Page - 558 - in THE FIRST WORLD WAR - and the End of the Habsburg Monarchy, 1914 – 1918

558 How is a War Financed ? shown by the trade balance during the years before the war were explained by the fact that the consequences of the annexation of Bosnia and Herzegovina had also been clearly reflected in a temporary decline in exports to states such as Serbia. Altogether, the Balkan Wars and poor harvests had caused the deficits to increase drastically, and ‘deficit spending’ was by no means the guiding principle of the economists. The con- sternation became more widespread. However, at one time or another, this would all be balanced out, and the Austrian currency continued to be regarded as solid. Monetary circulation ran to 2.1 billion kronen. The annual average economic growth of the Mon- archy was 1.32 per cent, which was considered to be very good. The fact that despite this, Austria-Hungary was still described as an ‘industrialised agrarian state’,1307 and that it was regarded as backward compared to highly industrialised states such as the German Empire, Great Britain or France, was due to the uneven distribution of industry and the only very slowly changing agrarian structure, predominantly in the Hungarian half of the Empire. Compared to Russia and the south-eastern European states, however, the Habsburg Monarchy could certainly be classified as ‘western’. On 9 April 1913, in the light of the growing problems, and in order to increase the ‘financial readiness for war’, the governor of the central bank, Alexander Popovics, recommended a series of measures in a letter of the same title to the Austrian and the Hungarian finance ministers. He demanded a restriction on imports, a ban on subscrip- tions for foreign loans, a replenishment of the gold reserve and thus an increase in the funding ratio for the Austrian currency, and numerous other financial policy measures designed to prevent the Habsburg Monarchy ‘already at the moment mobilisation is ordered, even before the first shot has been fired, from […] having to take steps towards the destruction of the existing legal order of the monetary system’.1308 The appeal fell on deaf ears. Even so : Austria-Hungary was at least retrospectively a ‘world of security’, and was regarded as experiencing what Stefan Zweig so vividly, albeit falsely, described as a golden era. ‘Everything […] appeared to be established for the duration, with the state itself the supreme guarantor of this stability. […] Our currency, the Austrian krone, was circulated in pure gold bars and in this way vouched for its immutability’.1309 The war was to change all that. On 19 July 1914, the Governor of the Austro-Hungarian Bank was confidentially informed by the Foreign Ministry of the imminent dispatch of the ultimatum to Serbia, so that measures for payment transactions could be taken as a precaution. The Gover- nor, Alexander Popovics, had therefore been one of the many who were not surprised by the mobilisation, or by the war. Four days after the note, on the day the ultimatum was sent to Serbia, the major banks were ordered not to present the central bank with any excessive demands. The banks were therefore also warned that there would be war 48 hours before the arrival of the Serbian response note and five days before the war was declared. No trace of surprise here ! However, a war with Serbia would be easily