Holy Roman Empire

Chapter 516: Rising Tides of Unrest

On March 22, 1872, Britain and Russia signed the Anglo-Russian Bilateral Trade Agreement, the Anglo-Russian Grain Collateral Loan Agreement, and the Anglo-Russian Financial Mutual Trust Agreement...

Although no formal alliance was formed, the Russian government had already leaned heavily towards Britain economically, becoming an established fact.

According to the terms of the treaties, Russia had officially joined the pound-gold system, confirming the pound’s status as the dominant global currency.

As part of the deal, the British would provide interest-free loans totaling 150 million pounds to the Russian government over the next five years, to be repaid entirely with agricultural products.

It was clear to any observer that this so-called “loan” was just a pretext. The annual loans matched the value of Russia’s agricultural exports, making it essentially a large-scale procurement contract.

The only difference was that these agricultural products from Russia came at lower prices, and the British government waived import tariffs. Through these low prices, Britain would capture the market share from other countries exporting agricultural products to Britain.

The biggest loser in all of this would be Austria. As the world’s largest exporter of agricultural products, Austria would suffer the greatest losses. Up to 65% of Britain’s annual agricultural imports came from Austria, and now that market had all but vanished.

“Free trade”—it’s a nice slogan, but if you take it seriously, you’re doomed. Although the British were shouting their free trade slogans loudly, when it came to their own interests, they had no hesitation in throwing them aside.

If Austria wanted to maintain its market in Britain, it would now need to cut the prices of its agricultural products by half, just to survive the competition.

As a result of the Anglo-Russian treaty, the international agricultural market began to plummet in April. Capitalists rushed to clear their inventories and sell off stock, amassing cash flow to avoid being wiped out in the coming agricultural downturn.

Ironically, the central figure in this turmoil, Franz, was not overly concerned. Although he hadn’t expected Britain to act so suddenly, the Austrian government had anticipated the impact on the international agricultural market.

At the previous annual meeting, the Austrian government had already set a grain production reduction plan, focusing primarily on wheat, corn, and beans—agricultural products where Russia had a large production capacity.

At the Vienna Palace, during a special economic meeting on agriculture, Franz picked up a baton and drew a curve across the world map.

“The Russians are coming in strong, and the British are adding fuel to the fire. The agricultural winter has arrived. This is a challenge for Austria, and we must take all possible measures to prepare. Holz, start by discussing the Ministry of Agriculture’s plan.”

Holz, the Minister of Agriculture, stood up from his seat, adjusted his clothes, and adopted a serious and tense expression, clearly aware of the gravity of the situation.

“Two years ago, the Ministry of Agriculture began preparing for the return of Russian agricultural products to the international market.

To this end, we have taken various measures, including adjusting the structure of agricultural industries, reducing staple crop production, clearing out stockpiles, and developing animal husbandry.

However, these measures can only mitigate our losses. They cannot address the root of the problem. The international agricultural market is only so large, and we cannot simply reduce production to survive the crisis.

As this agricultural winter spreads, no country’s agriculture will remain unscathed, and there’s no reason we should bear the brunt of the burden.

The collapse in agricultural prices this time is primarily due to the Russians, so we should take advantage of the situation and allow the crisis to intensify.

The Ministry of Agriculture plans to drive international grain prices down by half over the next three years, effectively crippling the agricultural production of other European nations.

Although Russia’s agricultural capacity is large, they lack resilience. The Russian government’s financial resources are limited, and they cannot provide full support for their farmers.

Once grain prices crash, it will inevitably lead to a wave of farmer bankruptcies. If we’re lucky, we may even deal a severe blow to Russia’s agricultural production system.

To compensate for the losses to our own farmers, the Ministry of Agriculture proposes suspending the collection of agricultural taxes, grain trade taxes, and agricultural export tariffs, as well as prohibiting the church from collecting the tithe. Additionally, we should set a minimum guaranteed price for grain to ensure that farmers do not incur losses.”

Destroying the agricultural production systems of European countries was something the Austrian government wanted to avoid, not only due to concerns about others reaping the benefits but also because they didn’t want to attract such animosity.

Austria had already secured the largest share of the international grain export market, so with the majority of the benefits already in hand, why go to the extremes?

Now, with the Russians stepping in, it was easy. With just a bit of propaganda, they could shift the blame to the Russian government and even throw some shade at the British. After all, both countries already had bad reputations, so adding more hatred wouldn’t make much difference.

The Anglo-Russian Agreement was the perfect evidence. They slashed grain export prices by 30% and even removed tariffs. Both governments directly intervened in trade, undermining the free trade system. This was the root cause of why all European nations were losing money on grain production.

It was blatant dumping, and no one could deny it. With someone taking the lead in lowering prices, those following suit wouldn’t be noticeable. If a price war accidentally broke out, driving prices even lower, that would be unavoidable.

The Anglo-Russian collaboration aimed to suppress Austria’s grain exports, so instead of letting domestic grain go unsold, Austria could just slash prices to rock bottom.

Once international grain prices were halved, who knew if British grain merchants would still honor their contracts? After all, no one liked losing money, and if the British were to breach the agreement, it would be quite a show.

It may seem like a strategy to attack other countries’ agricultural systems, but in reality, it was also a way to weaken the growing ties between Britain and Russia. Nothing undermines an alliance more than conflicting interests.

Moreover, Britain and Russia were not even formal allies—merely aligned out of convenience. Once the costs of this alignment exceeded the benefits, it would be hard for them to avoid parting ways.

The room fell into deep thought as everyone processed what Holz had just said.

Prime Minister Felix was the one to break the silence with a series of questions, “If grain prices drop by half, what will be the impact on the country? Will it cause widespread bankruptcy among farmers? Will it affect the entire agricultural system? How much funding will we need to invest?”

Agriculture had always been Austria’s backbone, and the Austrian government couldn’t afford to take it lightly. If this plan backfired, the resulting consequences could be disastrous.

“Mr. Prime Minister, please rest assured. The Ministry of Agriculture has conducted a special assessment, and after suspending the collection of agricultural taxes, the tithe, the grain trade tax, and grain export tariffs, the impact on the domestic market from a 50% drop in international grain prices has been minimized.

In the grain procurement market, the purchasing price of grain will likely drop by about 20%. The Ministry of Agriculture will monitor the situation, and if market fluctuations exceed this margin, we will directly intervene in the purchasing process.

Since the cost of grain production varies across regions, the situation cannot be generalized. In areas with favorable natural conditions, such as the Wallachian Plains, there might even be a small profit. However, in provinces with harsher conditions, losses are inevitable.

Some level of farmer bankruptcy is certain to occur. With the progression of the times, the small-scale farming economy will inevitably be destroyed. This primitive mode of production is too costly and cannot compete with mechanized farms.

Domestic farmers typically have a relatively large amount of land per capita, and they often grow multiple crops simultaneously, which gives them some resilience to risks. A massive wave of farmer bankruptcies will not happen in Austria.

However, to implement this plan, significant funds will be required—at least 120 million guilders. Additionally, financial revenues will drop by approximately 21 million guilders annually, and the government will need to fill a gap of 15 million guilders in education.”

In the end, it all came down to money. Once this plan was enacted, the era of using agriculture to subsidize industry and education would be over.

In fact, agricultural taxes in Austria had always been very low, at just 5%, placing Austria at the lowest among the major agricultural producers on the European continent.

Grain export tariffs were as high as 15%, but for processed grain products, the export tariffs were only 3–5%, adjusted according to the actual situation, and at times, it had been as low as 1%.

As a result of this policy, Austria predominantly exported processed grain products, with very little direct export of raw grain.

Other related taxes were also very low. The grain trade tax was 5%, transportation taxes for vehicles and ships were directly exempt, and there were almost no additional surcharges.

Even so, these taxes still accounted for a significant portion of Austria’s financial revenue. Although they had declined in recent years, they were still a substantial figure.

Franz fell into deep thought. Allocating 120 million guilders for operational funds wasn’t a big issue. With some effort, the one-time investment could be managed, and if necessary, they could rely on bank loans or issue bonds. This amount of money wouldn’t be a problem for Austria.

The real trouble lay in the loss of fiscal revenue and the increase in educational expenses. The 36 million guilders wasn’t just a one-time cost but a permanent loss.

“Temporarily exempt” in reality meant “permanently,” and once the agricultural boom period ended, the industrial sector would have to start subsidizing agriculture.

This meant that Austria’s annual revenue would immediately shrink by 8.3%, and its expenditures would increase by 6.1%.

After hearing the Ministry of Agriculture’s plan, Finance Minister Karl furrowed his brows, setting down his water cup after a moment of silence.

“This is too aggressive. We don’t need to go to such extremes to crush Europe’s agricultural production system. It’s enough to drive international grain prices to a point where farmers in other countries can’t make a profit. We don’t need to achieve this all at once.

In agriculture, we hold an advantage. Our grain production costs are the lowest on the European continent. We also have a complete supporting industrial system, allowing us to extract more profit.

Once farmers in other European countries start losing money, our farmers will still have some profit. As long as we drag this out, the others won’t be able to hold on.

Economically speaking, the Russians are likely to fold first. Unless the Russian government steps in to subsidize their agriculture, the high costs will eventually strip Russian agricultural products of their market competitiveness.

If we manage this situation carefully, we won’t need to bear too much of a burden. Right now, all we need to do is reduce the grain export tariffs and exempt agricultural taxes to withstand the first wave of impact.

The Russians’ grain hasn’t yet been exported to Britain, so if we release our stockpiled grain now, flood the international market, and drive prices below the Britain-Russia contract price, we’ll see whether the British uphold their agreement.

If they don’t, the Russians will be in serious trouble. I wonder if the Russian government’s wallet can handle the pressure. If their stockpiled grain remains unsold, the consequences will be very severe.”

One has to admit that professionals can be ruthless. What’s being crushed here is not just grain prices, but the Russian government’s finances. Once large-scale grain stagnation occurs, Alexander II will be in trouble.

There’s no way around it—farmers only have grain left to sell. The government would either have to requisition the grain and let it rot in warehouses, or they would need to waive taxes.

Once the market is saturated, no matter how cheap the grain gets, no one would dare to buy it. Every time there’s an economic collapse, capitalists are known to pour milk into rivers just to avoid a price crash.

Karl’s plan now is to crash the price of British grain before the Anglo-Russian deal can be finalized.

Naturally, international grain prices wouldn’t be spared, and Austria would suffer greatly as well. But if the British break the agreement, the severely affected Russians won’t sit by quietly. They might not be able to take action against the British government, but withdrawing from the pound-gold system would be inevitable.

At that time, even if the Russian government is unwilling, they will have to grit their teeth and join the guilder-gold system. The losses in the grain market could then be compensated for in the financial market.

Holz furrowed his brows, expressing doubt, “But what if the British uphold the agreement? The benefits of monetary hegemony are enormous. They have no reason to give that up.”

Karl responded with a calm smile, “Then all grain-exporting countries will suffer through a tough year together. Even if international grain prices drop by 30%, the impact on Austria, which exports processed grain, won’t be as severe.

Don’t forget that the food processing industry itself has a profit margin of over 10%, and these companies can absorb some of the losses.

Overall, if raw grain prices drop by 70%, domestic agricultural production will still break even. That’s enough. I don’t believe Russian farmers can profit from the current grain export prices.

The only cost the government needs to bear is some of the reserve grain and a reduction in annual revenue of 8–10 million guilders.

If we directly attack the agricultural systems of European countries and blame the Russians, it might fool the general public, but politicians would see through it clearly.

If they implement countermeasures like raising grain import tariffs, what can cheap grain do other than increase their financial revenues?”

This is the reality. In the face of self-interest, flipping the table is common. It’s normal to impose trade barriers to protect domestic agriculture.