Holy Roman Empire

As the Russians gained the upper hand on the battlefield, the Prussian government, which had prepared in advance, managed to stay composed. However, the financial backers behind them began to lose their patience.

The phrase, “He who owes money is the master,” might be a bit exaggerated here, but the principle remains unchanged. If the Prussian-Polish Federation were to lose, creditors would find it nearly impossible to recover their loans.

The collateral promised by the Prussian government would still depend on whether the Russians were willing to acknowledge it.

Judging by the Russian government’s usual approach, there was an 80% chance they would simply pretend not to notice, and the remaining 20% would involve seeing it but refusing to recognize it.

To win this war, the Prussian government had gone all out in borrowing funds, signing countless secret agreements.

If the Prussian-Polish Federation were to collapse, it would take down numerous financial institutions that had lent them money. To shift those losses, a financial crisis would be almost inevitable.

It wouldn’t just be financial institutions facing disaster, industries would also suffer greatly. While many companies seemed to profit handsomely from the war, much of their gains were only on paper, with a significant backlog of unpaid balances.

This issue stems from the persistent problem of overdue payments in commercial circulation, a plague that runs through every aspect of the capitalist market economy. It’s a challenge faced by nearly all production-based enterprises.

No one knows how long this war will last, nor how much it will ultimately cost. To sustain itself for as long as possible, the Prussian government is naturally doing everything it can to cut expenses.

Having a lot of debt isn’t a problem, nor is paying high interest, those are “happy problems.” Only by winning the war will they even need to worry about addressing these issues.

After the outbreak of the Russo-Prussian War, the prices of strategic materials across Europe skyrocketed.

On the surface, businesses appeared to enjoy massive profits from this wave of price increases. However, in reality, the Prussian government only paid a portion of the costs and often just deposits, leaving the capitalists to advance the remaining production expenses.

The Prussian government still had plenty of funds in its bank accounts and well-informed individuals were aware of this.

But procurement agents consistently delayed payments, typically settling the previous batch only when placing orders for the next.

Tempted by the high profits, capitalists were naturally willing to comply. Many economically weaker businesses even had to take out bank loans to cover the upfront costs.

To some extent, the Prussian-Polish Federation had tied the British economy to it through debts. Their fates were now intertwined. If one suffered, so would the other.

Everyone knew the risks, but the profits were too enticing to ignore. Furthermore, the Prussian-Polish Federation had already won a previous war against Russia, and the London newspapers relentlessly disparaged the Russians, inadvertently boosting confidence in Prussia.

However, everything changed after the Battle of Smolensk. Suddenly, people realized that the Russian Empire was still the ‘Gendarme of Europe,’ and the Prussian-Polish Federation may not be able to hold out.

This was unacceptable. With such heavy investments already made, the Federation’s collapse couldn’t be allowed. If the Prussian government fell, its backers would inevitably suffer as well.

The capitalists didn’t want the Prussian-Polish Federation to fall, and neither did the British government. After all, they had worked hard to cultivate this strategic pawn so losing it now was a prospect no one wanted to face.

Prime Minister Benjamin was under immense pressure as domestic interest groups clamored for the government to take action and prevent the worst-case scenario.

Setting down the document in his hand, Benjamin asked in disbelief, “Has the situation become so severe that Britain has been hijacked by the Prussian barbarians?”

The deep disdain in his tone revealed just how bad his mood was. Anglo-Prussian relations had always been cordial, and under normal circumstances, he would never have used a derogatory term like “barbarians.”

Chancellor of the Exchequer Garfield replied, “The situation is even worse than that. I suspect that even if the Prussian-Polish Federation wins this war, they may still lack the ability to repay their debts.

Let’s set aside the issue of unpaid material balances for now. At least they’ve made partial payments. As long as companies aren’t overly greedy, these payments should at least cover production costs, minimizing potential losses.

The real trouble lies in the loans and bonds. If the Prussian-Polish Federation loses the war, nearly all their collateral will become worthless.

The gold they’ve pledged isn’t enough to cover even one-tenth of their debts. Even if we factor in all the overseas assets owned by the Federation’s citizens, it still wouldn’t fill this black hole.

From our incomplete statistics, we’ve even discovered cases of multiple collateralizations, particularly in the private loan agreements between the Prussian government and financial institutions, where over-pledging is rampant.

The Federation’s debt to us far exceeds the publicly acknowledged 180 million pounds. The real figure might be 200 million pounds, or even 300 million pounds, but no one knows for sure except the Prussian government.”

At this time, Britain’s financial regulations were lax, and private lending by financial institutions was beyond the British government’s control.

The bond sales were even more chaotic. Officially, only 1 million pounds might be reported, while in reality, 3 to 5 million pounds could be issued. This was a common occurrence.

In an era reliant entirely on manual oversight, accurately tracking such data was incredibly difficult. As long as no problems surfaced, the British government wouldn’t bother to intervene.

And if problems did arise, the government wouldn’t have much control either. In finance, small issues rarely come to light, while major issues often mean that the institution in question is already on the verge of bankruptcy.

“Bankruptcy” was the best tool for evading responsibility. At most, the government might arrest a few scapegoats, but more often than not, even finding scapegoats was impossible.

Prime Minister Benjamin had given up trying to determine the exact amount of debt the Prussian government had accumulated as it was pointless.

From an investment perspective, this was already a bad asset. Cutting losses would be the best course of action.

Unfortunately, that wasn’t an option. No one wanted to see their money go down the drain, and the British government would have to step in to clean up the mess.

In the original timeline, the British and French used a similar strategy to successfully drag the Americans into the war. Although things hadn’t reached that point yet, Prime Minister Benjamin was already deeply troubled.

“Damn barbarians! Since when did they become so cunning?” Prime Minister Benjamin cursed in frustration.

“Wait, are these issues targeting just us, or are all nations facing the same problems?”

This issue was critical. If all nations were trapped by the Prussian-Polish Federation’s debts, then the problem would cease to be a problem.

However, Chancellor of the Exchequer Garfield shook his head as he replied, “Unfortunately, Prime Minister, while other nations have encountered similar issues, the figures involved are insignificant.

Adding up all the debts owed by the Prussian-Polish Federation to other countries wouldn’t even amount to one-third of what they owe us.

Aside from us, their second-largest creditor is likely the French, followed by the German Federal Empire. The rest are negligible.

The Prussian government doesn’t yet have the capacity to borrow from the entire world.”

Hearing this, Benjamin nearly fainted from anger. He swore it was the worst news he’d heard all year.

The primary reason for this situation was that the British were simply too wealthy, with an abundance of idle capital circulating domestically. The second reason lay in the British government’s foreign policy. Without the government’s backing, private financial institutions wouldn’t have been so enthusiastic.

Everyone simply assumed the government wouldn’t let the Prussian-Polish Federation lose the war. With that assurance, what was there to worry about? Surely the Prussian government wouldn’t dare default on its debts?

Other countries, however, were different. Not everyone had faith in the Prussian-Polish Federation, nor did they have the confidence to guarantee the safety of their investments.

For example, Austria’s financial sector outright refused to lend to the Prussian-Polish Federation for a very straightforward reason: the Austrian government was supporting the Russians.

Due to political factors, no one had faith in the Prussian-Polish Federation, so naturally, no one was willing to lend them money.

As for the smaller European nations, they were even less inclined to get involved. Not only was there no guarantee of repayment, but they also didn’t have much money to lend in the first place!

Against this backdrop, it was no surprise that France became the second-largest creditor and the German Federal Empire the third. After all, they had money and good relations with the Prussian government.

Benjamin asked sharply, “And what about the Russian Empire? Don’t tell me the Russian government has also borrowed a significant sum from us!”

Garfield helplessly nodded and replied, “Unfortunately, Prime Minister, the Russian government does indeed owe us a large amount, though not as much as the Prussian-Polish Federation. It’s only about 50 to 60 million pounds.

A significant portion of this was borrowed before the war and can be considered advance payments for imported Russian agricultural products. The rest consists of outstanding payments for goods purchased after the war began.

We’ve conducted a rough tally of Russia’s foreign debt, and unsurprisingly, their largest creditor is Austria. The total debt they owe Austria is likely comparable to what we’ve loaned the Prussian-Polish Federation.

Most of it consists of loans and a small number of bonds, with very few unpaid balances for goods. Given the Russian government’s history of defaulting on debt, most Austrian companies now require cash payments upfront.”

The weight of this information was overwhelming, and Benjamin took a moment to compose himself.

“This is the worst possible scenario. We can’t afford to let the Prussian-Polish Federation lose, and the Austrian government can’t afford to let the Russians lose. This war is no longer just a matter between Prussia and Russia!”

There was now a conflict between Britain and Austria, or perhaps more of a proxy war between the two through Prussia and Russia. Regardless of the scenario, the outcome appears bleak.

Particularly now that the Prussian-Polish Federation is at a disadvantage on the battlefield, Britain finds itself in an even more passive position. Turning the tide for the Prussian-Polish Federation would come at an enormous cost.

Foreign Secretary Edward commented, “The situation isn’t as dire as it seems. In reality, we are the ones primarily trapped by debt, while Austria still retains the upper hand.

The Russians’ loans from Austria involve only a few major banks, with territory as collateral. While the valuation might be slightly inflated, as long as they can collect, they won’t suffer a total loss.

From the current state of affairs, I don’t believe the Russian government has the ability to default. On the contrary, our troubles are far greater, as the same level of debt here affects hundreds of thousands, if not millions, of people.”

It’s impossible not to be troubled. Lending to both sides might seem like a win, but it’s a bitter pill to swallow. No matter who wins or loses, there will be a debt default, the only question being the scale.

The British government cannot control the financial sector. Bankers invest solely based on their interests, with national interests not part of their considerations.

If the debts are recovered smoothly, all is well. However, in the event of a default, these financial groups will escape unscathed using the “bankruptcy” card.

Of course, there are always those who lack foresight or fail to act quickly, ending up destroying themselves by failing to transfer their risks in time.

Fortunately, due to Russia’s poor credit, few capitalists are willing to lend them money. Otherwise, the British government would find itself in an even more excruciating position.

Chancellor of the Exchequer Garfield shook his head and said, “I don’t see much difference. Even if the Austrian government has more options, they won’t allow the Prussian-Polish Federation to win the war.

In fact, they’d probably be quite pleased to use our hands to weaken Russia and remove a major obstacle to their unification of the German region.

Think about it: the Prussian-Polish Federation loses and disintegrates, the Russian Empire is severely weakened, and our economy suffers from the debt defaults. Is there a more ideal outcome for them?

From the perspective of the beneficiaries, I have reason to believe this current situation is orchestrated by the Austrian government.

Of course, it could also be the French. However, I doubt Napoleon IV, that young upstart, has the capability for such a maneuver.”

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