The Sleepwalkers (8 page)

The change of dynasty in 1903 signalled a major realignment. Austria was quick to recognize the Karadjordjević coup, partly because Petar had assured the Austrians beforehand that it was his intention to keep Serbia on an Austrophile course.
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But it was soon evident that Serbia's new leaders planned to push towards greater economic and political independence. During 1905–6, a crisis unfolded in which trade policy, armaments orders, high finance and geopolitics were closely intertwined. Vienna pursued a threefold objective: to secure a commercial treaty with Serbia, to ensure that Serbian armaments orders would continue to be placed with Austrian firms, and to contract a major loan to Belgrade.
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The failure to achieve agreement on any of these questions produced a drastic cooling of relations between the two neighbours, and the outcome was an unmitigated disaster for Vienna. The Serbian armaments orders went to the French firm Schneider-Creusot instead of to the Austrian rival, Škoda of Bohemia. The Austrians reacted by closing the border to Serbian pork, triggering a customs conflict that came to be known as the ‘pig war' (1906–9). But this was a counter-productive measure, since Serbia quickly found other export markets (especially in Germany, France and Belgium) and at last began to build slaughterhouses on a substantial scale, thus emancipating itself from its long-standing dependence on Austro-Hungarian processing facilities. Finally, Belgrade secured a major loan again not from Vienna, but from Paris (offered in return for the placement of armaments orders with French firms).

It is worth pausing for a moment to consider the larger significance of this French loan. Like all the emergent Balkan states, Serbia was an inveterate borrower, totally dependent on international credit, most of which was used to finance military expansion and infrastructural projects. Throughout the reign of King Milan, the Austrians remained willing lenders to Belgrade. But since these loans outran the debtor state's financial resources, they had to be hypothecated against various pledges: for each loan some definite revenue was pledged, or some railway property mortgaged. It was agreed that pledged revenues from railways, stamp and liquor taxes should be paid into a special treasury controlled jointly by the representatives of the Serbian government and the bondholders. This arrangement kept the Serbian state afloat during the 1880s and 90s, but did nothing to restrain the financial profligacy of the Belgrade government, which had managed to accumulate an indebtedness of over 350 million francs by 1895. With bankruptcy looming, Belgrade negotiated a new loan through which almost all of the old debts were consolidated at a lower rate of interest. The pledged revenues were placed under a separate administration run partly by the representatives of the creditors.

In other words, fragile debtors like Serbia (the same applied to the other Balkan states and to the Ottoman Empire) could secure loans on reasonable terms only if they agreed to concessions of fiscal control that amounted to the partial hypothecation of sovereign state functions. For this reason among others, international loans were a political issue of the highest importance, inextricably wound up with diplomacy and power politics. French international lending in particular was highly politicized. Paris vetoed loans to governments whose policies were deemed unfriendly to French interests; it facilitated loans in return for economic or political concessions; on occasion it reluctantly conceded a loan to unreliable but strategically important clients in order to prevent them from seeking relief elsewhere. It pursued potential clients aggressively – in Serbia's case the government were given to understand in the summer of 1905 that if they did not give France first refusal on the loan, the Paris money markets would be closed altogether to Serbia.
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Acknowledging this nexus between strategy and finance, the French foreign ministry merged its commercial and political divisions in 1907.
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Seen against this background, the Serbian loan of 1906 was an important turning point. French financial relations with Belgrade became, in the words of an early American analyst of pre-war high finance, ‘more intimate and dominant'.
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The French came to own more than three quarters of all Serbian debt.
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These were vast commitments for the Serbian state – repayment schedules extended forwards to 1967 (in fact Belgrade defaulted on the greater part of its obligations after 1918). The lion's share of this money went into military purchases (especially fast-firing artillery), most of which were transacted in France, much to the annoyance not just of Austrian, but also of British diplomats and armaments suppliers. The loan of 1906 also enabled Serbia to resist Vienna's commercial pressure and to wage a protracted tariff war. ‘The undoubtedly successful issue of Mr Pašić's resistance to [Austrian] demands,' the British envoy in Belgrade reported in 1906, ‘marks a distinct step in the economic and political emancipation of Servia.'
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These successes in the field of high finance should not distract us from the parlous condition of the Serbian economy as a whole. This had much less to do with Austrian tariff policy than with a process of economic decline that was deeply rooted in the country's history and agrarian structure. The emergence and subsequent expansion of Serbia were accompanied by a process of drastic de-urbanization, as the mainly Muslim towns were depopulated through decades of harassment and deportations.
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What replaced the relatively urbanized and cosmopolitan imperial structures of the Ottoman periphery was a society and an economy entirely dominated by smallholding Christian peasants, a consequence in part of the absence of a home-grown Serbian aristocracy and in part of the ruling dynasty's efforts to prevent the emergence of such a ruling class by blocking the consolidation of latifundial estates.
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While the cities shrank, the population grew at an awesome rate; hundreds of thousands of hectares of marginal land were opened up for exploitation by young families, loosening social constraints on marriage and fertility. But this rampant growth in the production of people did nothing to reverse the cycle of underperformance and decline that gripped the Serbian economy between the middle of the nineteenth century and the outbreak of the First World War in 1914.
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Per capita output in farming fell by 27.5 per cent between the early 1870s and 1910–12, partly because the expansion of arable land led to large-scale deforestation and thus to a decline in the pasture lands needed to sustain large-scale pig-husbandry, traditionally the most profitable and efficient arm of Serbian agricultural production. By the 1880s, the beautiful forested wilderness of the Šumadija – perfect pasture land for swine – had all but disappeared.
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This record might have mattered less if there had been marked growth in the commercial and industrial sectors, but here, too, the picture was bleak, even by Balkan standards. The rural population had poor access to markets and there was not much in the way of starter industries, such as the textiles mills that helped to drive industrial growth in neighbouring Bulgaria.
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Under these conditions, Serbian economic development depended upon inward investment – the first effort to pack and export plum jam on an industrial basis was launched by employees of a Budapest fruit-processing company; the silk and wine booms of the late nineteenth century were likewise triggered by foreign entrepreneurs. But inward investment remained sluggish, in part because foreign firms were put off by the xenophobia, corrupt officials and underdeveloped business ethics they encountered when they attempted to set up operations in Serbia. Even in areas where it was government policy to encourage investment, the harassment of foreign businesses by local authorities remained a serious problem.
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Investment in Serbia's human capital was just as unimpressive: in 1900, there were still only four teaching colleges for all Serbia, half of all elementary-school teachers had no pedagogical training, most school classes were not held in buildings designed for the purpose and only around one third of children actually attended school. All these shortcomings reflected the cultural preferences of a rural population that cared little for education and saw schools as alien institutions imposed by the government. In 1905, pressed to ratify a new revenue source, the peasant-dominated assembly of the Skupština chose to tax school books rather than home distillation. The result was a strikingly low rate of literacy, ranging from 27 per cent in the northern districts of the kingdom to only 12 per cent in the south-east.
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This grim landscape of ‘growth without development' bears on our story in a number of ways. It meant that Serbian society remained unusually homogeneous both in socioeconomic and cultural terms. The bond between urban life and the folkways of peasant oral culture, with its powerful mythical narratives, was never severed. Even Belgrade – where the literacy rate in 1900 was only 21 per cent – remained a city of rural immigrants, a world of ‘peasant urbanites' deeply influenced by the culture and kinship structures of traditional rural society.
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In this environment, the development of modern consciousness was experienced not as an evolution from a previous way of understanding the world, but rather as a dissonant overlayering of modern attitudes on to a way of being that was still enchanted by traditional beliefs and values.
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This highly distinctive economic and cultural conjuncture helps to explain several salient features of pre-war Serbia. In an economy so lacking in opportunities for ambitious and talented young men, the army remained the biggest show in town. And this in turn helps to account for the fragility of the civilian authorities in the face of challenges from the military command structure – a crucial factor in the crisis that engulfed Serbia in the summer of 1914. However, it was also true that the partisan warfare of irregular militias and guerrilla bands which was such a central theme in the story of Serbia's emergence as an independent nation owed its durability to the persistence of a peasant culture that remained wary of the regular army. For a government confronted with an increasingly arrogant military culture and lacking the organic connection with a large and prosperous educated class that underpinned other nineteenth-century parliamentary systems, nationalism represented the single most potent political instrument and cultural force. The almost universal enthusiasm for the annexation of yet unredeemed Serb lands drew not only on the mythical passions embedded in popular culture, but also on the land-hunger of a peasantry whose plots were growing smaller and less productive. Under these conditions, the argument – however dubious – that Serbia's economic woes were the fault of Vienna's punitive tariffs and the stranglehold of Austrian and Hungarian capital could not fail to meet with the most enthusiastic approbation. These constraints also fed Belgrade's obsession with securing an outlet to the sea that would supposedly enable it to break out of backwardness. The relative weakness of commercial and industrial development ensured that Serbia's rulers remained dependent upon international finance for the military expenditures they required in order to pursue an active foreign policy. And this in turn helps to explain the deepening integration of Serbia into France's web of alliances after 1905, which was rooted in both financial and geopolitical imperatives.

After 1903, the attention of Serbian nationalists was focused mainly on the three-way struggle between Serbs, Bulgarians and Turks unfolding in Macedonia. All this changed in 1908 with the annexation of Bosnia and Herzegovina by Austria-Hungary. Since these two formally Ottoman provinces had been under Austrian occupation for thirty years and there had never been any question of an alteration of this arrangement, it might seem that the nominal change from occupation to outright annexation ought to have been a matter of indifference. The Serbian public took a different view. The announcement created an ‘unparalleled outburst of resentment and national enthusiasm', both in Belgrade and in the provinces. There were ‘many meetings', at which speakers ‘clamoured for war against Austria'.
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More than 20,000 people attended an anti-Austrian rally at the National Theatre in Belgrade, where Ljuba Davidović, leader of the Independent Radicals, gave a speech declaring that Serbians must fight the annexation to the death. ‘We will struggle until we are victorious, but if we are defeated, we will be defeated knowing that we gave our greatest effort, and that we have the respect not only of all Serbs but also of the whole Slavic race.'
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A few days later, the impetuous Crown Prince Djordje delivered a speech before an audience of about 10,000 in the capital city, in which he proposed to lead the Serbian people in an armed crusade to retrieve the annexed provinces: ‘I am extremely proud to be a soldier and I would be proud to be the one who leads you, the Serbian people, in this desperate struggle for life and death, for our nation and our honour.'
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Even Nikola Pašić, leader of the Serbian Radical Party, who was at this time not a serving minister and thus freer to speak his mind, argued that if the annexation could not be reversed, Serbia must prepare for a war of liberation.
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The Russian liberal Pavel Miliukov, who visited Serbia in 1908, was shocked by the intensity of the public emotion. The anticipation of war with Austria, he recalled, became ‘a readiness to fight, and victory seemed both easy and certain'. These views were universal and so unquestioned that ‘to get into an argument over [them] would have been totally useless'.
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The mental maps that informed elite and popular understandings of Serbia's policy and purpose were once again in evidence. The only way to understand the intensity of the feeling aroused in Serbia by the annexation, the British minister in Belgrade explained in a report of 27 April 1909, was to recall that