the
reciprocity arrangement of 1899 would lapse. The Hungarian government
replied that any new arrangement with Austria must be concluded in the form
of a commercial treaty as between two foreign states and not in the form of
a "customs and trade alliance."

[Sidenote: Agreement of 1907.]

Austria ultimately consented to negotiate on this basis. In October 1907 an
agreement was attained, thanks chiefly to the sobering of Hungarian opinion
by a severe economic crisis, which brought out with unusual clearness the
fact that separation from Austria would involve a period of distress if not
of commercial ruin for Hungary. Austria also came to see that separation
from Hungary would seriously enhance the cost of living in Cisleithania and
would deprive Austrian manufacturers of their best market. The main
features of the new "customs and commercial treaty" were: (1) Each state to
possess a separate but identical customs tariff. (2) Hungary to facilitate
the establishment of direct railway communication between Vienna and
Dalmatia, the communication to be established by the end of 1911, each
state building the sections of line that passed through its own territory.
(3) Austria to facilitate railway communication between Hungary and
Prussia. (4) Hungary to reform her produce and Stock Exchange laws so as to
prevent speculation in agrarian produce. (5) A court of arbitration to be
established for the settlement of differences between the two states,
Hungary selecting four Austrian and Austria four Hungarian judges, the
presidency of the court being decided by lot, and each government being
represented before the court by its own delegates. (6) Impediments [v.03
p.0025] to free trade in sugar to be practically abolished. (7) Hungary to
be entitled to redeem her share of the old Austrian debt (originally
bearing interest at 5 and now at 4.2%) at the rate of 4.325% within the
next ten years; if not redeemed within ten years the rate of capitalization
to decrease annually by 1/12% until it reaches 4.2%. This arrangement
represents a potential economy of some L2,000,000 capital for Hungary as
compared with the original Austrian demand that the Hungarian contribution
to the service of the old Austrian debt be capitalized at 4.2%. (8) The
securities of the two governments to rank as investments for savings banks,
insurance companies and similar institutions in both countries, but not as
trust fund investments. (9) Commercial treaties wi