7: Internal Reforms
<< 6: The Eastern Question || 8: The Crisis of 1903 >>
THE disturbed state of European politics
and the great increase in the military establishments of other countries made it desirable
for Austria also to strengthen her military resources. The bad condition of the finances
rendered it, however, impossible to carry out any very great measures. In 1868 there had
been introduced compulsory military service in both Austria and Hungary; the total of the
army available in war had been fixed at 800,000 men. Besides this joint army placed under
the joint ministry of war, there was in each part of the monarchy a separate militia and a
separate minister for national defence. In Hungary this national force or honvéd was
kept quite distinct from the ordinary army; in Austria, however (except in Dalmatia and
Tirol, where there was a separate local militia), the Landwehr, as it was called,
was practically organized as part of the standing army. At the renewal of the periodical
financial and economic settlement (Ausgleich) in 1877 no important change was made,
but in 1882 the system of compulsory service was extended to Bosnia and Herzegovina, and a
reorganization was carried out, including the introduction of army corps and local
organization on the Prussian plan. This was useful for the purposes of speedy
mobilization, though there was some danger that the local and national spirit might
penetrate into the army. In 1886 a law was carried in either parliament creating a Landsturm,
and providing for the arming and organization of the whole male population up to the age
of forty-two in case of emergency, and in 1889 a small increase was made in the annual
number of recruits. A further increase was made in 1892-1893. In contrast, however, with
the military history of other continental powers, that of Austria-Hungary shows a small
increase in the army establishment. Of recent years there have been signs of an attempt to
tamper with the use of German as the common language for the whole army. This, which is
now the principal remnant of the old ascendancy of German, and the one point of unity for
the whole monarchy, is a matter on which the government and the monarch allow no
concession, but in the Hungarian parliaments protests against it have been raised, and in
1899 and 1900 it was necessary to punish recruits from Bohemia, who answered the roll call
in the Czechish zde instead of the German hier.
In those matters which belong to the periodical and terminable
agreement, the most important is the Customs Union, which was established in 1867, and it
is convenient to treat separately the commercial policy of the dual state. At first the
customs tariff in Austria-Hungary, as in most other countries, was based on a number of
Commercial treaties with Germany, France, Italy, Great Britain, &c., each of which
specified the maximum duties that could be levied on certain articles, and all of which
contained a "most favoured nation" clause. The practical result was a system
very nearly approaching to the absence of any customs duties, and for the period for which
these treaties lasted a revision of the tariff could not be carried out by means of
legislation. After the year 1873, a strong movement in favour of protective duties made
itself felt among the Austrian manufacturers who were affected by the competition of
German, English and Belgian goods, and Austria was influenced by the general movement in
economic thought which about this time caused the reaction against the doctrines of free
trade. Hungary, on the other hand, was still in favour of free trade, for there were no
important manufacturing industries in that country, and it required a secure market for
agricultural produce. After 1875 the commercial treaties expired; Hungary thereupon also
gave notice to terminate the commercial union with Austria, and negotiations began as to
the principle on which it was to be renewed. This was done during the year 1877, and in
the new treaty, while raw material was still imported free of duty, a low duty was placed
on textile goods as well as on corn, and the excise on sugar and brandy was raised. All
duties, moreover, were to be paid in gold - this at once involving a considerable
increase. The tariff treaties with Great Britain and France were not renewed, and all
attempts to come to some agreement with Germany broke down, owing to the change of policy
which Bismarck was adopting at this period. The result was that the system of commercial
treaties ceased, and Austria-Hungary was free to introduce a fresh tariff depending simply
on legislation, an "autonomous tariff" as it is called. With Great Britain,
France and Germany there was now only a "most favoured nation" agreement; fresh
commercial treaties were made with Italy (1879), Switzerland and Servia (1881). During
1881-1882 Hungary, desiring means of retaliation against the duties on corn and the
impediments to the importation of cattle recently introduced into Germany, withdrew her
opposition to protective duties the tariff was completely revised, protective duties were
introduced on all articles of home production, and high finance duties on other articles
such as coffee and petroleum. At the same time special Privileges were granted to articles
imported by sea, so as to foster the trade of Trieste and Fiume; as in Germany a
subvention was granted to the great shipping companies, the Austrian Lloyd and Adria the
area of the Customs Union was enlarged so as to include Trieste Istria and Dalmatia, as
well as Bosnia and Herzegovina. In 1887 a further increase of duties was laid on corn
(this was at the desire of Hungary as against Rumania, for a vigorous customs war was
being carried on at this time) and on woollen and textile goods. Austria therefore, during
these years completely gave up the principle of free trade, and adopted a nationalist
policy similar to that which prevailed m Germany. A peculiar feature of these treaties was
that the government was empowered to impose an additional duty (Retorsionszoll) on
goods imported from countries in which Austria-Hungary received unfavorable treatment. In
1881 this was fixed at 10 % (5 % for some articles), but in 1887 it was raised to 30 and
15 % respectively. In 1892 Austria-Hungary joined with Germany, Italy, Belgium and
Switzerland in commercial treaties to last for twelve years, the object being to secure to
the states of central Europe a stable and extended market for the introduction of high
tariffs in Russia and America had crippled industry. Two years later Austria-Hungary also
arranged with Russia a treaty similar to that already made between Russia and Germany; the
reductions in the tariff secured in these treaties were applicable also to Great Britain,
with which there still was a most favoured nation treaty. The system thus introduced gave
commercial security till the year 1903.
The result of these and other laws was an improvement in financial
conditions, which enabled the government at last to take in hand the long-delayed task of
reforming the currency. Hitherto the currency had been partly in silver (gulden), the
"Austrian currency" which had been introduced in 1857, partly in paper money,
which took the form of notes issued by the Austro-Hungarian Bank. This institution had, in
1867, belonged entirely to Austria; it had branches in Hungary, and its notes were current
throughout the monarchy, but the direction was entirely Austrian. The Hungarians had not
sufficient credit to establish a national bank of their own, and at the settlement of 1877
they procured, as a concession to themselves, that it should be converted into an
Austro-Hungarian bank, with a head office at Pest as well as at Vienna, and with the
management divided between the two countries. This arrangement was renewed in 1887. In
1848 the government had been obliged to authorize the bank to suspend cash payments, and
the wars of 1859 and 1866 had rendered abortive all attempts to renew them. The notes,
therefore, formed an inconvertible paper currency. The bank by its charter had the sole
right of issuing notes, but during the war of 1866 the government in order to raise money,
had itself issued notes (Staatsnoten) to the value of 312 million gulden, thereby
violating the charter of the bank. The operation begun in 1892 was therefore threefold:
(1) the substitution of a gold for a silver standard (2) the redemption of the Staatsnoten;
(3) the resumption of cash payments by the bank.
In 1867 Austria-Hungary had taken part in the monetary conference
which led to the formation of the Latin Union, it was intended to join the Union, but this
was not done. A first step, however, had been taken in this direction by the issue of gold
coins of the value of eight and four gulden. No attempt was made, however, to regulate the
relations of these coins to the "Austrian" silver coinage the two issues were
not brought into connexion, and every payment was made in silver unless it was definitely
agreed that it should be paid in gold. In 1879, owing to the continued depreciation of
silver, the free coinage of silver was suspended. In 1892 laws introducing a completely
new coinage were carried in both parliaments, in accordance with agreements made by the
ministers. The unit in the new issue was to be the krone, divided into 100 heller; the
krone being almost of the same value (24-25th) as the franc. (The twenty-krone piece in
gold weighs 6.775 gr., the twenty-franc piece 6.453.) The gold krone was equal to 0.42 of
the gold gulden, and it was declared equal to 0.5 of the silver gulden, so much allowance
being made for the depreciation of silver The first step towards putting this act into
practice was the issue of one-krone pieces (silver), which circulated as half gulden, and
of nickel coins; all the copper coins and other silver coins were recalled, the silver
gulden alone being left in circulation. The coinage of the gold four- and eight-gulden was
suspended. Nothing more could be done till the supply of gold had been increased. The bank
was required to buy gold (during 1892 it bought over forty M. gulden), and was obliged to
coin into twenty- or ten-krone pieces all gold brought to it for that purpose. Then a loan
of 150 M. gulden at 4 % was made, and from the gold (chiefly bar gold and sovereigns)
which Rothschild, who undertook the loan, paid in. coins of the new issue were struck to
the value of over 34 million kronen. This was, however, not put into circulation; it was
used first for paying off the Staatsnoten. By 1894 the state was able to redeem
them to the amount of 200 million gulden, including all those for one gulden. It paid
them, however, not in gold, but in silver (one-krone pieces and gulden) and in bank notes,
the coins and notes being provided by the bank, and in exchange the newly coined gold was
paid to the bank to be kept as a reserve to cover the issue of notes. At the same time
arrangements were made between Austria and Hungary to pay off about 80 million of
exchequer bills which had been issued on the security of the government salt-works, and
were therefore called "salinenscheine." In 1899 the remainder of the Staatsnoten
(112 million gulden) were redeemed in a similar manner. The bank had in this way
acquired a large reserve of gold, and in the new charter which was (after long delay)
passed in 1899, a clause was introduced requiring the resumption of cash payments, though
this was not to come into operation immediately. Then from 1st January 1900 the old
reckoning by gulden was superseded, that by krone being introduced in all government
accounts, the new silver being made a legal tender only for a limited amount. For the time
until the 1st of July 1908, however, the old gulden were left in circulation, payments
made in them, at the rate of two kronen to one gulden, being legal up to any amount.
This important reform has thereby been brought to a satisfactory
conclusion, and at a time when the political difficulties had reached a most acute stage.
It is indeed remarkable that notwithstanding the complicated machinery of the dual
monarchy, and the numerous obstacles which have to be overcome before a reform affecting
both countries can be carried out, the financial, the commercial and the foreign policy
has been conducted since 1870 with success. The credit of the state has risen, the chronic
deficit has disappeared, the currency has been put on a sound basis, and part of the
unfunded debt has been paid off. Universal military service has been introduced, and all
this has been done in the presence of difficulties greater than existed in any other
civilized country.
Each of the financial and economic reforms described above was, of
course, the subject of a separate law, but, so far as they are determined at the general
settlement which takes place between Austria and Hungary every ten years, they are
comprised under the expression "Ausgleich" (compact or compromise), which
includes especially the determination of the Quota, and to this extent they are all dealt
with together as part of a general settlement and bargain. In this settlement a concession
on commercial policy would be set off against a gain on the financial agreement, e.g., in
1877 Austria gave Hungary a share in the management of the bank, while the arrangement for
paying the bonus on exported sugar was favourable to Austria; on the other hand, since the
increased duty on coffee and petroleum would fall more heavily on Austria, the Austrians
wished to persuade the Hungarians to pay a larger quota of the common expenses, and there
was also a dispute whether Hungary was partly responsible for a debt of 80 M. gulden to
the bank. Each measure had, therefore, to be considered not only on its own merits, but in
relation to the general balance of advantage, and an amendment in one might bring about
the rejection of all. The whole series of acts had to be carried in two parliaments, each
open to the influence of national jealousy and race hatred in its most extreme form, so
that the negotiations have been conducted under serious difficulties, and the periodical
settlement has always been a time of great anxiety. The first settlement occupied two full
years, from 1876, when the negotiations began, to June 1878, when at last all the bills
were carried successfully through the two parliaments; and it was necessary to prolong the
previous arrangements (which expired at the end of 1877) till the middle of 1878. First
the two ministries had to agree on the drafts of all the bills; then the bills had to be
laid before the two parliaments. Each parliament elected a committee to consider them, and
the two committees carried on long negotiations by notes supplemented by verbal
discussions. Then followed the debates in the two parliaments there was a ministerial
crisis in Austria, because the House refused to accept the tax on coffee and petroleum
which was recommended by the ministers; and finally a great council of all the ministers,
with the emperor presiding, determined the compromise that was at last accepted. In 1887
things went better; there was some difficulty about the tariff, especially about the tax
on petroleum, but Count Taaffe had a stronger position than the Austrian ministers of
1877. Ten years later, on the third renewal, the difficulties were still greater. They
sprang from a double cause. First the Austrians were determined to get a more favourable
division of the common expenses; that of 1867 still continued, although Hungary had grown
relatively in wealth. ¹ Moreover. a proposed alteration in the taxes on sugar
would be of considerable advantage to Hungary; the Austrians, therefore, demanded that
henceforth the proportion should be not 68.6 : 31.4 but 58: 42. On this there was a
deadlock: all through 1897 and 1898 the Quota-Deputations failed to come to an agreement.
This, however, was not the worst. Parliamentary government in Austria had broken down; the
opposition had recourse to obstruction, and no business could be done. Their object was to
drive out the Badeni government, and for that reason the obstruction was chiefly directed
against the renewal of the Ausgleich; for, as this was the first necessity of state, no
government could remain in office which failed to carry it through. The extreme parties of
the Germans and the anti-Semites were also, for racial reasons, opposed to the whole
system. When, therefore, the government at the end of 1897 introduced the necessary
measures for prolonging the existing arrangements provisionally till the differences with
Hungary had been settled, scenes of great disorder ensued, and at the end of the year the
financial arrangements had not been prolonged, and neither the bank charter nor the
Customs Union had been renewed. The government, therefore (Badeni having resigned), had to
proclaim the necessary measures by imperial warrant. Next year it was even worse, for
there was obstruction in Hungary as well as in Austria; the Quota-Deputations again came
to no agreement, and the proposals for the renewal of the Bank charter, the reform of the
currency, the renewal of the Customs Union, and the new taxes on beer and brandy, which
were laid before parliament both at Vienna and Pest, were not carried in either country;
this time, therefore, the existing arrangements had to be prolonged provisionally by
imperial and royal warrant both in Austria and Hungary. During 1899 parliamentary peace
was restored in Hungary by the resignation of Bánffy; in Austria, however, though there
was again a change of ministry the only result was that the Czechs imitated the example of
the Germans and resorted to obstruction so that still no business could be done. The
Austrian ministry, therefore, came to an agreement with the Hungarians that the terms of
the new Ausgleich should be finally proclaimed in Austria by imperial warrant, the
Hungarians only giving their assent to this in return for considerable financial
concessions.
The main points of the agreement were: (1) the Bank charter was to
be renewed till 1910, the Hungarians receiving a larger share in the direction than they
had hitherto enjoyed; (2) the Customs Union so far as it was based on a reciprocal and
binding treaty lapsed, both sides, however, continuing it in practice, and promising to do
so until the 31st of December 1907. Not later than 1901 negotiations were to be begun for
a renewal of the alliance, and if possible it was to be renewed from the year 1903, in
which year the commercial treaties would expire. If this were done, then the tariff would
be revised before any fresh commercial treaties were made. If it were not done, then no
fresh treaties would be made extending beyond the year 1907, so that if the Commercial
Union of Austria and Hungary were not renewed before 1907, each party would be able to
determine its own policy unshackled by any previous treaties. These arrangements in
Hungary received the sanction of the parliament; but this could not be procured in
Austria, and they were, therefore, proclaimed by imperial warrant; first of all, on 20th
July, the new duties on beer, brandy and sugar; then on 23rd September the Bank charter,
&c. In November the Quota- Deputations at last agreed that Hungary should henceforward
pay 33 3/49, a very small increase, and this was also in Austria proclaimed in the same
way. The result was that a working agreement was made, by which the Union was preserved.
¹ The only change was that as the military frontier had
been given over to Hungary, Hungary in consequence of this addition of territory had to
pay 2 %, the remaining 98 % being divided as before, so that the real proportion was 31.4
and 68.6.
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