Holy Roman Empire

Chapter 604: Institutional Reform

After Christmas, Franz became busy again. There were always many tasks at the end of the year, including the government’s year-end summary, plans for the coming year, and the budget...

While specific tasks were handled by subordinates, Franz still needed to oversee the overall direction. As a competent emperor, he had to ensure his control over the government.

Finance Minister Karl presented the report, “Your Majesty, here is this year’s financial report.

The total revenue of the New Holy Roman Empire for 1875 was 865.2 million guilders, with total expenditures amounting to 876.4 million guilders, resulting in a budget deficit of 11.2 million guilders.

Austria’s total revenue for 1875 was 157.41 million guilders, with total expenditures of 155.04 million guilders, yielding a surplus of 2.37 million guilders.

Bavaria’s total revenue in 1875 was 11.32 million guilders, with revenues and expenditures roughly balanced.

The Kingdom of Jerusalem had a revenue of 220,000 guilders and expenditures of 3.14 million guilders, resulting in a deficit of 2.92 million guilders.”

Although the Austrian government was essentially the central government of the New Holy Roman Empire, it was important to maintain a distinction in financial matters.

If finances were not separated, and if the central government faced a deficit, there would be no way to request funds from the various state governments.

It wasn’t just a matter of financial separation. In reality, their functions were also different.

The Austrian government is primarily responsible for governing Austria itself, handling matters such as taxation, maintaining public order, economic development, education, and infrastructure construction… These are all limited to Austrian territory.

The central government, on the other hand, has a different role. These specific administrative tasks fall under the responsibilities of the individual state governments and do not require their intervention.

However, the central government is responsible for the entire New Holy Roman Empire, with its main functions including mediating relations between the various states, enacting laws, overseeing the judicial system, conducting foreign affairs, training and managing the military, issuing currency, collecting tariffs, and managing colonies...

It is normal for the central government’s financial revenue to be lower than that of the individual states. Aside from income from colonies, the central government relies mainly on seigniorage and customs duties.

While a large colonial territory does not necessarily translate to high financial revenue, it is currently fortunate that the central government can basically achieve a balance between income and expenditure, with a slight surplus.

However, this surplus exists only on paper. Once it passes through the central government, it is quickly consumed by local construction projects.

In earlier years, when the central government faced significant deficits, it had to rely on contributions from state governments to cover these financial shortfalls. Extracting funds from others was always challenging.

During those times, the end of each year was particularly painful for the Austrian government. They had to patiently persuade state governments to willingly contribute funds.

With the development of colonial economies, this situation changed. There was no longer a need for the central government to subsidize expenses.

This change was not welcomed by state governments. Not having to pay meant a decline in their status within the empire.

Politics is quite realistic. Wth the central government’s financial balance achieved, merging the Austrian government and the central government is now on the agenda.

Regardless of whether people are willing or not, this is an inevitable outcome. After all, how can one govern once the colonies are integrated?

While the central government can directly administer the colonies, if it were to take direct control of the integrated provinces, these provinces would then hold political status equal to that of the state governments.

Undoubtedly, with the vast expanse of the African continent, its future development potential will certainly surpass that of the mainland.

If integration is not pursued now and the system is not established, once these provinces begin to develop, they will undoubtedly seek political rights.

If they eventually transition into an era of democracy and freedom where decisions are made by popular vote, then it would not be far-fetched for the Emperor to lose his throne.

The primary reason for placing the colonies under the empire rather than under Austria was to ensure that all states contributed financially and to have a legitimate claim for enticing immigrants in German-speaking regions.

Now that this had been achieved, it was time to eliminate redundant structures. Politics is indeed this practical. Franz has already decided to merge the administrative powers of Austria, Bavaria, and Jerusalem.

The year 1875 will mark the last year of separate financial accounting. Thereafter, everything will be fully merged. The government will no longer need to deal with the complexities of maintaining two budgets.

Franz took the documents and began to read carefully. The soon-to-end year of 1875 had been a good one. It was the first time since his ascension that the Austrian government had recorded a budget surplus.

Despite being a mere two million guilders, this was still a significant victory.

In the years leading up to his ascension, Franz had often struggled with financial issues, only managing to escape his difficulties after the eruption of the First Near East War which allowed him to profit from the conflict.

Following that, he accelerated the pace of colonial expansion, but the government continued to run annual deficits with the best situation being a balance between income and expenditure.

Now was the era of the gold standard, not a time for fiat currency. For the government to print money, it had to first consider its gold reserves.

Stimulating the economy through fiscal deficits required careful consideration of how much money was available. It was impossible to cover losses simply by printing more money as prolonged deficits would only increase government debt.

The government’s capacity to bear debt was limited. Once it exceeded that threshold, financial collapse would ensue.

Greece serves as a cautionary tale in this regard. The previous government had recklessly distributed benefits without considering the consequences of fiscal deficits, ultimately leading to default.

Undoubtedly, the Austrian government also carried a heavy debt burden. The so-called budget surplus existed only on paper and was insignificant compared to its massive debts.

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After a moment, Franz closed the document and said, “Let’s use this budget surplus to reduce our debt! Our debt pressure is still quite significant. If we encounter an unexpected situation, we will be in a very passive position.”

At the beginning of the New Holy Roman Empire, small states were concerned that the central government would use imperial finances to subsidize Austria at their expense.

To reassure everyone, Franz established a rule: the central government could not incur external debt, and any fiscal deficits would be borne by the state governments.

The effect was quite clear. The central government struggled to cover its own expenses and had to rely on the state governments each year. Every expenditure was strictly audited, eliminating any possibility of misappropriation.

As a result, the central government’s fiscal deficit shifted onto the state governments. Austria, being the largest, had to contribute the most, and with its own investments in infrastructure, its debt continued to rise.

To date, Austria’s total debt had reached 500 million guilders, nearly 3.2 times its fiscal revenue, surpassing even the Russian government’s foreign debt.

Of course, this calculation was not entirely reasonable. Some revenues were not included in the fiscal income but could still be used for debt repayment.

However, this figure was still somewhat precarious. During periods of rapid economic growth, it might not pose a problem, but once entering a phase of economic stability or even recession, issues would arise.

Franz did not even mention the fiscal deficit of the Kingdom of Jerusalem as it was an inevitable outcome.

With all agricultural land lying fallow and cities undergoing redevelopment, expenses were mounting. If Jerusalem were not a holy city, it likely wouldn’t even generate that 220,000 guilders in revenue and would simply be a pure investment.

Finance Minister Karl replied, “Yes, Your Majesty.”

After a brief pause, Karl added, “Your Majesty, our plan for financial consolidation has met with opposition from the state governments. There may be trouble in the imperial parliament.”

Merging the central government with Austria was an inevitable trend that everyone was mentally prepared for. Franz had already discussed it with the kings of the various states, and generally speaking, there was no significant opposition.

There were no issues with administrative consolidation. From the beginning, the Austrian government had effectively served as the central government, and in reality, both sides had long been one entity.

Given the established facts that had already occurred, the state governments understood that their opposition would be futile. As long as their own interests were not harmed, they tacitly accepted this arrangement.

However, finances are different. The state governments have continuously been funding the central government. After finally achieving a balance between income and expenditure, it feels unfair to have Austria reap all the benefits. Anyone would feel uncomfortable in such a situation.

There is no room for compromise on this issue. If the finances cannot be merged, how can integration be accomplished?

After hesitating for a moment, Franz made a decision, “If we cannot persuade the state governments to agree, then we will postpone merging the financials for now.

Let Jerusalem announce its reconstruction plan and prepare the necessary documents to apply for membership in the New Holy Roman Empire at the imperial conference early next year.”

The Kingdom of Jerusalem had never been part of the New Holy Roman Empire, but if Jerusalem wanted to join, no one could oppose it.

No Catholic nation could refuse the inclusion of the holy city. Otherwise, public outrage could easily lead to the government being overthrown.

Adding Jerusalem to the empire would not only increase the influence of one more state but also introduce a significant challenge.

The Kingdom of Jerusalem was impoverished and just beginning its reconstruction efforts, which would require substantial funding. Undoubtedly, Jerusalem had no money of its own.

Rebuilding the holy city was a religious imperative. Once it joined the New Holy Roman Empire, those expenses would fall on the central government. According to convention, this expenditure would ultimately be passed down to the state governments.

Franz had already devised a plan to rely on the Vatican to raise funds for Jerusalem’s reconstruction from around the world. To this end, he promised governance of the city of Jerusalem to the Holy See.

However, this was still under confidential negotiation. For the Vatican to gain control over Jerusalem, it needed to cooperate with Austria to stabilize the entire Middle East.

This did not prevent Franz from using the enormous costs of rebuilding Jerusalem to exert pressure on the state governments.