In 1834, Prussia, under the leadership of the Junkers (The Prussian landed aristocracy), began a German customs union, Zollverein, in order to make trade and business between German states easier. Before Zollverein, goods passing from one small German state to another required a duty payment, which made it practically impossible for the German people to carry on business with separate states without paying several "transit duties". With Zollverein, the Prussian government abolished all internal land duties and put a single moderate tariff around all parts of the kingdom. By 1834, most of the German states (excluding Austria and Bohemia) were members, and most of Germany became one free trade common market. The Zollverein greatly hurt the Austrians because they produced high priced goods. A market like Austria's was at a disadvantage because it became cheaper for German countries to trade within the Confederation, and Austria was excluded from the entire German market.
The Industrial Revolution hit Germany extra hard compared to other European areas. During the years 1850 to 1870, the German economy fast advanced. Along with new factories, textile and iron production, railroads, coal production, and record exports, the population grew quickly and the middle-class expanded. After staying behind Western Europe for about 300 years, Germany caught up in only two decades. Luckily for Prussia, it was in control of land that was precious for industrialization, and Prussia quickly dominated Germany economically. Various smaller German states began to adapt their economies to Prussia's.
With Zollverein and the advancement in industry, Germany became economically united and partially culturally united before 1871. German states became linked by railroad and telegraph wires, and Zollverein allowed for an even greater sense of unity. The Austrians, because of their exclusion from the Zollverein and the German infrastructure, were looked at more and more by the German people as outsiders.
In 1862, Otto von Bismarck became the Prussian chancellor, and he had big plans for his country. He intended to unite Germany under Prussian rule while stopping any liberal advances at the same time. He hated liberalism, democracy and socialism. Bismarck believed that he could achieve his goals by controlling the people and manipulating them for his purposes, through the use of charismatic leaders, the granting of limited power, or even the use of the army, if necessary. Otto wanted to gain the support of the lower class and gain a popular vote that he could use against the liberals and Austria. Bismarck based this tactic on Napoleon III's strategy of granting limited power or suffrage to get what he wanted from the people. The manipulation and use of the leaders of other countries was also a key part of initiating his ultimate goal, German unification. Bismarck was an extreme loyalist who was willing to stop at nothing to attain the goals of Kaiser William. In fact, he was such a loyalist that he was even willing to trick William in order to accomplish the very things that William sent him to do.
Bismarck believed in power. In a famous speech, he declared that "iron and blood" (meaning war and industry) would gain unification, not speeches and declaration as in the revolution of 1848. His campaign called for an active foreign policy, and emphasized that Prussia had to keep its power together at all times, because the people of Germany didn't look at Prussia's liberalism, but at its power.
Bismarck knew that to achieve his goal of a unified Germany under Prussia, he was going to have to get the people on his side and stop other countries from forming a coalition against Prussia. War was inevitable to reach his goal, but using the Prussian army to attack others would make Prussia look like it was striving to become "too powerful". Europe had just recently dealt with Napoleon's France and would not allow something like that to happen again. So Bismarck had to provoke the others to attack him.
In 1863, Denmark tried to take away the autocracy of the two northernmost German states, Schleswig and Holstein. Bismarck announced that this was completely unacceptable to the German Confederation, and together Prussia and Austria went to war with Denmark. Secretly though, it gave Bismarck his chance to achieve victory over Denmark while working along with Austria. During this time and against the Frankfurt Assembly's wishes, Bismarck increased the size of his army significantly, hoping to quickly be victorious in the war. He hoped that a victory would justify his defiant domestic policy and give him the upper hand on his enemies, the liberals. As he had hoped, Bismarck's superior army along with Austria defeated Denmark, and the two states were split between them. Prussia took Schleswig, and Austria took Holstein. Though Bismarck achieved the victory he wanted, the liberals continued to be angry with him and continually tried to defy him.
In 1866, Bismarck ordered his troops to advance to the Austrian state of Holstein, and attempted to provoke Austria into declaring war. He made sure that Austria was diplomatically isolated and would be able to receive no help from Russia, France, Britain, or Italy. To finally bring Austria against him, Bismarck sent a message to Italy that was intended to be "intercepted" by Austria. The message stated that Prussia wished Italy to help them in a defensive war against Austria. Bismarck then initiated the most clever part of his plan. He sent a letter to the French king. This letter was much like the one sent previously to the Italians, saying that he was willing to trade German land for France's neutrality if Austria declared war on Prussia. The French ambassador to Prussia agreed to the deal and drafted an agreement that basically said "We the French demand South German land in return for remaining neutral in Prussia's war against Austria." The trick was that Bismarck did not sign the document, and the French fell for this trick. This document would go towards angering the French and also cause Austria to get more and more worried about what Prussia was planning. Bismarck's last step in getting Austria to declare war on him was to make a declaration before the Frankfurt Assembly. This declaration stated that he intended to form a unified Germany under the kleindeutsch plan. One of the key points about this plan was that it specifically excluded Austria from the union. The Austrians, first seeing that Prussia appeared to be preparing for a war against them, and then hearing that Bismarck intended to kick them out of German affairs, assumed that he was going to attack them. Austria, taking a logical step under the circumstances, launched a "preemptive strike" against Prussia.
Most German states joined Austria to fight the Prussian army, believing that Austria was the defender of their independence. Once again, however, Bismarck's superior military force won the war. Hoping to keep Austria as an ally rather than a future enemy, Bismarck quickly made very fair peace treaties with Austria and the South German states. The Treaty of Prague was signed on August 23rd, and it allowed Austria to keep all of its land except Venetia, which had been promised to Italy so that they would stay out of the war. In order to insure that the Austrians were harboring no further resentment towards the Prussians, Bismarck gave the Austrian king Hungary's throne, instating the dual monarchy. There was no occupation of Austria, and only a modest indemnity. Prussia, however, was allowed to annex all of the North German states to form the North German Confederation. The Austro-Prussian war was much like the Persian wars. Persia had always been a part of Greek, especially Ionian, affairs until the Greeks beat them in three wars. The Persians, like the Austrians were forced to with Germany, were then made to withdraw from all European affairs.
The North German Confederation was formed in 1867, making a new and powerful German state. Bismarck granted equal manhood suffrage and allowed the Parliament to control the budget. The German states were allowed to keep their own governments. These governments were still responsible to the Prussian king, however, who still retained the real power. The support for the liberals was weakened after the success of the army they had opposed strengthening, though they still approved of the new Confederation because it was a step towards their goal of German unification. Bismarck further contented the liberals by asking them to formally approve the military expansion and spending that he had done without their agreement. On the other hand, Prussian conservatives also liked the new Confederation because it increased the overall power and stability of Prussia.
During the Austro-Prussian war, Otto von Bismarck promised territory to the French in return for their neutrality- territory he never intended to actually give. He secured this for the French in writing, but he never actually signed it. In fact, Bismarck was getting prepared for his final step to unification: a war with France. Bismarck had to manipulate the parties involved in order to keep support on Prussia's side, so that Prussia would rule a unified Germany.
The Spanish crown opened up for succession, and Prussia immediately placed a Hohenzollern family claim on it. However, pressure from the French (Napoleon III also made a claim to the Spanish crown) made Prussia decline, at least for the time being. The French took this as a victory and, on July 14th, 1870, sent the Ems Dispatch to Prussia in order to demand that no Prussian prince ever again try to claim the Spanish crown. This worked out perfectly for Bismarck. He responded harshly to the French, sending them a letter reportedly from William. This letter, which consisted of nothing but mockery of the French, was sent to the French newspapers on Bastille Day. When the French people read this letter, they were deeply offended and clamored for a war against its makers, the Prussians. Bismarck was certain that a patriotic war against France would unite Germany. The second thing he did was show the South German states the French king's demand for land in exchange for neutrality in the Austro-Prussian war. When the South German states saw this, they were convinced that the only way to survive an attack from France was to unify with Germany. Bismarck could also use this letter to prove to the German states that Prussia had been their protector in the Franco-Prussian war.
On July 19, 1870, Napoleon III of France declared war on Prussia, severely underestimating Germany's might. Combined with the South and North German states, Prussia defeated the French army. Thanks to Bismarck's fair peace terms in the Austro-Prussian war, Austria stayed out of the conflict. In May of 1871, the Treaty of Frankfurt was signed to end the French conflict, and harsh peace terms were given to the French. They were forced to cede both Alsace and Lorraine to Germany, as well as pay high reparations until 1875. The Germans treated the defeated French quite harshly, occupying Paris for a number of months and also humiliating them with the peace treaty. While these actions were designed to make sure the French would never attack Prussia again, in the end it probably caused the French to stand up to the Germans in World War One. This treaty had much the same affect as the Treaty of Versailles had on the German people. It caused them to want another war instead of a long lasting peace.
As planned, the Franco-Prussian war gave Bismarck the support he needed to unify Germany. After the war, he won the consent of the German princes to unite Germany (excluding Austria) under the Prussian king as German Emperor, though several princes still retained limited autonomy. On January 18, 1871, in Versailles, the king proclaimed the German Empire. William I became Kaiser and Otto von Bismarck became chancellor.
The new Germany kept roughly the same constitution as the North German Confederation had, but a few things were changed. A national Parliament, the Reichstag, was elected by the people. It had budgetary rights, but it could not overthrow the government. The federal council, Bundesrat, was the conservative's check on the influence of the Reichstag. The Bundesrat consisted of princes. The various German armies remained separate for each German state, but they had to follow the common Prussian command. So, basically, Bismarck had succeeded in making Prussia in control of all decisions. Not only were all of the armies loyal to Prussia, but the Bundesrat, headed by Prussian princes, made sure that the Reichstag never went against the will of Prussia. The Reichstag couldn't do much anyway, because all decisions of the Reichstag had to be approved by the Bundesrat.
The unification caused some important changes in the rest of Europe. The Russians assumed a hostile attitude towards the new unification, and it was feared that if Germany became powerful, they might cut off Russia from the rest of Europe. France was hostile to the Germans in the first place due to the treaty that followed the Franco-Prussian war. The general agreement around Europe was that the new unified Germany would throw off the European balance of power.
