as a mortgage.

The Russians have come to our doorstep, so we should quickly ascertain the Tsarist Government’s bottom line to secure the greatest benefit for Austria."

Franz did not bring up gold as collateral for loans, who would not put their lifeline in someone else’s hands unless absolutely desperate. This was far more serious than a territorial mortgage.

A territorial mortgage, severe as it seems, has a controlled risk. As long as the war is won, even if the debt cannot be repaid, there is still plenty of leeway to maneuver—like swapping out mortgaged territory.

Mortgaging one’s own territory for debt might be hard to justify domestically; mortgaging the enemy’s territory, however, carries no pressure.

If the war is lost, then there is nothing left to say. The government would change, and the mess would be the next administration’s responsibility to clean up.

It is the same in a monarchy. It might not be necessary to change the monarch, but changing ministers is a must. Someone always needs to be held accountable for defeat, and the bureaucrats see this very clearly.

This naturally did not escape Alexander II; territorial mortgage loans proceeded with his silent consent. But gold as collateral, that was definitely beyond his bottom line.

Being blunt, with the Russian Empire’s vast size, so long as it wasn’t core territory, selling a piece was inconsequential. Territories have been bought and sold before; the political risk was limited.

But depositing gold as a mortgage to Austria, that was entirely different; it would mean placing the economic lifeline of the Russian Empire into the hands of Austria.