Holy Roman Empire

While the Rhineland was undergoing a massive migration, the London Conference had also reached a critical point. Between Belgium and the German Federal Empire, the British ultimately chose to side with the German Federal Empire, while Belgium aligned itself with France.

From a strategic standpoint, Belgium’s tilt towards France was an inevitable outcome. On the European continent, only Austria could stand against France. While Britain’s influence was significant, its ability to dictate terms on the mainland was greatly diminished.

Belgium was simply too far from Austria and too close to France. Even though they knew the French had ambitions to annex them, the Belgian government had no choice but to maintain good diplomatic relations with France for the sake of their own security.

Small countries have their own ways of surviving. In addition to their French ties, the Belgian government also maintained good relations with both Britain and Austria, in order to leverage the power of these two nations to curb French ambitions.

Yet, no matter how strategically sound it was, the fact that France supported Belgium meant Austria had to support the German Federal Empire in order to counterbalance France.

With the three major powers split into two camps, and with a two-to-one advantage, it was natural that the Rhineland would fall into the hands of the German Federal Empire.

Britain and Austria were deeply involved in deciding how the German Federal Empire would govern the Rhineland, all in an effort to curb French expansion. In the end, both countries were forced to compromise.

The compromise solution was to make the Rhineland a region under the direct control of the central government, not under the emperor’s control, but under the authority of the Imperial Parliament.

In a way, this also accelerated the unification process of the German Federal Empire. The Imperial Parliament, which had originally existed merely to balance the emperor’s power, now gained real authority. It was no longer just a mouthpiece.

However, this situation was still much better than allowing Hanover to grow too powerful. Solving internal issues through negotiation wouldn’t happen overnight, and it wouldn’t be surprising if it took until the next century.

As the vested interests, the governments of the various states in the German Federal Empire would not easily relinquish their power. The state governments had always controlled the Imperial Parliament, so attempting to reverse this and seize control would be extremely difficult.

While Britain and Austria had reached a consensus, this did not mean the matter was settled. The previously agreed-upon auction of the Rhineland still had to take place.

On November 11, 1874, in front of representatives from all the European nations, the highest-profile land auction in continental Europe began.

Prussia’s Foreign Minister, Geoffrey Friedman, personally served as the auctioneer, with representatives from Britain, France, and Austria acting as notaries, and various ambassadors in attendance as spectators.

To prevent any reckless bidding, Belgium and the German Federal Empire were each required to place a 5 million pound deposit. If any of them bid irresponsibly and couldn’t follow through with the payment, the deposit would be forfeited.

Without a doubt, if Belgium and the German Federal Empire were left to pay on their own, they wouldn’t even be able to cover the starting bid.

The real payers were their backers: Britain and Austria provided loans to the German Federal Empire, while the French extended loans to Belgium.

This was not only a political contest but also a financial one. Capital strength was a key aspect of power.

Of course, both sides had limits. There was no way they would compete endlessly, allowing the Prussians to take advantage of the situation.

Geoffrey Friedman, with a dour expression, walked to the auction stage in clear displeasure and announced, “The auction for the Rhineland region is now officially open. The starting price is 120 million pounds, with each raise no less than 1 million pounds. If a bid exceeds the economic strength of the bidder and they are unable to pay, their deposit will be forfeited. The auction begins now! Please place your bids.”

It was evident that Geoffrey Friedman was in a foul mood. Despite the high starting price, in reality, the Prussian government wouldn’t be able to keep much of the money.

The proceeds from the auction would first be used by other countries to settle certain debts, and only the remainder would go to the Prussian government.

The Russo-Prussian War had drained not only Russia’s finances but also Prussia’s, leaving it in even worse shape.

Even with significant sponsorship from European countries and the provision of low-interest loans from Britain and France, the Prussian government still found itself unable to keep up with interest payments after the war.

However, rather than declaring bankruptcy or defaulting, the Prussian government worked out agreements with its creditors. With the Russian government serving as a cautionary tale, creditors were more willing to negotiate, allowing Prussia to defer many of its debts.

Repaying debts is a universal principle, and after the auction of the Rhineland, the Prussian government’s coffers would swell, meaning they would be expected to pay off a portion of their outstanding debt.

It wasn’t just Britain and Austria that were pushing Prussia to give up the Rhineland. Numerous creditors were also involved behind the scenes.

Anyone familiar with Prussia’s finances knew that Prussia was a high-risk debtor, with its debt liable to turn into bad debt at any moment. In fact, Prussia’s creditors were more worried about its financial state than William I himself.

The British government took the lead in forcing Prussia to sell the Rhineland, with considerable pressure coming from Britain’s financial institutions. Similarly, the French government refrained from sabotaging the deal, largely thanks to the influence of French financial consortiums.

No one could take hundreds of millions in loans lightly. If they became bad debts, who knows how many financial institutions in Britain and France would go bankrupt as a result.

The Belgian representative, Klaus Jansen, was the first to raise his sign, which read 500, and everyone knew this meant an increase of five million pounds.

With representatives from so many nations present, trying to play word games or get around the rules wasn’t an option. The 5 million pounds deposit was held in escrow by Britain, France, and Austria, and anyone wealthy enough to dismiss that sum could give it a try.

The host Geoffrey Friedman’s voice rang out, “125 million pounds.”

Soon, the representative from the German Federal Empire followed suit, raising the same sign which read 500.

Geoffrey Friedman said, “130 million pounds.”

...

“140 million pounds.”

...

“142 million pounds.”

...

“143.5 million pounds.”

...

At first, the bidding increased by increments of 5 million pounds, but after it surpassed 140 million, both sides tacitly lowered the increments. This wasn’t some reckless, emotional bidding war but a competition that concerned the future of the two nations. Each bid had to be carefully considered.

The pound in this era was far more valuable than the pound in later centuries, with much greater purchasing power. Though both Belgium and the German Federal Empire had relatively strong economies, they were still small countries with limited financial capacity.

Geoffrey Friedman’s voice rang out again, “The German Federal Empire bids 152 million pounds—going once, going twice!”

After a pause of about two minutes, still not seeing the Belgian representative raise his placard, Geoffrey Friedman could only reluctantly announce, “The German Federal Empire, 152 million pounds, going thrice... sold!”

There was no helping it. This amount exceeded Belgium’s financial limits. The French had only promised 100 million in loans, and the Belgian government’s internal cap was set at 150 million pounds.

To bid higher would be harmful without benefits. If they raised the price and the German Federal Empire gave up bidding, and it fell into their hands but they couldn’t come up with the money in the end, the loss would be severe.

In terms of value, Prussia was essentially selling its assets at a bargain. The industries in the Rhineland alone were worth more than 152 million pounds, not to mention the region’s rich mineral resources.

However, there was no other choice. At this time, land transaction prices were generally low, and 152 million pounds had already set a world record. If the pound didn’t devalue, it would likely remain the highest for the next hundred years.

Geoffrey Friedman, with a dark expression, couldn’t even bring himself to offer a token congratulation. The final price was clearly below expectations, and the buyer wasn’t even Belgium, which they had hoped for.

There was no alternative. The more powerful potential buyers hadn’t participated in the auction. Friedman believed that if France or Austria had taken part, the final price could easily have surpassed 200 million pounds, and even 300 million pounds wouldn’t have been out of the question.

Obviously, that wasn’t possible. Both France and Austria were well aware of each other’s limits. Breaking this tacit understanding would benefit no one.

At the same time the treaty between Prussia and the German Federal Empire was signed, the German Federal Empire also signed separate loan agreements with Britain and Austria. The collateral? The Rhineland’s mineral resources and factories.

Whether or not these assets had official owners didn’t matter much to Britain and Austria. As long as they had a treaty, that was enough.

Whether the Prussian-established property rights would be recognized by the German Federal Empire after the transition depended entirely on the integrity of the new rulers. At least some people were bound to suffer.

If the vested interests remained the same under the new regime, what would the German Federal Empire gain from purchasing the Rhineland? Just a trivial amount of tax revenue?

Private property rights might be inviolable, and the government wouldn’t outright confiscate assets, but there were certainly ways to pressure and suppress certain industries, potentially forcing a change in ownership.

Capital competition in this era was brutal. Without the right network of connections, it was impossible to survive.

That’s why many of the Rhineland’s capitalists fiercely opposed the land deal. Changing countries was never a big deal for capitalists as long as their interests were secured.

If the Prussian government had been paying attention, they would have noticed that many influential capitalists had already found new partners and the rest were in the process of doing so.

Of course, the Prussian government likely didn’t have the time or focus for such concerns. If the 152 million pounds were converted to gold, that would be more than 1,000 tons which was over three times the total gold reserves of the Kingdom of Prussia.

But that was impossible. The 152 million pounds was just a nominal figure. Prussia was still buried under a mountain of debt.

The money would first have to go towards repaying overdue debts, with the remainder going to the Prussian government. And this only covered the overdue debts, not the entire debt.

To repay all of Prussia’s debts, this amount wouldn’t even come close. Once again, reality proved that war is a money-devouring beast. After the Russo-Prussian War, the Prussian government had already paid off 38 million pounds in debts, but there were still over 200 million pounds in foreign debts remaining.

In other words, the Russo-Prussian War cost the equivalent of two Rhinelands. After negotiations, 110 million pounds of the auction proceeds went directly to debt repayment, leaving the Prussian government with only 42 million pounds.

After resettling the displaced population, whatever remained would be the Prussian government’s revenue. While this might have resolved the immediate financial crisis, it still didn’t provide the funds for the next Russo-Prussian War.

The only consolation for the Prussians was that their neighbor, the Russian government, was just as poor—if not poorer. Perhaps, whichever side managed to scrape together enough funds first would trigger the next Russo-Prussian War.

But William I wouldn’t stay happy for long. Just as Prussia’s finances began to stabilize, they were saddled with the mess of the Kingdom of Poland.

If he could, William I wouldn’t hesitate to declare Poland bankrupt. Unfortunately, that was wishful thinking. Britain and France allowed Prussia to annex Poland only so they could force Prussia to assume Poland’s debts.