The political victory of German capitalism took place at the very moment of a severe economic crisis. The opening of the Vienna International Exhibition of 1873 was seen as a manifestation of the material progress and economic achievements of the Habsburg monarchy. The so-called Gründerjahre, or years of expansive commercial enterprise during the late 1860s and early 1870s, however, were characterized not only by railroad and industrial expansion and the growth of the capital cities of Vienna and Budapest but also by reckless speculation. Warning signs of an imminent crisis were disregarded, and in May 1873, soon after the opening of the exhibition, the stock market collapsed.
The ensuing depression forced the government to abandon some liberal bourgeois principles. The state took over the railroads and instituted public-works projects in an attempt to alleviate popular distress. The government survived the crisis, however, and German liberal political rule continued for five more years. German liberalism would pass into eclipse not because of economic or domestic crisis but as a consequence of its opposition to foreign expansion.
A far-reaching consequence of the stock market crash of 1873 was the permeation of anti-Semitism into Austrian politics. Jews were accused of being responsible for the speculative stock market activities, even though official investigations proved that many elements of the population, including some ministers and aristocrats, had participated in the Gründungsfieber, or “speculative fever,” and the attendant scandals. International relations: the Balkan orientation
After his appointment as foreign minister on November 14, 1871, Andrássy conducted the foreign affairs of Austria-Hungary with the intention of preserving the status quo. Discarding the anti-Bismarck bias of his predecessor, Beust, he sought the friendship of the German Empire in order to strengthen his position in a possible confrontation with Russia over problems in the Balkans. The Dreikaiserbund (Three Emperors’ League) of 1873, by which Franz Joseph and the German and Russian emperors agreed to work together for peace, gave expression to that policy and made a change of the status quo in the Balkans dependent on German consent.
The continuing decline of Ottoman power encouraged the Balkan nations in their opposition to Turkish rule, and in 1875 there were revolts and upheavals. Andrássy failed to induce the Ottoman government to adopt a reform program, and by 1876 Russian intervention seemed imminent. Russia offered to join with Austria-Hungary in partitioning the Balkans between them, but Andrássy believed that Austria-Hungary was a “saturated state” unable to cope with more nationalities and lands, and for a time he resisted the offer. He was aware, however, that Russia could not be restrained altogether; thus, through Bismarck’s mediation, there were concluded two secret agreements, at Reichstadt (now Zákupy, Czech Republic) in July 1876 and at Budapest in January 1877, whereby Russia gave up its plans for a “great partition” and settled for the territory of Bessarabia and, in return, acquiesced in Austria-Hungary’s acquiring Bosnia and Herzegovina. Austria-Hungary and Russia agreed to refrain from intervention for the time being, and it was only when great-power mediation proved unable to settle the conflict between Serbia and the Ottoman Empire that Russia declared war on the Ottoman Empire in April 1877, after having again secured Austro-Hungarian neutrality (see Russo-Turkish wars).
In February 1878, with the war won, the Russians did not content themselves with Bessarabia and, in the Treaty of San Stefano, violated Austria-Hungary’s Balkan interests by creating a large independent Bulgaria. Having Great Britain as an ally in his opposition to the Russian advance in southeastern Europe and Bismarck as an “honest broker,” Andrássy managed at the Congress of Berlin in July 1878 to force Russia to retreat from its excessive demands. Bulgaria was broken up again, Serbian independence was guaranteed, Russia retained Bessarabia, and Austria-Hungary was allowed to occupy Bosnia and Herzegovina. Military occupation of those two provinces turned out to be more than the expected mere formality. It took 150,000 Habsburg troops and several weeks of fighting before the lands were under Habsburg authority. Since no agreement could be reached on whether the newly acquired lands should aggrandize the Hungarian or the Austrian part of the monarchy, they were placed under the jurisdiction of the common Habsburg ministry of finance. Domestic affairs, 1879–1908 Political realignment
The German liberals had opposed the Balkan policy of Andrássy, and, out of fear that the Slav element in the monarchy would be strengthened by the addition of a new Slav population, they voted against the occupation of Bosnia and Herzegovina—in this way withdrawing support from the government. When Prime Minister Auersperg resigned, the era of German liberal predominance came to an end. In 1879, the same year in which the so-called Dual Alliance with the German Empire bound the Habsburg monarchy to Germany’s foreign policy, the reappointment of Taaffe as Austrian prime minister signified a reorientation in domestic affairs. From 1879 onward, the German element in the Habsburg monarchy was on the defensive, fighting stubborn and senseless rearguard actions against the Slav drive for political and national equality.
Taaffe first tried to form a cabinet above parties. It was to include even the liberal Karl, Lord von Stremayr, who had presided over a caretaker government after Auersperg’s resignation. The situation decisively changed when Taaffe persuaded the Czechs in 1879 to give up their parliamentary boycott and participate in the government. Taaffe then governed with the support of a conservative coalition, including Slavs, German aristocrats, and clericals, which gave itself the name of the Iron Ring. In April 1880, language ordinances were issued that made Czech and German equal languages in the “outer [public] services” in Bohemia and Moravia. In 1882 the University of Prague was divided, giving the Czechs a national university. In the same year, an electoral reform reduced the tax requirement for the right to vote from 10 to 5 florins, thus enfranchising the more prosperous Czech peasants and weakening the hold of the German middle class.
Despite the conservative character of the government, political life in the Habsburg monarchy underwent a decisive change during the Taaffe period. The traditional party lineup decomposed, and new alignments and parties formed that were essentially radical and aggressive. From 1890 well into the 1920s, political life in Austria was dominated by three movements that originated in the 1880s: Pan-Germanism, Christian Socialism, and Democratic Socialism.
In German Austria, especially in Vienna, moderate liberals were increasingly challenged by extremist groups—notably German nationalists. In 1882 their “Linz program” proposed the restoration of German dominance in Austrian affairs by detaching Galicia, Bukovina, and Dalmatia from the monarchy, by reducing relations with Hungary to a purely personal union under the monarch, and by establishing a customs union and other close ties with the German Empire. This Pan-Germanic program found its chief protagonist in Georg, Ritter (knight) von Schönerer, a deputy to the Reichsrat, who also introduced a note of anti-Semitism into German nationalism. Although his version of extreme chauvinism and racialism never attracted more than a small number of followers, in a modified and moderate way Pan-Germanism and anti-Semitism became the ideological support of the bureaucracy and officer corps; though these elements did not favour union with Germany, they did feel that the Habsburg monarchy had the task of bringing German culture to the “inferior” non-German nationalities.