The House of Rothschild (73 page)

The French acquiescence in the English takeover of a territory in which France had by far the greater economic stake was always bizarre; it did not last long. Within less than a month of Wolseley’s victory, as Gustave reported to Natty and Natty to Granville, rumours began to circulate in Paris that the British government was trying to buy Suez Canal shares on the open market with the intention of acquiring a majority holding. This seems to have been what Natty wanted the government to do; but Gladstone remained deeply suspicious of anything which resembled Disraeli’s original share purchase of 1875—he still felt aspects of the transaction were being concealed from him—and in any case it proved impossible to reach an agreement with Lesseps and the French shareholders in the Canal Company.

The canal was only a part of the Egyptian problem. Perhaps not surprisingly, for reasons discussed below, Gladstone regarded Egyptian finance as a “holy subject”; but he was still determined to resolve the issue through the “concert of Europe.” In the era of Bismarckian
Realpolitik
this was an impossibility. Bleichröder was soon relaying signals from Berlin which seemed to imply a sudden German change of heart over English policy in Egypt, and the London conference on which Gladstone pinned his hopes ended in stalemate in the summer of 1884. Isolated, Gladstone had no alternative but to entrust the restructuring of Egyptian finance to the classic City combination of Rothschild and Baring. On August 4 the First Lord of the Admiralty, Lord Northbrook—a member of the Baring family, though never a partner in the bank—was despatched to Egypt to enquire into the country’s finances. As Randolph Churchill pointed out indignantly in the Commons, his cousin Evelyn Baring (later Lord Cromer) was already in Cairo as consul-general.
¹⁷
“Therefore,” thundered Churchill,

Given Northbrook’s political track-record (he was a former Viceroy of India) Churchill was scoring a cheap point, and his claim that “the public service of this country has hitherto been uniformly free from the least connection with the commercial and financial private enterprises of the City of London” was, of course, nonsense. But it is of some interest that he believed a Rothschild involvement in Egyptian policy would have aroused more public objection than a Baring involvement.

What Churchill did not know was that, the very day after Northbrook was sent to Egypt, Natty gave Granville an assurance that his firm would provide a short-term loan of £1 million to meet Egypt’s immediate deficit, though he pointedly demanded to know “what will Govt. do to help to secure his debt?” The need to renew this loan gave the Rothschilds precisely the kind of financial leverage over policy which Churchill erroneously attributed to the Barings: talking darkly of an impending Egyptian bankruptcy, Natty told Granville on December 26 that he was willing to renew the loan only for two weeks, in order to speed up negotiations with the other powers. Even as he tightened the screw, Natty seems to have enjoyed tormenting the government with conflicting and irreconcilable messages from Berlin and Paris. “Our only chance is to come to terms with Bismarck,” he told Hamilton in August. On September 1, he warned Granville that “Bismarck is very angry, [and says] that he will defend the rights of the German ... bond holders, that he will oppose illegal action on the part of the Egyptians and give us an ultimate [sic] ratio, the Mandate of Europe to France, & in his opinion we should not like to face this.” But when he dined with Gladstone three months later, he
“scoffed
at the French computation of Egyptian Land Revenue,” strongly endorsing the estimates in Northbrook’s report the previous month which had called for a sole British control of Egyptian finance.

It is hard not to sympathise with Gladstone as he was inexorably driven towards a
de facto
British protectorate: so ubiquitous did the Rothschilds seem that he accused them of leaking critical information to the French government—at a time when Hartington was supplying Natty with details of Northbrook’s report to pass on to Bismarck. There was probably something in this: in October the French premier Jules Ferry told Bismarck’s son Herbert “that England was agitating the great financial houses, and especially the Rothschilds, and was giving them to understand that the Egyptian Loans would become valueless, and the bondholders would lose everything, if the British Government were to be driven to extremities ... The financiers were now really anxious and were trying to modify the French Government’s attitide towards England.” Small wonder Rosebery hesitated to join the Cabinet at this critical juncture: he doubtless imagined another fierce speech on the subject of financial families from Churchill. Even as it was, Churchill made a wild speech about “a gang of Jewish usurers in London and Paris seducing Ismail Pasha into their net” and alleged that “Gladstone had delivered the Egyptians back into the toils of their Jewish taskmasters.”

Finally, and fatally, there was the question of where to stop Britain’s new jurisdiction. To the south of Egypt, religious revolt was raging in the Sudan under the leadership of the Mahdi. Again the Rothschilds encouraged British intervention, and again Gladstone found himself unable to resist the combination of imperialist sentiment at home and the over-ambition of “the man on the spot,” in this case “Chinese” Gordon. All concerned overestimated British power, the French Rothschilds cheerfully repeating a bourse story “that Gordon Pasha carried along £100,000 in Bank of England notes, the best English weapon to put an end to the revolt.” Far from reporting on the logistics of withdrawal from Sudan, as he had been instructed to do, Gordon sought to take on the Mahdi. The news reached London of his probable death on February 5, 1885. It was this crisis which finally persuaded Rosebery to join the government, a decision welcomed by Natty in revealing terms: “[Y]our clear judgments and patriotic devotion will help the Govt. and save the country. I hope you will take care that large reinforcements are sent up the Nile. The campaign in the Soudan must be a brilliant success and no mistake.”

There can be no question that the Rothschilds benefited directly from the British occupation of Egypt. As Gustave said, British control was good news for most (though not all) Egyptian bondholders as “Egyptian credit obviously would benefit should England become jointly liable for Egypt’s external obligations.”
¹⁸
Not only that, but it created a secure new form of bond for the Rothschilds themselves to issue: after 1884 all Egyptian bond issues were effectively underwritten by Britain. Between 1885 and 1893, the London, Paris and Frankfurt houses were jointly responsible for four major Egyptian bond issues worth nearly £50 million. The fact that these issues were handled by the Rothschilds, in partnership with Bleichröder and in one case the Disconto-Gesellschaft, had a diplomatic significance. In March 1885 it was agreed that the first of these loans would be guaranteed by all the interested powers, but Bismarck made ratification of this agreement conditional on German banks—meaning Bleichröder—being given a share in it. This ruled out the option of issuing the bonds through the Bank of England (as happened with issues for India and other colonies), and made a Rothschild operation the obvious solution. One of Salisbury’s first tasks on forming a minority administration in the summer of 1885 was to break the news to the Bank that he was “entrusting the issue of the English portion of the Loan to the agency of N. M. Rothschild, because that firm is one with the Houses of the same name in Paris and Frankfurt, and is in similar relations with the House of Bleichroeder in Berlin.”

More important than any guarantee was the success with which Evelyn Baring stabilised Egyptian finance. The loans of 1890 and 1893 were conversion loans, issued to lower the interest on the Egyptian debt. Nor can this be portrayed in Egyptian nationalist terms as a triumph of foreign investors over Egyptian interests: under Baring, there were substantial infrastructural investments (railways and, most famously, the Aswan dam built between 1898 and 1904); yet the absolute debt burden fell from a peak of £106 million in 1891 to just £94 million in 1913 and with it per capita taxation. Put another way, at the beginning of the period the debt burden had been ten times current revenue; by the end the figure was just five. So strict was the British financial control that the Rothschilds were soon complaining that their commissions on Egyptian business were being squeezed. This may partly explain why the Rothschilds increasingly abandoned the field to Ernest Cassel after Baring left Egypt in 1907, though a more likely explanation is that Natty feared British control was slipping in the face of resurgent Egyptian nationalism.

The heaviest cost of the shift to formal British control was paid not by bondholders or taxpayers but by British foreign policy. Between 1882 and 1922, Britain felt obliged to promise the other powers no fewer than 66 times that she would end her occupation of Egypt, but all attempts to extricate Britain from Egypt foundered in the face of the irreconcilable views of the other powers. In September 1885 Natty was asked to take soundings in Berlin about Drummond Wolff’s idea of replacing British troops with Turks in Egypt. Bismarck’s son Herbert replied on his father’s behalf with a resounding negative. The idea floated by the Foreign Office in 1887 of “Neutralisation of Egypt under English Guardianship” was equally foredoomed to fail; the French insisted the Sultan say no. In practice, a “veiled Protectorate” (Milner’s phrase) had been established and a momentous precedent set—just as Gladstone had warned would happen at the time of the Suez Canal share purchase.

The ultimate irony is that one of the principal beneficiaries of the operation proved to be none other than Gladstone himself. In late 1875—possibly just before his arch-rival’s purchase of the Suez Canal shares—he had acquired £45,000 (nominal) of the Ottoman Egyptian Tribute loan of 1871 at a price of just 38. As the editor of his diaries has shown, he had added a further £5,000 (nominal) by 1878 (the year of the Congress of Berlin); and in 1879 a further £15,000 of the 1854 Ottoman loan, which was also secured on the Egyptian Tribute. By 1882 these bonds accounted for no less than 37 per cent of his entire portfolio (£51,500 nominal). Even before the military occupation of Egypt—which he himself ordered—these proved a good investment: the price of 1871 bonds rose from 38 to 57 in the summer of 1882, and had indeed reached 62 the year before. The British takeover brought the Prime Minister still greater profits: by December 1882 the price of 1871 bonds had risen to 82. By 1891 they had touched 97—a capital gain of more than 130 per cent on his initial investment in 1875 alone. Small wonder he once described Turkish state bankruptcy as “the greatest of all political crimes.” When we speak of Victorian hypocrisy, Gladstone’s repressed attitude towards sex often springs to mind; but it was his attitude to imperial finance which was truly hypocritical. It had been heroic hypocrisy on his part to denounce the purchase of the Suez Canal shares by Disraeli on behalf of the government when he was making one of the most profitable private speculations of his career on the back of it. The Eastern Question was one of the main causes of the schism between the Rothschilds and Gladstone in this period; it is tempting to conclude that Gladstone’s double standards—contrasting so markedly with Disraeli’s romantic hyperbole—were at the root of the rift.

LIONEL TO LEO AND LEONORA, MARCH 1876

 

 

There is no question that the debates over Egypt and Turkey in the 1870s did much to alienate the Rothschilds from Gladstone. It would be wrong, however, to suggest that there was an outright break with the Liberal party or an unqualified acceptance of Conservatism. There is a nice symbolism in the fact that Disraeli could call on Lionel on the same day in 1876 that Gladstone had tea with Charlotte. Nor was that an isolated coincidence. Four years later, Ferdinand wrote a letter to his friend and relation by marriage the Earl of Rosebery, describing a similar occasion: “Lord B[eacons] field
¹
is staying with [Alfred]—the other day he had to be sent to dinner with Natty, as Gladstone came to dinner to meet the Duke of Cambridge. (Private.)” Until 1905 there was always something of a “revolving door” quality to Rothschild politics: although members of the family (in particular Natty) became more and more closely identified with Conservatism—or rather with Liberal Unionism—channels of communication to the Gladstonians were never closed. Nor were relations with the Conservative leadership after Disraeli always completely harmonious. The politicisation of the Jewish immigration issue after 1900 provided a salutary reminder of why the family had become Liberals in the first place.

Undeniably, the Rothschilds of the fourth generation thought about politics in more ideological terms than their parents and grandparents—most obviously over Ireland, but also over the “social question” (or questions) posed as European cities grew ever more crowded. These were the issues which did most to divide them from Gladstone. However, it was not until after the turn of the century that Natty gave up on the Liberals entirely. Like his father and grandfather before him, he continued to believe that, on matters of finance and diplomacy, the Rothschilds should be heeded no matter which party was in power. This partly explains the rather similar relationships he had with politicians as different in political orientation as Rosebery, Lord Randolph Churchill and Arthur Balfour. In the intimate world of late Victorian politics, the Rothschilds met such men frequently: in the City (to talk finance over lunch at New Court) and in the West End (to talk politics over dinner in the clubs and houses of Piccadilly). They and numerous other members of the political elite, Liberals and Tories alike, were regular guests at the Rothschild country houses (especially Tring, Waddesdon and Halton). It was in this milieu that many of the most important political decisions of the period were taken. And when the Rothschilds could not speak to their political friends, they wrote to them—luckily for the historian, because Natty’s decision that his own correspondence be destroyed posthumously has left little in the Rothschilds’ own archives. Although the letters from Paris still allow us to infer a good deal about what was going on at New Court, much of what follows is therefore based on the papers of the politicians themselves, leaving the historian to wonder how much of the Rothschilds’ political role remains irrevocably hidden from posterity.