A War Fought with Unusual Weapons: How Prussia Used Finance and Politics to Force the Habsburg Hereditary Lands Out of the German Confederation

The Vienna Coinage Treaty

At the same time, the Prussian experts argued with their Austrian counterparts about whether the coins should be produced according to the silver or the gold standard. Of course, this did not mean that they planned to issue only silver or only gold coins. The question was whether the currency should be linked to the price of silver or to the price of gold. Since Vienna expected the gold price to plummet in the future – especially as rich gold deposits had just been discovered in California – the Austrians tried to make the case for the gold standard. In this way, they hoped to be able to pay off their high national debt with cheap gold. Prussia, however, was not interested in a strong Austria and successfully pushed for the silver standard. According to the new treaty, gold ducats worth 4 1/2 gulden were not allowed to replace banknotes in Austria. They could only be used for foreign trade – and even this special permission was to be revoked in 1865.

A bitter pill to swallow. But for Austria, it was a sacrifice worth making to gain access to this common economic area. And so, on 24 January 1857, the Emperor signed the Vienna Coinage Treaty.

Contemporary illustration of the correspondent of the Illustrated London News of 16 June 1869

The Trauma of Solferino

Therefore, Austria began to withdraw banknotes from circulation to replace them with silver coins. However, the next disaster was already on the horizon: the French emperor supported the Italian national movement led by Vittorio Emmanuele. Of course, his reasons were not altruistic. The fact that Savoy and Nice are part of France today is due to his intervention in this conflict. And that is why, on 21 April 1859, Austria had to stop withdrawing banknotes as it had to finance the war in northern Italy. Thus, banknotes circulated at a fixed exchange rate once again.

The war was over quickly. It ended with the Battle of Solferino on 24 June 1859. This battle was a trauma for Austria and a personal defeat for Franz Josef I, who had taken command of the army and had to watch helplessly as his troops were slaughtered in one of the bloodiest battles of the 19th century. 30,000 soldiers were killed or wounded. Even more tragic were the 40,000 casualties who fell ill after the battle due to a lack of bandages, food and water. The Red Cross and the Geneva Convention owe their existence to the international horror at the horror of Solferino.

Prussia, however, rejoiced at the outcome. Having lost its territories in Upper Italy, Austria’s economic power was reduced. Moreover, Austria was also forced to withdraw from the Vienna Coinage Treaty as it was unable to replace its paper money with coins.

Königgrätz and the End of the “Greater German Solution”

In 1865, Prussia pulled off its next coup. It cancelled the old trade agreement between the German Customs Union and Austria and drew up a new one on significantly worse terms for Austria. It made Austria a foreign country for customs purposes.

This was another blow that led to the Habsburgs being lured into a trap when Bismarck deliberately broke the law to provoke a war against Austria. The Battle of Königgrätz established what had become clear over previous decades: Prussia had defeated Austria in the struggle for German supremacy. The “Greater German Solution” that was to include Austria in the German territory was no longer an option, and the Prussian ruler was in a position to elevate himself to the position of German emperor.

After Königgrätz, Franz Josef almost lost Hungary as well. He kept it only because he decided to split up his empire. Whereas it had previously been administered from Vienna, the territories of the Habsburg hereditary lands were divided into Cisleithania and Transleithania. These names came about because the Leitha river, some 180 kilometers long, ran roughly along the border between the two parts of the country. In Cisleithania, Franz Josef ruled as Emperor over Austria, Bohemia, Moravia, Silesia, Gorizia, Carniola and Galicia; in Transleithania, he ruled as King of Hungary over Transylvania, Croatia and Slovenia. The famous Dual Monarchy was born.