Holy Roman Empire

The atmosphere in the reception hall of the British Foreign Office was particularly strange. One side of the negotiation was incredibly nervous but forced to maintain a smile, while the other side, clearly uninterested, pretended to listen attentively.

This bizarre scene was the setting for negotiations between Britain and the Prussian-Polish Federation. From the very start, the two parties stood on unequal footing.

It was much like an ordinary person with no money and an empty stomach, desperately needing to borrow money for food. To get the loan, they had to…

British Foreign Secretary Edward waved his hand dismissively, “Apologies, Sir. This matter is beyond my capability. Loans are the domain of banks, you should discuss it with the bankers.”

Relying on attitude alone was clearly not going to secure the loan. Without sufficient benefits, why would John Bull ever open his wallet?

Prussian-Polish Federation Foreign Minister Friedman responded, “Sir, we’ve already spoken with the banks, but they require backing from your government. Please rest assured, we are offering very generous terms.

The interest rate can be 30% higher than the international average, and we can use annual revenues, colonies, railways, mines, and ports as collateral.”

International loans, while highly profitable, also carried significant risks. Without government backing, anyone offering international loans would be foolish.

With government backing, in the event of a default, the government would step in to collect the debt. Although repayment wasn’t guaranteed, it significantly increased the cost of default for the debtor.

Without government backing, creditors would be left to recover the debts themselves. There were plenty of precedents for such risks, such as the Russian government’s previous debt defaults.

Debts backed by national governments were typically resolved through negotiations, allowing creditors to recover at least a portion of their investment. However, debts without government backing were often outright written off.

The outcome of the Russo-Prussian War was hard to predict. Whether the Prussian-Polish Federation would even exist after the war remained unknown. Without the backing of the British government, bankers naturally would not dare to take on such a deal, no matter how high the interest rates.

In this era, government regulation of financial markets was minimal. Yet without government support, raising hundreds of millions of pounds from financial markets was simply impossible.

British Foreign Secretary Edward shook his head, “Sir, I understand your sincerity, but it doesn’t make any difference.

We all know how destructive war can be. With the Russo-Prussian War on the brink of eruption, your country’s ability to repay debts hinges entirely on your victory.

And even that is only a possibility. The Russian Empire is no easy opponent. Even if your country manages to defeat them again, the cost will be significant. After the war, what will your nation use to repay these debts?

War reparations? Frankly, if the Russian government had the money, the war wouldn’t end in the first place.

The spoils of war you might gain—land, population, factories—are certainly valuable, but they cannot be easily liquidated.

In fact, due to the war, your country will need to invest substantial funds in reconstruction, leaving your finances burdened for a long time to come.

And that’s assuming the best-case scenario. If the war turns into a protracted stalemate, the situation will be even worse.

If, one day, your country truly cannot fulfill its obligations, are we expected to live off the collateral you’ve offered?

Sir, you must understand that the collateral your country has presented holds little practical value for bankers.”

Edward’s words were already very restrained. He avoided mentioning the possibility of the Prussian-Polish Federation losing the war. But in reality, it was an issue that had to be considered.

Even winning the war couldn’t guarantee that the debts would be repaid as agreed and losing the war would be a huge problem.

Friedman had confidence in their chances of winning this war. However, his confidence didn’t mean the British shared it.

Whether they liked to admit it or not, Russia’s overall national power surpassed that of the Prussian-Polish Federation.

The Federation’s victory in the last war was largely due to the fact that most European countries wanted to see Russia lose. The Russian government had devoted at most half of its strength to fighting them.

But times had changed. The weakened Russian Empire was no longer as feared by others. Getting other countries to support the Federation with funds or resources now required offering tangible benefits.

After a moment’s hesitation, Friedman asked directly, “Sir, what does your country want?”

The Prussian-Polish Federation lacked the leverage to negotiate terms. Rather than wasting time on protracted talks, it was better to lay all their cards on the table. As long as the British were willing to lend money, everything else was negotiable.

British Foreign Secretary Edward waved his hand and replied, “Sir, you’ve misunderstood. We are not seeking anything in particular. You must believe that the friendship between our two nations can withstand the test of time.

However, the bankers require some form of assurance. If your country could deposit its reserves in the Bank of England as collateral, confidence in your position would greatly increase, and you could secure a loan of at least 60 million pounds.”

Friedman’s face instantly darkened. While a loan of 60 million pounds sounded enticing, the truth was that the Prussian-Polish Federation’s current currency reserves amounted to 478.6 tons of gold.

Of course, due to the need for international settlements, the Federation had to retain part of its gold reserves. The amount it could deposit in the Bank of England was roughly equivalent to 60 million pounds.

This wasn’t just a matter of gold since it also involved currency issuance. Once the gold fell into British hands, retrieving it would be incredibly difficult.

With their reserves controlled by the British, the Prussian-Polish Federation’s future currency issuance would inevitably be influenced by the British government. It would be similar to how the Federal Reserve in later times used monetary policy to impact the global economy.

There was nothing surprising about this. After all, the Americans had learned these practices from the British. The difference was that the United States’ stronger national power and more stable hegemony made its dominance more enduring than that of Britain.

Due to Franz’s butterfly effect, the guilder had risen to prominence, and the pound could no longer enjoy monetary hegemony alone. Against this backdrop, Britain’s interest in the Prussian-Polish Federation’s gold reserves was unsurprising.

For the Prussian government, depositing gold in the Bank of England wouldn’t just mean losing monetary sovereignty, it would also signify taking a political stance.

By aligning with Britain, they would naturally offend France and Austria. No, to be precise, they would primarily offend Austria.

Because of inadequate gold reserves, the franc had already been eliminated from this round of the struggle for monetary hegemony.

Friedman didn’t hesitate long before responding, “60 million pounds in loans is too little. The gold we hold is worth no less than that, not to mention its additional political and economic value.

Once the gold is deposited in the Bank of England, we will inevitably offend Austria. In the upcoming Russo-Prussian War, Austria will hold significant influence.

Not long ago, the Austrian government made a similar proposal, and the terms they offered were far more generous.”

Whether or not the Austrian government had actually made such an offer was something the British couldn’t verify. Even if they hadn’t, if the Prussian government approached them, the Austrians wouldn’t turn them away.

Edward smiled slightly. He wasn’t surprised that Friedman was using Austria as a bargaining chip to raise the stakes as such tactics were common in diplomacy.

However, the fact that Wilhelm I chose London as the destination for his first state visit indicated that the Prussian government leaned more toward cooperating with Britain.

Edward tested the waters, “Sir, this issue can be discussed further. We have no intention of letting our friends suffer losses.

As for the higher price offered by the Austrian government, they still need to deliver on their promises. Although the Russo-Austrian alliance has ended, relations between Russia and Austria have not completely broken down.

In the past thirty years, the economies of Russia and Austria have become deeply intertwined. Even if the Austrian government were willing to abandon the Russian government, it’s not something they could achieve in a short time.

Regardless of your country’s choices, Austria cannot sever ties with Russia just to support your cause. This is dictated by their shared interests.”

Friedman nodded in agreement. This was an undeniable fact. Economically, Russia and Austria were indeed aligned. If not for their mutual ambitions for hegemony, the Russo-Austrian alliance wouldn’t have dissolved in the first place.

The Prussian government would rather choose to cooperate with the less reputable British than seek help from their culturally aligned Austrian counterparts, driven by deep-seated apprehension about Russo-Austrian relations.

After a brief pause, Edward added, “Your country needs more allies to win this war. As friends, we’re more than willing to assist.”

Edward spoke confidently. Despite Britain’s poor reputation in Europe, its diplomatic influence remained substantial.

Small countries aside, the key was Britain’s sway over France. Since Napoleon III’s restoration, the French government had been heavily influenced by pro-British factions.

If the British government stepped in to win these individuals over, it would significantly reduce the difficulty for the Prussian-Polish Federation to gain French support.

Friedman was tempted, not out of naivety, but because the Prussian-Polish Federation had so few bargaining chips.

The so-called colonies amounted to nothing more than a small piece of the Indochinese Peninsula, barely managed by the Prussian government and essentially worthless.

The notion of “annual revenue” was laughable. In the past decade, aside from the year they sold land, when had they ever run a surplus?

Even if they were offered as collateral, the government still needed funds to operate. Otherwise, would the bankers collect taxes themselves?

As for railways, mines, and ports, those were mostly private assets. The Prussian government owned only a small portion.

With private property being inviolable, the government had no right to dispose of these assets. The only things the Prussian government could pledge as collateral were public assets it owned directly.