Holy Roman Empire

In the evening, the Russian Empire’s embassy in Vienna was brightly lit, with bursts of music occasionally drifting out. There was no doubt that a diplomatic soirée was taking place inside.

The guest list wasn’t extensive. The hosts had invited only envoys from countries with favorable relations with the Russian government, along with a few Russian nobles residing in Austria.

Such diplomatic gatherings were held almost monthly and were hardly noteworthy. What stood out, however, was the personal attendance of Austria’s Foreign Minister Wessenberg.

Before the dissolution of the Russo-Austrian alliance, Wessenberg’s presence wouldn’t have been surprising. But now, with relations between Russia and Austria souring, his appearance at the event raised many questions.

…

With a sudden burst, Wessenberg couldn’t help but spit out his drink. He widened his eyes and stared at Russian ambassador Alexander Nikolaevich and said, “Sir, are you certain this isn’t a joke?”

Nikolaevich nodded seriously, responding solemnly, “No, I’m not joking.”

After speaking, he met Wessenberg’s gaze without hesitation.

After a brief pause, Wessenberg flatly refused, “That’s impossible!”

“Your country’s annual revenue is only how much? 500 million guilders far exceeds your government’s debt capacity. Don’t forget that your country still has a massive amount of unresolved debt.”

Fortunately, the two were speaking in a corner where no one else dared to interrupt. Otherwise, the entire room would have erupted in shock.

Five hundred million guilders was no small sum. It was equivalent to 250 million pounds or about 1,830 tons of gold, roughly equal to the combined annual fiscal revenue of Britain, France, and Austria.

Such a loan was unthinkable. Even during the Russo-Austrian alliance’s heyday, Austria had never extended such an enormous amount to Russia.

Of course, it wasn’t that the Russian government hadn’t sought to borrow such sums earlier. It was mainly because Austria wasn’t wealthy in previous years. Despite being a historic empire with deep foundations, Austria’s true prosperity only began in recent years.

Capital accumulation takes time, and even though Austria had become the world’s largest economy, its financial sector’s capital reserves were still relatively limited.

Austria was now catching up with France but still had a long way to go to reach Britain’s level. Simply put, Austria’s rise was based on industry, not finance.

While five hundred million guilders wasn’t an impossible sum to produce, the problem was that after producing it, Austria would face a domestic cash shortage.

Even for Austria, or even Britain, the wealthiest in capital, producing such a massive amount at once would still impact the entire financial market.

Wealth and cash are two different concepts, and the gap between nominal wealth and liquid capital is vast.

Of course, this difficulty lies in producing the sum immediately. Given sufficient time, Britain, France, and Austria would all have the ability to raise such funds.

For reference, look at the Franco-Prussian War. France lost 20 billion francs (equivalent to 1.6 billion guilders) during the war, then paid another 5 billion francs (about 400 million guilders) in reparations post-war, all settled within three years.

Wessenberg flatly refused, not even discussing terms, primarily because the Russian government lacked credibility. Lending money to the Russians now was like throwing dumplings to a dog—they would not see it again.

Unfazed, Russian ambassador Nikolaevich said calmly, “Sir, this time we are offering very favorable terms. For interest, we are willing to calculate it at a monthly rate of 0.5%. The returns on this…”

Wessenberg interrupted immediately, “With all due respect, given your government’s reputation, no bank would dare lend you money.

Even at a daily interest rate of 0.5%, let alone monthly, a loan that is certain to be unrecoverable, who would dare issue it?”

According to the international loan conventions of this era, before disbursing the funds, various deductions would be made for handling fees, exchange fees, guarantee fees, and the first year’s interest and principal. Even so, a monthly interest rate of 0.5% was indeed very generous, especially considering the additional terms.

But no matter how favorable the terms were, it couldn’t outweigh the phrase “poor credit.” No matter how high the returns, they only mattered if the money could actually be recovered.

Nikolaevich hastily explained, “We can provide collateral in kind. If we fail to fulfill the debt later, your country can directly seize the collateral.”

Wessenberg glanced at Nikolaevich and responded coldly, “If your country can provide gold as collateral, there would naturally be no problem.

Forget 500 million guilders, even if it was 1 billion guilders, I could approve the loan myself and I might even waive the interest.”

Nikolaevich frowned, feeling bitter inside. If the Russian government had that much gold to use as collateral, they would have started printing money long ago.

In the gold standard era, gold was wealth. Whether used as the basis for issuing currency or directly as currency, it served the same purpose.

“Sir, that joke isn’t funny at all. If we had that much gold, why would we need a loan?”

That was the truth as 500 million guilders was equivalent to approximately 1,830 tons of gold. Besides Britain and Austria, no other nation had reserves of that scale.

This excluded private holdings. If private gold were included, then India and the empire on the Far East would surpass that amount.

Nikolaevich’s words gave Wessenberg an idea. He remembered that the Russian government still had a considerable reserve of gold.

“Sir, you’re being too modest. As far as I know, your country has always been a gold-exporting nation. How could you possibly lack gold?

Here’s a suggestion: your government could deposit the gold reserves backing the ruble at the Austrian National Bank as collateral.

In the spirit of friendship between our two nations, I can personally waive the interest. Your government wouldn’t need to pay anything and could still secure a large sum of money.”

Being labeled a “gold-exporting nation” was far from what the Russian government desired. While the Russian Empire did have significant gold production, its demand for gold was equally high.

Due to its poor credit, the ruble was barely accepted internationally outside domestic circulation. As a result, the Russian government was forced to use foreign currencies or gold for international transactions.

To advance industrialization, the Russian Empire had been importing large amounts of machinery in recent years. To address the resulting trade deficit, the government had no choice but to use gold to cover the gap.

Wessenberg’s suggestion that the Russian government deposit its gold in the Austrian National Bank was hardly altruistic. It would secure Austria access to an additional financial resource.

Releasing gold might only require a decision from the Russian government, but reclaiming it? That would be a joke.

The Russian government was borrowing money to fund its war preparations. Once the Russo-Prussian War began, these funds would quickly be consumed.

Even if Russia were victorious, the government would lack the funds to reclaim its gold reserves for a long time.

This arrangement carried substantial risks. While depositing the gold might seem like a clever way to leverage financial resources, it was predicated entirely on the assumption that Russo-Austrian relations would remain amicable.

Should relations deteriorate, the Austrian government could easily confiscate the gold, and the ruble would instantly become worthless paper.

After realizing the risks, Nikolaevich immediately declined, saying, “That’s impossible. Sir, we can use territory as collateral but not gold.”

Wessenberg smiled faintly and didn’t respond directly. The two quickly ended their conversation.

…

The next morning, reports on the Russian government’s efforts to raise funds for the war appeared on Franz’s desk.

“The Russian government wants to accelerate the war. It seems Alexander II is pulling out all the stops this time, even willing to use his own territories as collateral.

If they had been this pragmatic earlier, they wouldn’t have suffered such a crushing defeat in the last war. People always need to suffer losses before they learn their lesson!”

Prime Minister Felix commented, “That’s true, but without experiencing failure, how can one understand its consequences?

The Russian government has learned its lesson from the last war’s defeat. They’ve shed their old arrogance of being ‘invincible’ and are now grounded in reality.

War is all about money. To some extent, the key to victory in this war between Russia and Prussia no longer lies on the battlefield, but in how much war funding each government can raise.

Given the scale of the Russian Empire, as long as they can secure enough war funds, they could even outlast and exhaust the Prussian-Polish Federation.”

The phrase “exhaust the Prussian-Polish Federation” briefly flashed through Franz’s mind. But that idea hinges on the ideal scenario of no external interference, something the Prussian government would never allow. Forming alliances is a must.

“Keep an eye on the financial sectors of all nations and closely monitor large-scale capital movements. Without securing sufficient funds, the governments of Prussia and Russia who are both paupers can’t start a war.

War is a money-devouring beast, and raising enough funding for it is no easy task. In the entire world, only we, the British, and the French have the financial strength to do so. And even then, none of our money falls from the sky.

Without enough benefits at stake, it will be very difficult for Prussia and Russia to secure sufficient funds. From a geopolitical perspective, we are the best creditors, and we are the only ones willing to accept land as collateral.

Since the Russians have already come knocking, let’s quickly determine the Russian government’s bottom line and extract maximum benefits for Austria.”

Franz made no mention of a gold-backed loan. No one would hand over their lifeblood to another unless they were at the end of their rope. This is far more serious than collateralizing land.

While land collateral seems severe, it is actually within a manageable risk. As long as the war is won, even if the debt cannot be repaid, there are ample ways to resolve it, such as exchanging the collateralized land for other territories.

If a country uses its own land as collateral, it might be hard to justify domestically. But if enemy territory is used, there’s no pressure at all.

If they lose the war, there’s nothing more to say. The government would be replaced, and no matter how big the mess is, it would be the next administration’s responsibility to clean up.

This holds true even for monarchies. They may not necessarily replace the emperor, but replacing ministers is inevitable. Someone must be held accountable for a defeat, and bureaucrats are well aware of this.

Alexander II wasn’t oblivious to this logic. Loans backed by territorial collateral were made with his tacit approval. However, gold-backed loans were absolutely beyond his bottom line.

Simply put, the Russian Empire is vast and wealthy. As long as it’s not core territory, selling a piece here and there isn’t a big deal. Land sales aren’t unprecedented and carry limited political risks.

But sending gold to Austria as collateral is entirely different. It would mean that the Russian Empire’s economic lifeline falls into Austria’s hands.