Holy Roman Empire

Sometimes, diplomatic alliances are quite simple. Once the British decided to support Chile, Peru and Bolivia were left with no choice but to seek support from France and Austria.

International trade was a minor issue. In those days, the economies of South American countries were so small that, if not for their abundant resources and the need to promote monetary hegemony, the great powers wouldn’t have paid them any attention.

Looking at the population numbers of these countries makes it clear. Chile had about 2.2 million people, Peru about 2.75 million, and Bolivia around 1.3 million.

With such small populations, and being predominantly agricultural nations, it was unrealistic to expect significant domestic markets.

Chile was relatively prosperous, primarily relying on saltpeter exports, and had the strongest military among the three nations.

Peru had silver, but the price of silver had been falling year after year, leaving the Peruvian government’s treasury increasingly strained.

Bolivia was arguably the worst off. After finally discovering saltpeter deposits and enjoying a few good years, war happened.

Unquestionably, none of the three countries could afford the enormous costs of war upfront, making loans inevitable.

At the Vienna Palace, Franz was reviewing a special loan. The debtor generously offered the mineral resources of the Atacama Desert as collateral.

“Based on the current situation, what are the chances of Peru and Bolivia winning the war?”

Chief of the General Staff Albrecht explained, “Analyzing purely from the standpoint of military strength on paper, the General Staff has conducted a quantitative analysis based on factors such as troop numbers, weaponry, training, past performance, and logistical capabilities across the three countries.

The military strengths are as follows: Bolivia 1.0, Peru 1.8, and Chile 2.1. In theory, Bolivia and Peru have an overwhelming advantage. However, on the battlefield, Chilean forces consistently dominate Peru and Bolivia in most engagements.

Although Bolivia and Peru hold a numerical advantage, their alliance is nominal at best. On the battlefield, there is no coordination between their forces, and at times, they even hinder each other.

Unless the coordination issues between the Peruvian and Bolivian armies are resolved, their chances of winning this war won’t exceed 50%.”

This is a common problem in all joint military operations. Bolivia, Peru, and Chile all claim sovereignty over the Atacama Desert.

The current alliance between Bolivia and Peru doesn’t mean their territorial disputes have vanished, it’s merely a temporary union brought about by their shared enemy, Chile.

In such circumstances, it’s hardly surprising when backstabbing occurs on the battlefield.

Franz said, “Tell the Bolivians that we have no interest in the nitrates of the Atacama Desert. Let them offer other collateral instead. If they don’t have suitable collateral, they can mortgage their domestic resources to us—gold, silver, copper, iron, oil, or natural gas are all acceptable options.”

Austria’s skepticism about Bolivia winning the war doesn’t prevent it from supporting Bolivia in the conflict. The mere act of pegging the Boliviano to the Guilder is enough reason for Austria to stand behind them.

If not for the fact that Chile had already promised the mineral resources of the Atacama Desert to the British, and considering Austria’s inability to compete with Britain in South America, Franz might have sent people over to stake a claim first.

Of course, the most critical factor is that the interests involved aren’t sufficient. While the Atacama Desert is the world’s largest producer of saltpeter deposits, that doesn’t mean saltpeter can’t be found elsewhere, especially with the availability of synthetic alternatives.

Franz had originally planned to bring Peru into Austria’s fold, but unfortunately, the French got to them first. Austria’s expansion into South America is still in its infancy, and its influence remains weak.

If Chile and Peru hadn’t already aligned themselves with the British and French, Franz suspects that Bolivia might not have chosen Austria either.

Finance Minister Karl reminded him, “Your Majesty, Bolivia’s domestic precious metal mines have long since been mortgaged.

While significant deposits of copper and iron have been discovered, they lack development value. As for oil and natural gas, those are part of the emerging energy industry, and whether Bolivia even possesses them remains uncertain.

If these resources were used as collateral, the risk of the loan would increase significantly, and domestic banks might not accept it.”

Franz suddenly realized the limitations. Bolivia’s industrial capabilities are severely underdeveloped, and as for heavy industry, it is practically nonexistent.

Without the ability to smelt locally, mined ores must be transported elsewhere for sale. Given the state of transportation in this era, these minerals naturally lose their economic value.

As for oil and natural gas, they are only just beginning to be utilized. Their importance isn’t yet recognized, so naturally, no one would invest heavily in exploration.

After weighing all the factors, Franz realized that these resources wouldn’t be useful in the short term, perhaps not even for the next century. Planning ahead for them would be utterly impractical.

Austria had already declared neutrality in the war, so this loan to Bolivia was structured as a private commercial loan. The government merely facilitated the arrangement and collected a fee as a guarantee for the contract’s execution.

Given the current circumstances, the Bolivian government’s chances of winning the war were slim. They would likely follow the same trajectory as in the original timeline—losing the war and subsequently being unable to repay their debts.

If the collateral had no value, private banks wouldn’t take the offer. And if the government negotiated terms only to find no bank willing to lend, wouldn’t that be embarrassing?

Realizing this, Franz didn’t hesitate to change his stance saying, “Since the precious metal mines are no longer available, the other assets can only serve as supplementary collateral. Let the Bolivian government provide additional collateral.”

No collateral? That’s impossible. Bolivia is still a nation so it must have some assets. If nothing else, there’s always land.

As for the risk of “default,” there was no need to worry. This was still the 19th century, a time when armed debt collection wasn’t uncommon. Unless the debtor was a colossal power like Russia, where the cost of enforcement was prohibitively high, creditors usually found a way to collect.

…

Foreign Minister Wessenberg reported, “Your Majesty, our alliance with Russia will expire in just three months. The Russian government has already sent its negotiators, and they’ve arrived in Vienna.”

Whether to renew the Russo-Austrian alliance has been a contentious issue within the Austrian government, with debates leaving even Franz wavering at times.

It’s not a matter of indecision but rather the influence of competing interests. Both continuing and abandoning the alliance involve significant potential gains and losses.

Over the years, the economies of Austria and Russia have become deeply intertwined. Austria imports industrial raw materials from Russia, processes them into finished goods, and sells them back to the Russian Empire.

Since 1854, Austria and Russia have been each other’s most significant economic partners. At its peak, trade with Russia accounted for two-thirds of Austria’s total foreign trade.

With Austria’s rapid economic growth and its industrial and commercial products penetrating new markets, this proportion has gradually declined over time.

Even now, trade with Russia remains Austria’s most critical foreign trade relationship, accounting for 29.7% of Austria’s total import and export trade volume.

If Russia’s economy had kept pace with Austria’s and its domestic market grew faster, this share would be even higher.

Undoubtedly, the Austro-Russian alliance has significantly contributed to economic exchanges between the two nations, boosting their trade relations.

However, the benefits are not without drawbacks. The Austro-Russian alliance has also constrained Austria’s ambitions. For instance, during the Russo-Prussian War, the Austrian government missed the opportunity to make a move against the Russian government when it was vulnerable.

The constraints on further expansion are only a minor issue. The European continent isn’t vast, and there’s only so much room for expansion, which often brings more trouble than it’s worth.

The main issue lies in Austria’s international image. Russia attracts too much hostility, and the Austro-Russian alliance means Austria shares in the burden of that animosity.

This has shackled the typically adept and flexible Austrian diplomacy, leaving the Austrian government with little room to maneuver on many occasions.

Economic gains from the alliance haven’t come without cost either. Austria remains Russia’s largest creditor.

Lending money might have been tolerable, but the Russian government has a poor track record with credit. They frequently fail to meet repayment terms and have defaulted on a significant portion of Austrian loans.

Defaulting on debts is one of the surest ways to foster resentment. Austria’s financial sector has become staunchly anti-Russian, and public opinion of Russia has been equally soured.

In agriculture, the two countries are also in competition. Austrian farmers deeply resent the Russian competition, which has disrupted market prices.

Austrian farmers, unlike powerless peasants, include a significant number of nobles. Many of them have suffered under Tsar Alexander II’s land reclamation policies and naturally hold a grudge against the Russian government.

With an expressionless face, Franz asked, “At this point, do you still think renewing the alliance is necessary?”

History seems to be repeating itself. In a similar case in the original timeline, the German Empire and Russia clashed over agricultural disputes. Austria is now in a comparable situation.

Of course, there are also differences. In Austria, aside from the nobility and farmers being anti-Russian, the financial sector, due to the debt issues, also harbors resentment against the Russians. The only domestic supporters of renewing the alliance are within the industrial and commercial sectors.

Finding himself in a similar position, Franz could somewhat understand why Wilhelm II, in the original timeline, distanced Germany from Russia in his foreign policy.

When it comes to interests, personal power is insufficient to change the dynamics. Even an emperor must consider the stance of the populace and cannot go against the majority.

Prime Minister Felix bluntly remarked, “Renewing the alliance might have some economic benefits, but it is of no strategic value!”

Agriculture Minister Holz added, “Even the economic benefits are minimal. We’re now in an era of free trade, and the tariff advantages we once had no longer exist.

Even without the Austro-Russian alliance, the most we’d lose is a portion of the Russian government’s procurement, which would have a negligible impact.

After years of effort, many aspects of Russian industry are now heavily reliant on us. Even if the Russian government wanted to cut us off, they’d have to consider whether they could bear the cost.”

This is the main reason for the Austrian government’s confidence. Austrian industry is self-contained and operates on standards different from those of Britain and France, making them incompatible.

From the outset, Russian industry was deeply influenced by Austria. Capitalists, seeking lower costs, directly adopted Austrian standards.

Adopting Austrian standards might not have been an issue in itself, but the key problem is that Russian industry has not developed a complete industrial system and relies on imports of machinery and equipment from Austria.

Exiting now would mean that the majority of industrial equipment currently in use would become obsolete, and this is a loss the Russian government simply cannot afford.