Holy Roman Empire

Chapter 515: Cold Winter

In St. Petersburg, ever since Crown Prince Alexandrovich’s failed visit to Austria, the Russian government had realized that the Russo-Austrian alliance had come to an end.

The ice that accumulated over three feet didn’t freeze in just a single day. Over time, tensions between Russia and Austria gradually built up.

Previously, the two governments had suppressed discordant voices under the weight of the alliance, but now they could no longer be silenced.

The relationship between Russia and Austria had changed since Alexander II ascended to the throne. In monarchies, the personal inclinations of the emperor wield significant political influence.

When the Russo-Prussian War broke out, Austria did not fully support the Russians. Aside from differing interests, Austria’s dissatisfaction with the Russian government played a significant role.

No great power is willing to be subordinate to another, especially when the balance of power shifts. The initial struggle between Russia and Austria was, in essence, a fight for dominance within the alliance.

Alexander II’s actions were not wrong, but the Russian government’s incompetent bureaucracy lost the Russo-Prussian War. As a result, the Russian Empire began its decline and lost its leadership within the alliance.

Had the Russian government been willing to concede, the matter would have ended there, and the Russo-Austrian alliance would have remained Europe’s most significant political force.

But this was clearly impossible. The pride of the Russian Empire wasn’t going to be shattered by a single defeat. Looking back at Russia’s long history, the country had weathered worse crises, and the Tsar would never truly abandon its quest for European hegemony.

Franz may not have been particularly interested in European hegemony, but Austria’s geographical position meant that it could not avoid the competition for power in Europe.

Austria’s sheer size alone made it difficult to convince anyone that it had no interest in such matters. Given that, Austria had no choice but to confront the situation. The current shared dominance of Europe by France and Austria had emerged against this backdrop.

For the Russian government, the collapse of the Russo-Austrian alliance was indeed a heavy blow, but the treaty between the two nations still had several years left, so there was no immediate threat.

The most urgent task now is to find a wealthy backer, or else Alexander II’s reforms won’t be able to continue.

The ideal choice, of course, is Austria. The Russian government could use foreign debt to further bind the two countries together. Right now, the Austrian government dares to abandon the Russo-Austrian alliance because Russia doesn’t owe enough money.

If the Russian government owed Austria not 183 million guilders, but 1.83 billion guilders, then no matter what, the Austrian government would have no choice but to stick with it.

Given the current situation, by the time the Russo-Austrian alliance expires, most of Russia’s debts will have been repaid.

This is not something Alexander II can delay. Austria takes a commission from Russian tariffs, earning 12 million guilders each year.

The higher the Russian government sets its tariffs, the faster the repayment. Additionally, some mineral resources are being used to pay off the debt, allowing Russia to cover more than 90% of its annual obligations.

With collateral loans in place, Alexander II has no option to default. If he tried, the two nations would immediately turn against each other, and Austria could simply shut down trade routes. This would immediately throw Russia into an economic crisis.

There’s no way around it—this is dictated by geography. If Austria blocked the routes, over 70% of Russia’s exports would be ruined.

If the grain from the Ukrainian region couldn’t go through the Dardanelles Strait, it couldn’t possibly be transported by land to St. Petersburg and then shipped for export, could it?

Given the current international situation, if the Russo-Austrian relationship were to collapse, the Russian Empire would face a complete blockade. Austria could even instigate matters by sponsoring two ironclads, then Prussia would gladly block the Baltic Sea.

It was now in the age of ironclad ships, and Russia’s navy was so outdated that its old wooden ships, many of which hadn’t been updated in over 20 years, were practically ready to be dismantled into firewood. What can they do with that?

It’s not that Alexander II didn’t care about the navy or didn’t know the ships needed upgrading—it’s simply that the government had no money. Ever since the Near East War broke out, the Russian government’s finances have never recovered.

Alexander II wasn’t worried about Prussia and Austria getting closer. Although the Kingdom of Prussia had abandoned its strategy to unify the German territories, Austria had not, and this remained an insurmountable obstacle.

Alexander II asked with concern, “How are the negotiations with the British going? Are they willing to provide us with a loan?”

This loan was no ordinary matter, as the Russians were planning to repay it with grain. If the British agreed to issue the loan, the Russian government would have to send 1.2 million tons of wheat, 400,000 tons of corn, and 300,000 tons of barley to Britain each year.

Although it appeared to be a loan, it was essentially an agreement to export grain. However, Russian agricultural products had very low competitiveness in the international market.

If they simply dumped the grain at low prices, it would drive down global grain prices, making Russian agricultural products, with their relatively high production costs, unprofitable.

To avoid the worst-case scenario, Russian economists proposed bundling the loan with grain exports, allowing one country to purchase the grain at a price lower than the international market rate.

The reduced profit would be considered the cost of the loan. It was better than engaging in a price war with competitors, which could end up being a loss-making endeavor.

“Your Majesty, the British are asking to halve the loan amount and also want the price of the grain repayment to be reduced by 20%, which would be about 70% of the current international grain export price.”

Foreign Minister Ivanov’s response made Alexander II’s face change drastically. Grain exports were not a highly profitable industry, and if the price were reduced by 30%, they wouldn’t even cover the costs.

Alexander II, unwilling to give up, asked, “What if we agree to join the free trade system and peg the ruble to the pound?”

Ivanov replied, “If that’s the case, the loan won’t be a problem, but there’s still no room for negotiation on the grain prices.

British grain merchants believe that current global grain prices are too high and expect them to fall sharply in the near future. They insist on only accepting 70% of the current market price.”

Based on the current market price, the total value of the agricultural products Russia planned to send to Britain amounted to 38 million pounds. If the price were reduced by 30%, it would only be 26.6 million pounds, leaving a difference of 11.4 million pounds.

With a grim expression, Alexandrovich said, “The British are blackmailing us! We absolutely cannot accept such conditions!

At 70% of the market price, we won’t be able to make any profit from exporting the grain and instead, we’ll suffer losses.

The only way to make up for it would be to further lower the grain purchase price, but domestic grain prices are already very low. If we reduce them further, the people farming the land will be doing it at a loss.”

Grain is a bulk commodity, and transportation has always been a major issue. The Russian Empire’s transportation infrastructure is poor, and transportation costs are high, which must be factored in.

These costs typically end up falling on the farmers who produce the grain, and now, if the grain is exported at 70% of the market price, the burden will again fall on the farmers, and they will face bankruptcy.

The peasant class is the Tsar’s largest support base and the foundation of the regime. If they are driven to bankruptcy, the stability of the Russian government’s rule will be in jeopardy.

Alexander II sighed and shook his head, saying, “A sharp decline in international grain prices is already inevitable, and the British aren’t wrong in their judgment.

The international market is only so big, and we are producing so much additional grain that once it floods the market, global grain prices will collapse.

To put it bluntly, if all of Russia’s surplus grain could be exported, even if all other grain-exporting countries stopped exporting, there still wouldn’t be a grain shortage in Europe.”

This is the aftermath of the large-scale land reclamation. While it solved domestic land issues, overproduction of grain has now become a serious societal problem.

Even more tragically, the newly land-owning peasants are highly motivated to produce, and Russia’s grain output continues to rise.

As grain prices dropped, Russia’s grain brewing industry began to flourish. However, this high-end alcohol was far beyond the reach of the common people, and the market for it was very limited. Relying on the brewing industry to absorb the surplus grain production capacity was simply not feasible.

After some thought, Alexandrovich suggested, “We should guide the peasants to switch to cash crops. Whatever the market is lacking, we should plant it.

If we don’t reduce domestic grain production, the international grain market will eventually be oversaturated. As far as I know, the Austrian government is already planning to eliminate agricultural taxes.

Their grain production costs are already lower than ours, and they have a complete processing industry chain, so they are more resilient to risks than we are. If a price war breaks out, we might see millions of bankrupt farmers every year in our country.”

Alexander II nodded, not doubting Alexandrovich’s words. This was simply the reality. Aside from the Ukrainian region, the cost of grain production in other parts of Russia was relatively high.

Even in Ukraine, due to underdevelopment, the agricultural production techniques were backward. Despite its fertile black soil, grain yields per acre were still lower than in Austria.

This is the aftermath of insufficient market demand. No matter how you look at it, the population of continental Europe is still less than 300 million, and the grain production of most countries already meets the majority of their needs.

The only way to expand the grain export market is to first flood the market with cheap grain, crushing agricultural production in other countries.

This was Alexander II’s original plan—once the agriculture of other countries collapsed, Russia would hold the lifeline of the European continent.

It was a good plan, but the only problem was the Russian government’s lack of financial resources. The competitors were too strong, and while playing the game of low-price dumping, it was possible that Russia’s own agriculture would also collapse alongside those of other nations.

In fact, it wasn’t just Alexander II who had this plan. Franz had also considered a similar strategy but ultimately abandoned it.

There was no choice. After all, this was the colonial era—what great power lacked a region to produce grain? If domestic grain production wasn’t enough, couldn’t they rely on their colonies?

Without achieving a monopoly, engaging in low-price dumping is essentially burning money. Agriculture is still profitable at the moment, and there is no need to reduce profits to nothing.

Alexander II, feeling a bit down, said earnestly, “Reducing grain production and switching to cash crops is necessary, but this is not something that can be accomplished overnight. Grain farming is relatively simple, and the farmers are used to it.

To change this traditional farming model, we must learn from Austria. Alexandrovich, you’ve been to Austria—you should have seen how developed their agriculture is. Did you notice where the gap between us lies?”

Alexandrovich fell into deep thought. He hadn’t stayed in Austria for long and his understanding was mostly limited to Vienna, with much of his information coming from newspapers.

“The difference might be in climate, transportation, agricultural techniques, and supporting processing industries. We can’t do anything about the climate, but we can gradually catch up in the other three areas.”

Alexander II nodded and said, “If that’s the case, then we must accept this loss. If we don’t reach an agreement with the British now, a few months from now, after the autumn harvest, we won’t even be able to sell our grain at 70% of the current market price. Even at a lower price, it’s better than letting it rot in our hands.

If no major natural disaster occurs and our grain floods the international market after a bumper harvest, this year will inevitably be an agricultural winter, with large quantities of agricultural products going unsold.

Since we’ll lose money either way, we might as well secure the loan now. Then, we can reduce agricultural taxes and minimize the farmers’ losses.

Only when the railroads are completed and our domestic transportation issues are resolved will the Russian Empire have a future. For now, let the British have their moment!

If it weren’t for the purpose of dealing a blow to Austria, the British might not have even made this offer. They don’t really need this batch of cheap grain, and their food processing industry is not particularly developed.

If the British government doesn’t provide favorable policies, these grain merchants won’t invest in the agricultural processing industry. After all, Austria is the dominant player in that field, and the British have no advantage.”