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 multinational finance
fifth edition
fifth edition
Adrian Buckley
Multinational Finance is an authoritative and comprehensive description of the theory
and practice of international finance and its management.

This fifth edition builds on the strengths of previous editions, offering a user-friendly
guide to the subject that moves through the basics to the advanced with clarity and
conciseness. The content has been thoroughly revised to incorporate the most up-to-
date information in terms of markets, coverage of new financial instruments, and the
latest empirical work (in particular in relation to discount rates and required rates of

multinational finance
return). A key feature of this edition is its strong European orientation, a theme that
runs throughout the book and makes Multinational Finance unique in its field.

New to this edition:

■ Up-to-date coverage of international
accounting (IFRS) and recent
empirical studies.
■ Foreign exchange coverage fully
revised with euro currency referenced
throughout the book.
■ Improved coverage of essential areas
and issues such as international
capital budgeting and country risk
brings students entirely up-to-date.
■ Two-colour text design greatly
improves readability.
Screenshot © Microsoft Corporation

■ Companion Website with extra support for both lecturers and students at
multinational finance
www.booksites.net/buckley.
■ New end of chapter questions with answers provided at the back of the book.
Adrian Buckley
Features:
■ Strong European orientation with full coverage of markets and issues relating to
this region make the book ideal for courses in Europe.
■ Plenty of exercises and multiple choice questions are provided for each part to
allow students to track their own progress. fifth edition
■ Each chapter ends with an extensive summary, sign-posted
with bullet points to ease the revision
of key points.

Buckley
■ Much-praised, comprehensive glossary.

Multinational Finance is recommended for undergraduate, MBA

and other postgraduate courses in international financial
www.booksites.net
management taken as a part of a degree programme in finance or
international business. The book also caters for profes-
sionals in the financial field.

The author
Dr Adrian Buckley is Professor of International Finance at
Cranfield School of Management, Cranfield University, and

www.booksites.net
an imprint of www.pearson-books.com
Multinational Finance
We work with leading authors to develop the
strongest educational materials in finance,
bringing cutting edge thinking and best learning
practice to a global market.

Under a range of well-known imprints, including

Financial Times Prentice Hall, we craft high quality
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A Companion Website accompanies Multinational Finance,

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Visit the Multinational Finance Companion Website at

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including:

For Students:
n Study material designed to help you improve your results
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Multinational Finance
Fifth Edition

ADRIAN BUCKLEY
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England

and Associated Companies throughout the world

Visit us on the World Wide Web at:

http://www.pearsoned.co.uk

First published under the Philip Allan imprint, 1986

Second and third editions published under the Prentice Hall Europe imprint, 1992, 1996
Fourth edition, 2000
Fifth edition, 2004

© Prentice Hall Europe 1992, 1996

© Pearson Education Limited 2000, 2004

The right of Adrian Buckley to be identified as author of this work has been asserted
by him in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without either the prior written permission of the
publisher or a licence permitting restricted copying in the United Kingdom issued by
the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP.

ISBN 0-273-68209-1

British Library Cataloging-in-Publication Data

A catalogue record for this book can be obtained from the British Library

10 9 8 7 6 5 4 3 2
09 08 07 06 05

Typeset in 10/12.5pt Sabon by 35

Printed and bound by Ashford Colour Press Ltd, Gosport

The publisher’s policy is to use paper manufactured from sustainable forests.

Contents

Preface and acknowledgements xv

Part A ESSENTIAL BACKGROUND

1 Introduction 3
1.1 What do bankers sell? 7
1.2 The creation of Eurodollars 8
1.3 Facts about the foreign exchange markets 11
1.4 Summary 13

2 The international monetary system 15

2.1 The gold standard 15
2.2 The Great Depression 18
2.3 Exchange rates: 1914 to 1944 19
2.4 The Bretton Woods system 21
2.5 The role of gold up to 1971 22
2.6 The Second Amendment 24
2.7 International reserves 25
2.8 Exchange rate arrangements 26
2.9 The European Monetary System 29
2.10 The exchange rate mechanism of the EMS 29
2.11 The European single currency – the euro 32
2.12 Summary 33
2.13 End of chapter questions 35

3 Corporate finance around the world 36

3.1 World equity markets 36
3.2 World bond markets 41
3.3 Corporate governance and corporate finance 43
3.4 Corporate reporting around the world 46
3.5 Different corporate tax systems 48
3.6 Summary 50
3.7 End of chapter questions 50
vi Contents

Part B FOREIGN EXCHANGE

4 Exchange rates: the basic equations 53

4.1 Foreign exchange markets 53
4.2 Some basic relationships 54
4.3 Interest rates and exchange rates 56
4.4 Purchasing power parity applied 66
4.5 Big Mac purchasing power parity 72
4.6 Summary 72
4.7 End of chapter questions 75

5 Foreign exchange markets 76

5.1 The players 76
5.2 Methods of quotation 77
5.3 Forward contracts and quotations 79
5.4 Spot settlement 82
5.5 Forward value dates 82
5.6 Main purpose of the forward market 83
5.7 Summary 84
5.8 End of chapter questions 85

6 The balance of payments 86

6.1 The essence of international trade 86
6.2 The balance of payments and foreign exchange rates 87
6.3 Balance of payments accounting 91
6.4 Forecasting exchange rates and the balance of payments 95
6.5 Summary 96
6.6 End of chapter questions 97

7 Theories and empiricism on exchange rate movements 98

7.1 Inflation and interest rate differentials 99
7.2 The balance of payments approach 99
7.3 The monetary approach 102
7.4 Overshooting – the Dornbusch model 104
7.5 The portfolio balance theory 106
7.6 The role of news 108
7.7 Chartism 109
7.8 The efficient markets hypothesis 115
7.9 Empiricism and purchasing power parity 116
7.10 Empiricism and the Fisher effect 122
7.11 Empiricism and the international Fisher effect 122
7.12 Empiricism and interest rate parity 124
7.13 Empiricism and expectations theory 125
7.14 Empiricism and foreign exchange market efficiency 126
7.15 Summary 131
7.16 End of chapter questions 134
Contents vii

8 Definitions of foreign exchange risk 135

8.1 Transaction exposure 136
8.2 Translation exposure 136
8.3 Economic exposure 141
8.4 Summary 143
8.5 End of chapter questions 144

9 Financial accounting and foreign exchange 145

9.1 FASB 8 146
9.2 FAS 52 147
9.3 SSAP 20 152
9.4 Derivatives 155
9.5 FAS 133 155
9.6 FRS 13 157
9.7 IAS 39 158
9.8 Summary 159
9.9 End of chapter questions 160

TEST BANK 1 161

Exercises 161
Multiple choice questions 164

Part C HEDGING

10 Does foreign exchange exposure matter? 169

10.1 Transaction exposure 169
10.2 Economic exposure 171
10.3 Translation exposure 173
10.4 Forecasting exchange rates 177
10.5 Summary 178
10.6 End of chapter questions 179

11 Principles of exposure management 180

11.1 Why hedge anyway? 180
11.2 What does exposure management aim to achieve? 180
11.3 The arguments against corporate hedging 181
11.4 The arguments for corporate hedging 185
11.5 Information for exposure management 190
11.6 What kind of foreign exchange exposure is significant? 191
11.7 The transaction exposure information system 193
11.8 Histogramming 195
11.9 Reinvoicing vehicles 198
11.10 Strategies for exposure management 198
11.11 Economic exposure revisited 201
viii Contents

11.12 Macroeconomic exposure 201

11.13 Value at risk 204
11.14 Summary 207
11.15 End of chapter questions 210

12 Internal techniques of exposure management 212

12.1 Netting 212
12.2 Matching 215
12.3 Leading and lagging 216
12.4 Pricing policy 217
12.5 Asset and liability management 221
12.6 Summary 222
12.7 End of chapter questions 223

13 External techniques of exposure management 224

13.1 Forward markets 224
13.2 Trading purpose of the forward market 225
13.3 Short-term borrowing 229
13.4 Discounting foreign-currency-denominated bills receivable 231
13.5 Factoring foreign-currency-denominated receivables 231
13.6 Currency overdrafts 232
13.7 Exchange risk guarantees 233
13.8 Counterparty risk 233
13.9 Summary 234
13.10 End of chapter questions 236

TEST BANK 2 237

Exercises 237
Multiple choice questions 239

Part D DERIVATIVES

14 Swaps 245
14.1 Swaps – the basics 245
14.2 Interest rate swaps 247
14.3 Calculation of interest 253
14.4 Currency swaps 259
14.5 Assessing risk in swaps 264
14.6 Summary 267
14.7 End of chapter questions 268

15 Financial futures and foreign exchange 269

15.1 Financial futures in general 269
15.2 Currency contracts 273
Contents ix

15.3 Hedging a borrowing 274

15.4 Basis risk 275
15.5 Use of currency futures market 276
15.6 Summary 276
15.7 End of chapter questions 277

16 Options 278
16.1 Call options 278
16.2 Put options 280
16.3 Writing options 282
16.4 Reading the Financial Times 283
16.5 Combinations of options 283
16.6 Valuing options 286
16.7 An option-pricing formula 290
16.8 An option-pricing table 299
16.9 Summary 301
16.10 End of chapter questions 301

17 Currency options 303

17.1 How currency option markets work 303
17.2 Currency option strategies 307
17.3 Average rate option 309
17.4 Hedging a currency option 312
17.5 Option pricing models 316
17.6 Option pricing models for stocks and currencies:
the empirical evidence 320
17.7 Corporate use of currency options 324
17.8 Summary 329
17.9 End of chapter questions 330

18 Interest rate risk 331

18.1 The term structure of interest rates 331
18.2 Interest rate exposure 335
18.3 Forward rate agreements 338
18.4 Interest rate futures 339
18.5 Interest rate swaps 339
18.6 Interest rate options 340
18.7 Summary 341
18.8 End of chapter questions 343

19 Financial engineering 344

19.1 Forward contracts 344
19.2 Option contracts 346
19.3 Some financial instruments 351
x Contents

19.4 Summary 356

19.5 End of chapter questions 356

TEST BANK 3 357

Exercises 357
Multiple choice questions 358

Part E INTERNATIONAL CAPITAL BUDGETING

20 The internationalization process 363

20.1 Foreign direct investment 363
20.2 The sequential process 365
20.3 Market imperfections 368
20.4 Transaction cost theory 374
20.5 Internalization and firm-specific advantages 375
20.6 Location-specific advantages 377
20.7 The product life cycle 378
20.8 The eclectic theory 383
20.9 Globalization 386
20.10 Game theory and international strategy 388
20.11 The new trade theory 390
20.12 Summary 392
20.13 End of chapter questions 393
20.14 Appendix 1: Inward stock of world foreign direct investment 394
20.15 Appendix 2: Outward stock of world foreign direct investment 395

21 Exchange controls and corporate tax in international

investment 396
21.1 Exchange controls 396
21.2 Profits repatriation 398
21.3 Circumventing profit repatriation restrictions 399
21.4 Other techniques of unblocking funds 403
21.5 International corporate taxation 403
21.6 Taxation of UK multinationals 407
21.7 Multicurrency management centres 408
21.8 Co-ordination centres 409
21.9 Foreign exchange rate strategy 411
21.10 Summary 412
21.11 End of chapter questions 413

22 The international capital budgeting framework 414

22.1 The international complications 415
22.2 NPV or APV? 420
22.3 Foreign investment and the cost of capital 422
Contents xi

22.4 The basic model 422

22.5 Empirical studies of international investment appraisal 424
22.6 Summary 429
22.7 End of chapter questions 430

23 The international capital budgeting model 432

23.1 International project appraisal 433
23.2 Taxation 434
23.3 Project evaluation with no exchange controls 436
23.4 Growth opportunities – aka real operating options 440
23.5 Valuing real operating options 442
23.6 Project evaluation with exchange controls 446
23.7 Debt–equity swaps 452
23.8 Sensitivity analysis 453
23.9 Summary 453
23.10 End of chapter questions 456

24 International investment: what discount rate? 457

24.1 The original US evidence 458
24.2 The new international evidence 460
24.3 Arithmetic or geometric mean? 461
24.4 The equity premium puzzle 466
24.5 Mean reversion 469
24.6 The equity risk premium 471
24.7 The international risk premium 472
24.8 Gains from international diversification 475
24.9 The international capital asset pricing model 476
24.10 Emerging markets 478
24.11 Summary 482
24.12 End of chapter questions 482

25 Country risk analysis and political risk 484

25.1 Country risk analysis 484
25.2 Sources of country risk 485
25.3 Measuring country risk 486
25.4 Political risk 489
25.5 The measurement of political risk 489
25.6 Managing political risk 493
25.7 Post-expropriation policies 495
25.8 Political risk analysis in international capital budgeting 497
25.9 Summary 501
25.10 End of chapter questions 502

26 International capital budgeting: the practicalities 503

26.1 Net present value and adjusted present value 503
26.2 Overseas project appraisal: Alpha NV 504
xii Contents

26.3 Summary 512

26.4 End of chapter questions 512

TEST BANK 4 513

Exercises 513
Multiple choice questions 514

Part F INTERNATIONAL FINANCING

27 International debt instruments 519

27.1 Short-term borrowing 521
27.2 Medium-term borrowing 523
27.3 Euromarkets 524
27.4 Definitions of key Eurocurrency terms 525
27.5 Eurodollar deposits and loans 526
27.6 Historical underpinnings of the Eurocurrency market 528
27.7 The players in the market 529
27.8 Euromarket deposits and borrowings 531
27.9 The Eurocredit market 531
27.10 Loan syndication 531
27.11 Securitization 535
27.12 Eurocurrency interest rates and their linkage with
domestic rates 536
27.13 The international bond market 539
27.14 Disintermediation 546
27.15 The advantages of the Eurobond market to borrowers 547
27.16 The advantages of Eurobonds to investors 547
27.17 Summary 548
27.18 End of chapter questions 549

28 Financing the multinational and its overseas subsidiaries 550

28.1 The international financing choice 550
28.2 Minimization of global taxes 551
28.3 Managing risk 552
28.4 Financial market distortions 553
28.5 The multinational’s capital structure 554
28.6 Political risk 555
28.7 Exchange control risk 556
28.8 Currency risk 557
28.9 Losses earned by subsidiaries 557
28.10 Inter-company credit 558
28.11 Taxation effects 558
28.12 Dividend policy 559
28.13 Other methods of profit transfer 559
Contents xiii

28.14 Parent company guarantees 559

28.15 Partly owned subsidiaries 560
28.16 Euroequity or crosslisting 561
28.17 Some more empirical evidence 564
28.18 Measuring the cost of international borrowing 566
28.19 The advantages of borrowing internationally 567
28.20 The risks of borrowing internationally 568
28.21 Foreign currency financing decisions 570
28.22 Summary 573
28.23 End of chapter questions 574

29 Cash management 575

29.1 Banking relationships 575
29.2 Electronic banking 581
29.3 Cash collection and disbursement 582
29.4 Cash centres 584
29.5 Short-term investments 585
29.6 Summary 586
29.7 End of chapter questions 586

30 Project finance 587

30.1 Limited recourse finance 589
30.2 Ownership structures 590
30.3 Financing structures 591
30.4 Loan structuring 599
30.5 Resource risk 600
30.6 Raw material and supplies risk 601
30.7 Completion risk 601
30.8 Operating risk 603
30.9 Marketing risk 604
30.10 Financial risk 605
30.11 Political and regulatory risk 606
30.12 Force majeure risk 606
30.13 How does project finance create value? 606
30.14 The financial analysis of investments with project financing 608
30.15 Summary 611
30.16 End of chapter questions 611

31 Financing international trade and minimizing credit risk 612

31.1 Cash with order 612
31.2 Open account 614
31.3 Documentation in foreign trade 615
31.4 Bills of exchange 620
31.5 Documentary letters of credit trading 623
31.6 Government assistance schemes 626
xiv Contents

31.7 Sources of export finance 628

31.8 Forfaiting 630
31.9 Countertrade 632
31.10 Summary 632
31.11 End of chapter questions 632
31.12 Appendix: Some terms encountered in trade finance 633

Part G Miscellaneous

32 Miscellaneous issues in multinational finance 639

32.1 Overseas subsidiary performance measurement 639
32.2 Problems in overseas performance evaluation 640
32.3 Treasury management performance 644
32.4 Centralization of exposure management 645
32.5 The treasury as a profit centre 647
32.6 Authority and limits 647
32.7 Foreign exchange dealing with banks 649
32.8 Dealing room security 650
32.9 Commercial paper 651
32.10 Credit rating 653
32.11 Transfer pricing 657
32.12 Capital flight 658
32.13 Corporate hedging policies 659
32.14 Summary 671
32.15 End of chapter questions 673

TEST BANK 5 674

Exercises 674
Multiple choice questions 675

Suggested answers to end of chapter questions 679

Suggested answers to selected exercises 696
Solutions to multiple choice questions 708
Appendix 1
Present value of $1 711
Appendix Present value of $1 received annually for n years
2 713
Appendix 3
Table of areas under the normal curve 715
Appendix 4
Black and Scholes value of call option expressed
as a percentage of the share price 716
Appendix 5 Present value of $1 with a continuous discount
rate, r, for T periods. Values of e– rt 719
Appendix 6 SWIFT codes 723
Glossary 729
References 753
Index 772
 Another Random Document on
Scribd Without Any Related Topics
it. The train was driven very slowly, so slowly that the Emperor became
impatient, and asked whether the speed might not be accelerated. Admiral
Possiet gave orders to that effect, but the principal engineer of the line, who
was also on the train, replied that this could not be done, and pointed out to
the Minister the reasons for it. Possiet said that if the commands of the
Emperor were not executed he would ask for explanations, and that such
explanations would involve the blame of everyone concerned. He added
that he would telegraph to the next important station ahead, ordering
another engine to be ready for the Imperial train, and meanwhile nothing
would happen. The engineer kept silence, but gave instructions for a slight
increase of speed; and it was entirely due to his disregard of the Admiral’s
order for greatly increased speed that Alexander III. owed his life, for if the
train had been going faster not one person would have escaped the
catastrophe. At the time, the Imperial Family were sitting at lunch with the
members of their suite. Suddenly there was a jerk; it was when the leading
—and weaker—engine, was pushed was off the rails. At the same moment
the carriages at the end of the train, being lighter than those in front, were
also derailed. Before anyone could inquire what had happened the roof of
the Imperial saloon had fallen in, and the whole carriage overturned,
burying in its wreckage all who were in it.
The confusion which followed was indescribable. Not one of those who
escaped but believed himself to be the only one left alive to tell of the
catastrophe. The first person to emerge from under the broken carriage was
the Emperor, who, crawling on all fours, managed to emerge from the mass
of broken timber and iron that was crushing him. He called for help, and
himself began to remove the wreckage in an effort to save the Empress. She
was his first thought, and when at last, aided by two soldiers who had run to
his assistance, he managed to pull her out from the ruins of the train, he was
so thoroughly unnerved that he sat down on a stone, and drawing her to his
heart, exclaimed, “Mimi, Mimi, are you sure that you are not hurt?”
In the meantime help had come, and an officer having heard the cries of
a child in the field close by, had run to its assistance, and brought back the
little Grand Duchess Olga, aged six, who had been thrown out of the open
window of the carriage into the field. Soon the other Imperial children were
found, and the survivors of this terrible accident were able to estimate its
effect.
 The number of victims was considerable. Imperial servants, soldiers,
guards in charge of the train, cooks, maids, in all about forty-five people
were killed or injured. The telegraph poles had been damaged, and it was
impossible to summon medical help quickly. The Emperor’s own doctor
began to attend to the injured, and the Empress, forgetful of her own slight
contusions, helped him with all the devotion of a real sister of charity. She
carried water, made bandages with her own linen, which she tore into
shreds for the purpose, spoke to the injured, and comforted them with all
the sweet words that came to her lips. The Emperor, in the meanwhile, was
superintending the rescue and salvage operations, and doing all he possibly
could to hurry them on, and, above all, to remove the wounded men and see
to their being properly attended. Then at last, after five weary hours of
waiting in a drizzling rain that added to the discomfort of the situation, a
relief train arrived.
The Emperor had it driven to the next station, and there summoned the
village priest to conduct a service of thanksgiving for the living and of
memory for the dead in his presence, during which the tears streamed down
his cheeks, and when he returned to St. Petersburg it was noticed that a
great change seemed to have occurred in him: he was oppressed by sadness,
every sign of joyousness seemed to have departed from his nature. This
unfortunate accident at Borky without question laid the foundations of the
disease to which the Emperor was to become a victim. In the joy of seeing
him emerge from it safely and apparently uninjured, people forgot to ask
themselves whether it might not after all have harmed his constitution. He
looked such a picture of health that the idea that something might be amiss
did not even enter the minds of those who surrounded the Emperor—not
even that of the Empress. As a matter of fact, he received an injury to his
kidneys which might have been cured if it had been treated immediately,
but which, neglected, was to bring him to an early grave. The weight of the
wreckage under which he had been pinned had crushed some nerves in his
back, and chronic nephritis ensued. Ultimately Bright’s disease developed,
which was only discovered when it was too late to attempt a cure. Though
he had rallied immediately from the shock of the accident, the Emperor
soon after began to find that he was not so well as formerly; he complained
of headaches, and that he could not secure a comfortable pair of shoes,
always saying that those he had were too narrow for him. This was
attributed to caprice, and it did not occur to anyone that the reason for it lay
in the fact that the Emperor’s feet were swelling rapidly.
In January of 1894, St. Petersburg was startled by the news that its
beloved Emperor was ill. It was almost on the eve of the first ball of the
season, and caused great excitement in Society. The ball was
countermanded, and it was officially announced that the illness was a sharp
attack of influenza complicated with a touch of pneumonia. For three or
four days the bulletins were rather alarming, and a celebrated Moscow
doctor, Professor Zakharine, was called in. But Alexander mended
wonderfully quickly, and very soon was out again. His daughter the Grand
Duchess Xenia was making her début, and he did not like to cancel any of
the Court festivities for which arrangements had been already made. The
first Court ball was postponed for a fortnight, and then was attended by the
Emperor, as were those that followed after. Apparently he was again in
good health, though in accordance with his doctors’ orders he worked a
little less hard. He was, nevertheless, looking so ill, and his complexion had
grown so sallow, that a few keen observers suspected that something was
radically wrong, but, of course, did not dare to give expression to their
fears. In July the Imperial Family started as usual for its annual excursion in
Finnish waters, and it was during this trip that the Emperor’s health took a
decided turn for the worse. A young doctor who was accompanying him
took upon himself to make certain analyses, and was horrified to find as a
result that the Sovereign was suffering from albuminuria in an advanced
stage and in an acute form.
He told the truth to the Empress, who at first would not believe him. The
Court was returning to Peterhof for the marriage of the Grand Duchess
Xenia with her cousin the Grand Duke Alexander Michailovitch, and it was
decided that nothing should be told the Emperor, until this event was over,
beyond the necessity to take certain remedies. The Tsar felt keenly the
parting from his eldest daughter, and though she was not leaving the
country, yet he well knew that, with her new interests, the relations between
them would no longer be the same. Then, too, the betrothal of the Heir to
the Throne with the Princess Alix of Hesse was a subject of preoccupation
to the Sovereign. The Grand Duke had spent a part of the summer in
England, where his future wife was residing at Windsor Castle with her
grandmother Queen Victoria, and had been delighted with his stay there.
But Alexander III., as a rule, did not care for a member of his family to
remain too long abroad, and he was eager for his son to return to Russia,
yet, on the other hand, he did not like to say so; and altogether he was
worried more than was good for his health.
In September the Imperial Family left for the Castle of Bielowiege, in
the Government of Grodno, in the centre of the vast forest which is the
glory of that splendid domain. There Alexander seemed at first to rally, but
afterwards the worst symptoms of his disease developed, and it was decided
to summon from Berlin the famous Professor Leyden, supposed to be the
greatest living authority on the disease from which the Emperor was
suffering.
When Leyden saw him he recognised at once that a cure was impossible,
but he applied himself to minimise the sufferings and to prolong as far as
was possible the life of the sick man. His efforts were successful in bringing
a little ease to the invalid, and the suggestion was made that he should go to
a warmer climate than the damp one of St. Petersburg. The Queen of Greece
suggested Corfu; this seemed to please the Emperor, and he laughingly
remarked that in his cousin’s house he should still feel at home. The King
and Queen of Greece offered him the use of their lovely villa “Mon Repos”
at Corfu, and Alexander accepted it with an eagerness which surprised his
family, who were well aware of his dislike of living anywhere but in his
own house. The plans for the journey were accordingly made, and servants
and furniture sent in advance, so as to have everything ready by the end of
October, when it was decided that the visit should take place. Professor
Leyden was asked to accompany the Emperor to Greece, and readily
agreed. Alexander seemed so delighted that apparently he began to pick up
strength, and at length in the last days of September he left Bielowiege for
Livadia in the Crimea on the first stage of his migration to Corfu. When he
reached there he seemed so much better that the Empress began to have
hopes that after all the doctors might be mistaken, and that her beloved
husband would recover. But about a fortnight after their arrival in the
Crimea, Alexander had a relapse, after which the thought of his being well
enough to leave Livadia had to be abandoned, and his family were warned
to prepare for the worst. The days of the best and wisest Sovereign that
Russia ever had were numbered.
 CHAPTER XXI

LAST DAYS AT LIVADIA

It was a lovely autumn afternoon, almost summerlike in its beauty, when

the Polar Star, flying the Imperial standard, steamed into the harbour of
Yalta. All the local authorities had gathered there to await the arrival of the
Emperor and his family. They had not visited the Crimea for three years,
and as usual whenever they arrived in their southern residence, the whole
population turned out to receive them and express their delight. Livadia was
more a country house than a palace. It had been built for the Empress Marie
Alexandrovna—whose state of health had often obliged her to spend the
autumn and winter months in a warm climate—and had been bequeathed by
her to her eldest son. The Emperor, however, did not share his mother’s
affection for the place, and it was not often that he visited it. On this
occasion it was only after great hesitation that he consented to stop at
Livadia at all, for his desire was to go straight to Corfu. He seemed to have
a presentiment that the place would be fatal to him, and even said so to the
Empress. Circumstances and the doctors, however, proved too strong for
him, and he was persuaded to see what the Crimean climate would do for
him, and to try and gather there some strength for the longer journey to
which he looked forward with an eagerness he had never been seen to
display for anything before.
When the Imperial yacht drew up at the pier of Yalta, Alexander did not
feel well enough to receive the authorities on board as was the custom on
such occasions. The Empress welcomed them with her usual kindness and
sweet smile, saying merely that the Emperor felt tired with his journey, but
that he was ever so much better, and that she hoped a few months’ stay in
the lovely climate of the south coast would soon set him quite right again.
She spoke with a conviction which she could not have felt, but perhaps in
the effort to assure others she found comfort to herself, some lightening of
the dark shadow which was hovering over her. She herself supported her
husband when they landed, and did her best to dissimulate her anxiety as
well as the tottering steps of the Emperor.
 The change in the latter’s appearance since his last stay in the Crimea
terrified all those who had assembled to greet him. He looked a perfect
ghost—pale, thin, and with the saddest of smiles upon his lips. He spoke a
few words to the Governor and the other authorities, but seemed to be in a
hurry to get home, and hastened to his carriage, in which he was rapidly
driven to the Palace.
The first few days passed quietly. The invalid spent most of his time out
of doors, and appeared more cheerful and more content with his condition.
He watched from the terrace the blue sea spreading beyond, and the
warships anchored in the harbour of Yalta, of which one, the Pamiat
Merkuria, newly built, was the object of his special interest and attention,
and he often spoke of it, saying that as soon as he felt better he would go on
board and examine it carefully. Alas! it was upon this same ship that his
mortal remains were taken to Sebastopol on their way to St. Petersburg for
burial.
By and by the whole Imperial Family gathered in the Crimea under one
pretence or another, so as not to allow the invalid to suspect that it was
anxiety for his health that had brought them there. But Alexander was not
deceived, and well understood the gravity of his condition. When the
Empress was not present he sometimes spoke of what was to be done after
he had gone, but the proposal which was made at that time to celebrate
quietly the marriage of the Heir to the Throne with the Princess Alix of
Hesse, in the private chapel of Livadia, did not meet with his approval. He
did not think, and said so, that the wedding of the future Sovereign ought to
be solemnised without the proper pomp and ceremonies inseparable from
such events. He did not even express the desire to see his prospective
daughter-in-law arrive in the Crimea earlier than the time which had been
originally fixed for her journey, the last days of October, and yet he had not
seen her since her betrothal to the Tsarevitch. It seemed as though he was
afraid of exhausting his remaining strength in useless emotions, and wanted
to reserve it for the last parting with the wife he loved so well. She, on her
side, was heroic in the calm she displayed and the force of will with which
she dried her tears whenever she entered her husband’s room, so that he
might not perceive her agony. She surprised everybody by her courage and
Christian resignation to the will of the Almighty; never once did she allow
herself to give vent to her despair.
 Only when her heart was wellnigh breaking did she send an urgent
telegram to her beloved sister, Alexandra, then Princess of Wales; the
appeal was responded to, for both the Prince and the Princess started the
same evening for Livadia.
The Grand Duke Alexis met them at Sebastopol. The first question the
Princess asked was, “Are we in time?” A mournful shake of the head was
the only reply she received, and she burst into tears upon hearing it.
When the Empress saw her sister her composure gave way for the first
time since her arrival at Livadia; and for the first time, too, she seemed to
realise the full extent of her terrible misfortune. Her agony was piteous in
the extreme to behold, and she sobbed for a long time, shedding most bitter
tears when the Princess of Wales was trying to comfort her. Yet actually
what could one say, what consolation could one offer for such an awful
blow, when all the earthly hopes, not only of a family, but also of a whole
nation, had been smitten to the ground?
Alexander III. had longed for the arrival of his brother-and sister-in-law,
and often spoke of their last visit to the Crimea, which had been for the
celebration of his own silver wedding. It is quite certain that the thought
that they would be there to support the Empress in her trial was a last
comfort for him, and though he died before they could reach Livadia, yet he
found sufficient strength to write a few words of farewell to the Princess of
Wales, to commend her sister to her care. He had no illusions left as to his
own condition, and he kept asking eagerly for his cousin the Queen of
Greece, who had always been his great favourite.
When Olga Constantinovna arrived he used to keep her beside him for
hours, talking as much as his growing weakness allowed him to do, and
reminding her of their youthful and childish days. The Queen’s mother, the
Grand Duchess Alexandra Jossifovna, joined her daughter a few days later,
and she it was who suggested to the Emperor to call to his bedside the
famous Father John of Cronstadt, who was venerated throughout Russia as
a saint, and in whose prayers the people had enormous faith. Alexander
instantly consented. The Father was telegraphed for, and when he arrived at
Livadia the dying Sovereign had him brought to his room, and at once
asked him to pray for him. A touching conversation took place between the
mighty monarch and the humble parish priest.
“My people love you,” said the Emperor.
 “Yes, Your Majesty,” replied Father John; “your people love me.”
“And I also belong to the Russian people,” said Alexander. “I too love
you, and I want you to pray for me. I know I am dying, but I wish you to
know that I have always tried to do my best for all—for all,” he repeated.
“And I am not afraid—no, I am not afraid. And I wish you to tell my people
that I have no fear. Probably God thinks I have done enough that He calls
me. I am content to do what He wants.”
He asked that the last Sacrament might be administered to him, and after
the rite had taken place he seemed more peaceful. Resigned he had always
been, as well as ready to give an account of his stewardship to Him who
had entrusted him with it.
While these last scenes were taking place the Princess Alix of Hesse was
hastening to the Crimea. At Berlin the Emperor William came to greet her
at the railway station and to exchange a few words with her whilst the train
was stopping there. At Warsaw her sister the Grand Duchess Elizabeth
Feodorovna met her, and accompanied her to Livadia, where already the
whole of the Imperial Family had gathered. She was introduced into the
Emperor’s bedroom, but he was too weak to do anything else but exchange
a few words with her and to bless her; but he did so with a solemnity which
impressed the whole assembly, wishing her every happiness, and adding
that he wished Russia happiness through her, and by her. When this was
done the brave man knew that his earthly task was over, and prepared
himself for death.
He lingered for a few days longer, not suffering much, save from
suffocation, fits of which often troubled him. But he was even cheerful and
content, talking with his doctors and thanking them for their care of him. He
liked Professor Leyden, who had devised means to relieve his sufferings,
and often asked him whether the swelling of his legs could not be lessened,
as it troubled him much in his movements. He used to leave his bed in the
afternoon, and to have his arm-chair wheeled near the window, or on to the
terrace when the weather was quite warm, and he watched the landscape
and the sea, and often asked for flowers to be brought to him, which he kept
in his hands and then distributed to those around him. His children often
came to him, and he caressed them, but seldom spoke, except to the
Empress, whom he scarcely liked to have out of his sight, as if he wanted
not to lose a single one of the moments left to him to be with her. Once he
was heard to say, “Poor Mimi!” but that was the only time that he seemed to
give way. Otherwise his resignation was perfect, his calmness wonderful,
his faith in a life everlasting entire and strong. He had cast all earthly
thoughts aside, trusting to Divine Providence to take care of his family and
his nation, and without a murmur was awaiting the dawn of his last day.
Through the night which preceded that fateful November 1st he was very
restless, but at length, towards the morning, fell asleep. The Empress went
into the next room and lay down for an hour, then returned to the dying
man. At about nine o’clock he awoke, but did not move, lying on his back,
supported by high pillows, and with his eyes wide open, with a cheerful
expression in them, as if looking into the great unknown. Father John and
his own confessor, Father Yanischeff, came to his bedside, and asked him
whether he would not like to receive the Sacrament once more. He
cheerfully consented, and after the ceremony was over, he had the Heir to
the Throne called to him, and talked to him seriously for a few minutes;
then he blessed his other children, and added a few words of thanks to his
servants and to those who surrounded him. And he once more asked for the
Queen of Greece. When she approached him he took her hand, and merely
said, “Olga Constantinovna!” looking at her with his blue eyes that were
already glazing over. The Queen knelt beside him, with difficulty
restraining her tears, and he pressed her fingers with his own. Then he sank
back in his pillows, as if unable to bear any more.
Towards three o’clock he had himself dressed, put in his arm-chair, and
wheeled near the window, which he asked to be opened wide. The Empress
came and knelt beside him, supporting him with her arms, and the family
were called again. Alexander lay back quite calm, but his breathing was
getting more and more difficult. He kept pressing the hand of his wife, and
then, amidst a profound silence, not even broken by a sob, one last deep
sigh was heard and a great light went out.
The Empress remained immovable beside him whilst the doors were
opened; and the suite, household, and servants were brought into the room
and defiled for one last farewell before the dead man and his kneeling wife.
They reverently bent down and kissed the dead and the living hand, then
retired sobbing bitterly.
A witness of this heartrending scene, Prince Sergius Troubetzkoy, then
Head of the Imperial Household, made a sketch of it, which is preserved by
a few chosen friends, and no more precious memento exists than that simple
drawing, traced amidst all the anguish that accompanied that solemn hour.
The body of Alexander III. had not yet been placed on his funeral bed,
when the ears of the inhabitants of Yalta, who through days of anguish and
suspense had waited for news from the Palace of Livadia, were startled by
the booming of the big guns of the Pamiat Merkuria; and as they listened to
these minute guns they understood that all was over, and that it was the last
farewell of the Black Sea Fleet to its dead Sovereign.
That same evening, on the lawn opposite the entrance to the Palace of
Livadia, an altar was erected and Father Yanischeff, in golden vestments,
emerged from the gates and solemnly administered to a numerous assembly
the oath to the new Sovereign. Of all the pomp, the glory, the hopes, that
had embellished the reign of Alexander III., nothing was left except a
woman’s broken heart and the tears of a whole nation.
The body of the dead Emperor was taken to St. Petersburg, and laid to
rest beside those of his ancestors, in the Cathedral of St. Peter and St. Paul.
For days the population of the capital passed before the bier to take a last
look at the familiar features of its beloved Sovereign. How small he was,
covered almost entirely with the folds of his Imperial mantle of gold and
ermine—that same mantle he had so proudly worn on his Coronation day in
Moscow! The expression on his face was calm and serene; he had truly
entered into his rest.
All the countries of the world sent representatives to attend the funeral;
the whole of Russia prostrated itself at the foot of the catafalque upon
which Alexander lay. Nothing was wanted to make the ceremony an event
to remember for ever. But its chief feature was that it was not a mere
ceremonial time of mourning; there was displayed the genuine grief of a
great nation, the cry from the heart of a people: “We have lost a Father, and
there was no one greater or more virtuous than this man in the whole of
Israel!”
BOOK II. 1894-1913
 CHAPTER I

FUNERAL AND WEDDING BELLS

It was a cold November afternoon. The guns of the fortress of St. Peter and
St. Paul in St. Petersburg were thundering their last salute to Alexander III.,
whose remains were being lowered into the grave by the Palace Grenadiers,
whilst all the bells of the great city were tolling mournfully a solemn
farewell. Round the open vault his family were kneeling, taking a last
glimpse of the coffin as it slowly disappeared from their sight. Sobs were
heard from the widow and her children; heartrending sobs, which merged
into the low chant of the clergy, and added poignancy to the scene.
Beside the grave the new Emperor was standing, a slight, small figure,
with indecision in his movements and a hunted, anxious expression in his
blue eyes. When the last rites were over he escorted the widowed Empress
to her carriage, which was awaiting her at a side entrance of the cathedral,
and then, after another look at the tomb which was being closed, he went
out of the church through the front door. He was alone, and for a few
seconds paused on the steps, as if dazed by the light outside, after the half-
darkness of the church.
As he appeared upon the threshold the troops massed on the large square
inside the fortress lowered their colours before him for the first time since
the day of his accession to the Throne of Russia, and for the first time, also,
the band played the National Anthem. The Army saluted its new Chief,
welcomed the new Sovereign. The reign of Nicholas II. was beginning
amidst manifestations of sympathy such as rarely had been witnessed in the
Empire over the destinies of which he was called upon to preside.
People pitied him for his youth, his inexperience, and for those tragic
events so closely preceding his wedding. They pitied, too, his young bride,
whose advent into her new country was taking place at such a mournful
time. All these circumstances increased the general sympathy, so that when
he entered upon his new duties and responsibilities he found everybody
ready and willing to help him and anxious to make him forget that the
pealing of his wedding bells was mingled with the sounds of tolling for the
death of his father.
 When, a few days later, the nuptials of Nicholas II. with the Empress
Alexandra Feodorovna were celebrated in the Winter Palace, a sympathetic
crowd again gathered in the vast halls of that historic residence. All were
eager to see the young bride, whose arrival had been preceded by the
reputation which she had acquired in her former country, of being not only
a clever woman, but also one possessing a high moral standard and a strong
character. One had heard she was kind, humane, cultivated in the extreme,
and imbued with all the humanitarian ideas for which all the children and
grandchildren of Queen Victoria had been so remarkable. Moreover, she
belonged to that House of Hesse which had already given one Empress to
Russia, in the person of the grandmother of Nicholas II. The bride had
further claim on the interest of the Russians from the fact that she was the
sister of a princess who had succeeded in making herself extremely popular
in the country—the Grand Duchess Elizabeth Feodorovna, the consort of
the Grand Duke Sergius. All these circumstances put together would have
been sufficient to ensure the sympathies of the country, even if the personal
appearance of Princess Alix had not been such as to command them, and
her extreme beauty only added to the interest with which she was
welcomed.
On the morning of that memorable November 26th which was to see the
Princess Alix of Hesse united to Nicholas II., the Winter Palace early began
to fill. The ceremony was fixed to take place at eleven o’clock, but long
before ten had struck people poured into the residence of the Tsars.
Representatives of all the different classes of society which constituted the
Empire were gathered within the Palace. One could see deputations from
the Army, the Navy; from the merchant and the industrial classes, as well as
from the rural population; from the Cossack army and from the Asiatic
populations owning allegiance to the Romanoffs. One could witness the
curious spectacle of the diamond tiara of some Court beauty beside the
caftan of some peasant, and the gold embroidered uniform of a chamberlain
or other high official contrasting by its gorgeousness with the dark and plain
tunic of a village mayor, or the neatly attired officer of the reserve forces.
All necks were stretched to catch a glimpse of the Imperial procession
proceeding to the chapel, and a feverish excitement reigned amidst this
motley assemblage gathered together to see a spectacle which never before
had been witnessed in Russia—that of the marriage of a Reigning
Sovereign.
 There was a long wait, and people already began to ask themselves
whether something had not happened to stop the ceremony, as twelve
o’clock struck, and still no sign of the bridal procession was to be seen. The
occasion was so exceptional that etiquette was for once disregarded, and
discussions eagerly went on as to the future of the marriage about to be
celebrated when the sounds of the prayers for the dead over the remains of
Alexander III. had hardly died away.
At last the thumping of a stick was heard—that of the Master of
Ceremonies, who heralded the approach of the procession. First appeared
various servants and officials of the Household. Then, amidst a hushed
silence and an intense emotion that brought tears to the eyes of many an old
servant and follower of the dynasty of the Romanoffs, one saw the bridal
couple advance.
Nicholas II. was dressed in the red uniform of his Hussar regiment, with
the white dolman slung across his shoulder. He still wore the epaulets of a
colonel of the Army. He had refused to assume the insignias of a higher
rank, saying that he would prefer to keep those that had been conferred
upon him by his father. He was leading his future Consort, whose cheeks
burned with excitement, and whose trembling hand rested timidly in the one
with which he was conducting her to the church.
“How beautiful she is!”
That exclamation followed her all along her path, and it is true that her
appearance was positively magnificent as she stood there in her bridal array
of silver cloth and old lace. Her unusual height helped her to bear the
weight of her dress and set off its splendour in its best light. Her mouth
quivered a little, and this relieved the habitual hard expression that was the
one defect of an otherwise perfectly beautiful face, the straight, classic
features of which reminded one of an antique Greek statue. The glow upon
her cheeks only added to the loveliness of her countenance, and her eyes,
modestly lowered, gave to her whole figure a maidenly shyness that made it
wonderfully attractive. She had upon her head the diamond crown which all
the Russian Grand Duchesses wear at their marriage service, and from it
descended a long white lace veil, kept in its place by a few sprays of orange
blossom and myrtle.
Her dress was of silver tissue, and from her shoulders descended a long
mantle of gold brocade lined with ermine, the train of which was carried by
eight high officials of the Court. That mantle had been the object of many a
discussion. Usually the Grand Duchesses of Russia wear on their wedding
day a mantle of crimson velvet, but here it was the bride of an Emperor, and
it was thought that some distinction ought to be made, although there was
no precedent for such an event. At last it was decided to make the mantle of
gold brocade, but not to embroider it with the black eagles that adorn the
Imperial mantle assumed by Sovereigns at their Coronation.
Alexandra Feodorovna wore also, on her neck and the bodice of her
dress, the Crown diamonds which only the Consorts of Sovereigns have the
right to assume.
Behind the bridal pair came the Empress Dowager Marie Feodorovna,
who, always brave, had made this great effort to appear at her son’s
wedding. She was leaning on the arm of her father, the old King of
Denmark. She firmly stepped on the path of duty, ever mindful of her
obligations as a Sovereign; but her red eyes, and weary, despairing, tired
look, told the inward struggle which she was enduring. The King was
bending tenderly over her; it was a touching sight to see this old man trying
to uphold the courage of his afflicted child, and to sustain her in her great
sorrow.
After the Empress and her father came a long file of foreign Royalties,
foremost among whom were the Queen of Greece and the Prince and
Princess of Wales. The future King Edward of England had been most
active during the weeks that had elapsed since the death of Alexander III.
He had taken the direction of all the arrangements concerning the wedding
of his nephew the Tsar. It was he who had insisted upon its being celebrated
at once before the mourning for the late Emperor was at an end. It was he
who had taken the part of guardian towards his niece the Princess Alix; and
it was he—so it was whispered, at least—who had tried to inculcate in
Nicholas II. the principles which ought to govern a Sovereign who wants to
go with the age and not to keep an old regime which even in Russia had
grown out of date.
It was said that owing to his efforts the old and traditional enmity which
had divided the Russian and English Courts was to come to an end, and that
friendly relations between them would be the result of this marriage which
was going to unite the nephew of the Princess of Wales with the
granddaughter of the Queen of England.
 The members of the Imperial Family walked after the foreign Princes
and Princesses, and the long procession was closed by the maids of honour
of the Empress and the other Court ladies. Immediately behind the bridal
couple were also to be seen the Minister of the Imperial Household in
attendance on his Sovereign, and the Mistress of the Robes of the young
Empress, the Princess Mary Galitzine, who was to become one of the most
important personages of the new regime.
At the entrance to the chapel the Metropolitan of St. Petersburg and the
members of the higher clergy were waiting for the procession. Holy water
was presented to the Emperor and to his bride, and then the marriage
ceremony began.
The chapel of the Winter Palace is quite small, and it would have been
impossible for all the people assembled there to enter; but one after another
those present peeped into it, just to see how things were going on, and
always reported to the less fortunate ones that the bride was keeping her
lovely head bowed down, and that, notwithstanding the emotion under
which she was seen to be labouring, she kept quite calm, and made her
responses in a firm though low voice. The bridegroom appeared more
agitated, and had to be prompted by the priest. The Empress Marie was
quite broken down by grief, and sobbed bitterly during the ceremony. When
it was over she folded her son in her arms in one long and tender embrace,
and also kissed most affectionately her new daughter-in-law. Then all the
Royal and Imperial personages present came and offered their
congratulations to the newly married couple, after which mass was
celebrated, the procession re-formed and proceeded once more through the
State rooms of the palace to the private apartments, where lunch was served
for the bride and bridegroom and their family.
It was then known why the marriage ceremony had been delayed. It
seems that an over-zealous police official had not allowed the coiffeur who
was to fix the crown on the hair of the Imperial bride to enter the Winter
Palace on account of his having forgotten to provide himself with the
necessary entrance card. The unfortunate man protested and implored to be
allowed to pass, but it was of no avail; and whilst he was discussing and
protesting, Alexandra Feodorovna was sitting before her dressing-table,
wondering what had happened and what she was going to do if he did not
turn up.
 At last he was discovered by one of the valets of the Emperor. But a
whole hour had been lost, and it was past twelve o’clock when at last the
bride was ready and able to proceed to church.
After lunch the Dowager Empress was the first one to leave the Winter
Palace for Anitchkov, where the young people were to reside with her until
their own apartments were ready to receive them. Half an hour later
Nicholas II. and his bride entered a State carriage, drawn by six white
horses. An immense and enthusiastic crowd cheered them as they emerged
from the gates of the Winter Palace on the way to Anitchkov. The Empress
kept bowing repeatedly, but she was so nervous that she appeared to move
her head mechanically, and her eyes were filled with tears which she tried
hard to restrain. It seemed as if she only then realised the weight of the
duties and responsibilities which were henceforward to rest upon her
shoulders, and, too, as if she shrank from them. Anxiety was in her
countenance, her smile had lost its sweetness, but nevertheless her mien
more than anything else, gave one the impression of a great dignity, and she
certainly seemed fitted for the high position which had become hers.
The Sovereigns proceeded to the Kazan Cathedral, where they
worshipped at the shrine of the Virgin, who is one of the patron saints of St.
Petersburg. Next, they passed before the Roman Catholic church which is
situated on the Nevski Prospekt, where they found standing on its threshold
the Catholic Archbishop with his pastoral cross raised before him. The
Emperor ordered the carriage to stop, and he accepted with reverence the
wishes expressed for his happiness and that of his newly wedded Consort.
That interview created a precedent, for never before had the Imperial House
publicly acknowledged the existence of another religion than the orthodox
one in Russia. It was freely commented upon at the time and taken as an
indication of tolerance in the religious opinions of the new monarch.
A few minutes later the doors of the Anitchkov Palace were opened to
the newly wedded couple. At the head of the staircase, waiting to welcome
them, stood the Dowager Empress, still clothed in her white gown. She
pressed to her heart her Imperial son and her new daughter-in-law, and
tenderly conducted them to the rooms prepared for them, which were those
the Emperor had occupied as a boy. They were quite small, and hardly fitted
to be the residence of a mighty Sovereign; but, such as they were, the young
couple settled in them, and there they spent the first months of their wedded
life. There began the new existence of Alexandra Feodorovna; there
commenced her career as an Empress, and there she became acquainted
with her first sorrows and her first joys as a wife.
 CHAPTER II

A CHARACTER SKETCH OF NICHOLAS II.

When the present Tsar of All the Russias ascended the Throne he was
absolutely unknown to the public. Unfortunately, he is almost as unknown
at the present day, although nearly twenty years have elapsed since he
succeeded his father. Nicholas II. is one of those timid, weak natures who
nevertheless like to assert themselves at certain moments in matters utterly
without importance, but which, to their eyes, appear to be vital ones. His
mind is as small as his person; he sees the biggest events go by without
being touched, or being even aware of their great or tragic sides.
His education had been neglected, and he was brought up as befitted an
officer in the Guards, not as the heir to a mighty Empire. For a number of
years after he had emerged from his teens he was treated as a little boy, and
not allowed the least atom of independence. The Empress had studiously
kept her children in the background, and her sons hardly ever went out of
the schoolroom. When Nicholas was about fifteen he was given a tutor in
the person of General Danilovitch, a most respectable man, but a nonentity,
and not even a personage belonging to the upper ten, or possessed of
manners or education in the social sense of the word. He was of that class
of people who eat with the knife, and though he did not communicate this
peculiarity to his Imperial pupil, yet he did not teach him those small
conventions which
 NICHOLAS II., TSAR OF RUSSIA
Photo: Boissonnas & Eggler, St. Petersburg

distinguish gentlemen born from gentlemen by reason of their official

position, which latter are but too often found in Russia.
The instruction which the young Grand Duke received differed in no
way from that given to cadets in military schools; he was taught obedience
and submission to the will of his parents, but he was not prepared for the
high position in which he found himself placed quite unexpectedly. Such a
contingency had never been catered for by those responsible for his
training.
The comparatively early age at which the Emperor Alexander III. died
had excluded, during his lifetime, any thought of the possibility of his
succession becoming open for years to come. The instruction of his children
had been conducted slowly, and instead of fostering the development of
their minds, it had been kept back as much as possible by their teachers.
The Tsarevitch lived in two small rooms—those which he was later on to
inhabit for the first months that followed upon his marriage—in the
Anitchkov Palace, and he stood always in considerable awe of his parents,
perhaps more of his mother than of his father. He had no companions, no
friends; he had no love of reading, no artistic tastes, no interest in anything
—not even in military matters.
When he was eighteen years old he entered the regiment of the Hussars
of the Guard quartered at Tsarskoye Selo, and that was his first step towards
independence. But he was not given as attendants people able to lead him
into a path such as that which usually opens before the heir to a crown. He
made some friends for himself among the youngest officers of his regiment,
and it must be owned these friends were for the most part nonentities, with
no ideas beyond that of eating and drinking and making merry; not one of
them could either advise him or be of any use to him.
The first time he was called upon to assert himself was during his
journey round the world, after his majority. He then began to realise the
advantages of his position, though I doubt very much whether he
understood the duties which it entailed. His companions were his brother
the Grand Duke George, who, however, had to give up the journey on
account of his bad health; his cousin Prince George of Greece, and a few
officers from some crack regiments of the Guards, such as Prince
Kotchoubey, a certain Captain Volkoff, and people of the same kind, with
no recommendation except that of being nice fellows.
With all his great qualities, Alexander III. did not possess that of
knowing how to direct the education of his children, and the Empress was
similarly without this knowledge. She had been brought up in the simplest
way possible, and could not understand that the rearing of her own sons and
daughters ought to be conducted upon different lines from those under
which she had been trained. It was said at one time that when a person of
her near entourage asked her whether the time had not come when a
governess ought to be chosen for the Grand Duchess Xenia, she replied:
“But why? We had no governess when we were children.”
The result was that though masters in plenty came to instruct the
Tsarevitch and his brothers and sisters, they were nevertheless allowed to
remain without that domestic training which alone gives to future
Sovereigns, and people in high stations, the knowledge to fill their duties in
the proper way, and to meet with dignity the responsibilities of their
arduous position.
Again, lessons, though they teach something, yet do not instruct those
who receive them if they are not accompanied by an intelligent training, and
of this the Imperial children had none. They were given elementary notions
of languages and arts, but I doubt very much whether to the present day any
of them, the Sovereign not excluded, could write a letter in French without
mistakes. The love for learning was not inculcated; reading serious books
was never encouraged; the discoveries of science were only explained as
things which existed, but not as things capable of further development. In a
word, the Tsarevitch received quite a middle-class training, and though he
was afterwards sent on a long voyage for the purpose of improving his mind
and acquainting him with the world, it is more than doubtful whether he
derived any real benefit from it.
As Grand Duke he was always timid, almost painfully so, and when by a
strong effort of will he conquered that timidity, he came out with what he
wanted to say in an almost brutal manner, which made him many enemies,
often quite unjustly. He never had any opinions of his own, except in purely
personal matters, and he has none to this day. His want of mind makes him
always endorse the judgments of the last person he speaks to. Like every
spoilt child he has no heart, not because his is a bad nature, but because he
is unable to feel any woes except his own, or to understand any wants when
he himself has none. He is jealous of his authority, simply because he is
selfish; he tries to uphold it in a brutal manner, as in his famous speech after
his accession to the Throne, when he warned his people not to indulge in
senseless dreams. Nevertheless, he does nothing to make that authority
respected, either at home or abroad. On the contrary, when a fit of bad
temper seizes upon him he is the first one to attack the principles it should
be his duty to defend. This was manifested recently when he deprived his
brother the Grand Duke Michael of his rights. He is utterly incapable of
grasping the consequences of his own actions, does everything through
impulse, and thinks that the best argument is to knock down one’s
adversaries. The only strength he recognises is the strength of the fist, and
unfortunately this is not a strength which one respects in a century when
machinery has taken the place of the hand.
 The Emperor is an exceedingly rancorous man. Instead of practising the
principle which made Louis XII. of France so famous: that of not
remembering as King the injuries he had received as Duke of Orleans, he
thinks it his duty to chastise when he can every slight to which he considers
he has been subjected either as Sovereign or as Heir to the Throne. He likes
to be feared, but unfortunately he cannot even inspire respect, much less
awe. He feels this, and not knowing how to fight against the lack of
consideration for his person, he becomes savage in his wrath, and, though in
appearance a quiet, inoffensive little man, is capable of the utmost cruelty
and hardness. He has no generous impulses, none of that enthusiasm of
youth which induces one to do generous actions, even when they are not
quite in accordance with prudence. He lives a mechanical life, devoid of
interest and indifferent to everything that does not concern his immediate
person.
People have asked themselves whether the indifference he has shown in
grave moments of his life has been affected or real. When the news was
brought to him of that terrible disaster of Tsushima, which cost Russia her
whole fleet and the loss of so many precious lives, the Emperor was playing
tennis in the park of Tsarskoye Selo. He read the telegram that sounded the
knell of so many hopes, and then quietly resumed his game, not a muscle of
his face moving. Was it stoicism, indifference, or a strength of mind almost
supernatural? The world tried to guess, but was afraid to think that it arose
from inability to understand the greatness of the catastrophe. It is certain
that no one has practised with greater success than he has done the famous
maxim of La Rochefoucauld, that “we bear with the greatest composure the
misfortunes that do not concern us.” Nicholas II. probably thought that the
misfortune which had befallen Russia on the day of Tsushima did not
concern him personally, just as he did not realise that the catastrophe of
Khodinska, which made his Coronation so memorable, and cost the lives of
nearly two thousand people, concerned him too. On this last occasion he
danced the whole of the night following it; on the first one he went on
playing tennis. The only difference between the two lay in the kind of
amusement he indulged in.
When he found himself confronted with Revolution it never once
occurred to him that if he put his own person forward he might avert it. On
that dreadful day in January which ended in such bloodshed, he never for
one moment remembered the proud attitude of his ancestor, that other
Nicholas who, on an almost similar occasion, came out of his palace and
confronted the angry crowd, forcing the multitude, by the courage of his
attitude, to fall down upon their knees and submit. The only thought of
Nicholas II. was to flee from danger and to leave to others the task of
drowning in blood these first symptoms of rebellion.
And when, later on, he called together the representatives of the different
classes of his Empire, and inaugurated that first short-lived Duma, he
realised neither the solemnity of the act he had decided upon nor the
importance it would have in history.
I can see him, still, on that memorable day, reading his first speech in the
White Hall of the Winter Palace. One could not help remembering Louis
XVI., and thinking of that May morning when the Etats-généraux
assembled for the first time at Versailles. The same pomp characterised
both: ladies in Court trains and with diamond diadems; high officials in
braided uniforms, gold lace, and plumes in their cocked hats; and, in their
black coats, the deputies of the lower classes, those whose efforts bring
about the great crises that shake the life of nations.
Did he think of this, that mighty Tsar who, in a monotonous voice, read
his message to his people? Did he examine the faces of these men standing
before him, and try to guess whether a Mirabeau or a Vergniaud was among
them? Did the phantom of a Robespierre arise before his mind? When the
ceremony was over he remarked that some of the caftans worn by the
deputies from the rural classes were not new. It was all that had attracted his
attention.
When travelling outside Russia I have often been asked why it was that
both Nicholas II. and his Consort had made themselves so very unpopular
in Russia. I must own I have found it very difficult to reply. That they are
unpopular is unquestionable, but to explain the reason adequately would
take volumes and still not initiate the outsider into the details of this
difficult question. When the present Tsar ascended the throne he was
surrounded by universal sympathy. People who had never seen him, nor
would ever see him, were kindly disposed towards him. Great things were
expected of him, and it was hoped he would govern wisely, after the
example which his father had given to him.
Very soon, however, these hopes were dashed to the ground. The
Emperor appeared as he really was—personal in everything, shallow-
minded, weak, well-intentioned, but only in so far as it did not interfere
with his own comfort, indifferent to all the necessities of his country, and
governed entirely by his sympathies or antipathies without considering
anything else. His was a nature which would have won for him in private
life the denomination of being a “good little fellow”; but that is not enough
for a Sovereign: it brings ridicule, the last thing that ought to dog the
footsteps of a monarch.
Whilst Alexander III. was living people knew that they could rely upon
his word, that he had opinions of his own, and that, whether these were
right or wrong, they were still opinions with whom others had to count.
After he had reigned a few months everyone who came into contact with
Nicholas II. realised that he was the echo of everyone else’s opinion except
his own.
The flexibility of his mind equalled its emptiness. It was very soon found
out that he changed his ideas as often and with as many people as he
discussed them. Though he fully thought he knew what constituted his
duties as a Sovereign, yet it can be questioned whether he could have told
what they were.
The vacillation of Nicholas II. is something quite surprising, and his
ingratitude for services rendered to him sometimes astounding. When M.
Stolypin, struck by an assassin’s shot, expired after a few days of the most
horrible sufferings, the Emperor was in Kieff. Common decency would
have required him to be present at the obsequies of the Minister who had
laid down his life for him. People expected it, public feeling required from
him this manifestation of his sorrow; but the Tsar coolly left Kieff for the
Crimea, not thinking it worth while to change anything in his plans in order
to follow to his grave the statesman who, whatever may have been his
faults, still had crushed the Revolution which at one time threatened to
overturn the Throne of the Romanoff Dynasty.
After Stolypin’s death, M. Kokovtsov was appointed head of the
Ministry, and when he arrived at Livadia to discuss with his Sovereign the
line of action which he intended to take, he found Nicholas II. arranging
some prints upon the walls and watching the effect of his work. When he
saw the Prime Minister the first words that he said to him were: “Oh, I am
glad that you have arrived. You can tell me whether this picture hangs well
or not.” And during the three days which M. Kokovtsov spent in Livadia he
was unable to secure a serious conversation with his Sovereign, the latter
always putting him off and at last telling him plainly that “he had come to
Livadia to enjoy a holiday, and did not want to be bothered with business
matters, which could be put off until he was back at Tsarskoye Selo.”
Since the day when he fled from St. Petersburg for fear of the mob who,
led by the too famous Gapon, had wanted to present a petition to him,
Nicholas II. has not inhabited the capital. He has confined himself in his
Imperial castle of Tsarskoye Selo, where his Ministers come to him with
their reports, and where he leads the life of a country gentleman with a
limited circle of friends. He often goes to dine at the mess of the regiments
quartered there, and remains with the officers late at night, drinking
champagne and indulging in the smallest of small talk. The rest of the time
he signs papers, the contents of which he mostly does not understand; he
shoots in his park; and he worships his son, and has him brought up in the
most detestable way possible, never allowing the child to be contradicted,
and insisting upon all his caprices being satisfied at once, whatever their
nature may be.
During the long winter evenings the Emperor likes to turn tables, and in
general is fond of arranging spiritualist séances with all the famous
mediums that visit St. Petersburg. At one time a particular medium was
supposed to enjoy his entire confidence, and to advise him, by means of
table-turning, in the most complicated matters of State.
The relations of Nicholas II. with the different members of his family are
like everything else that he does—subject to many and various changes.
When he ascended the Throne his mother was supposed to wield a
considerable influence over him, and though that influence is no longer as
strong as it was, yet it is certain that he would not go against the Dowager
Empress in anything she wanted to do.
At one time he very much liked his uncle, the Grand Duke Vladimir, but
after the marriage of the latter’s son, the Grand Duke Cyril, with his cousin,
the divorced Grand Duchess of Hesse, their relations underwent a change
and quarrels took place.
At present the Grand Duke Nicholas is persona grata with the
Sovereign, perhaps on account of the brutality for which he is famous.
He is also supposed to like his sisters, but these are of too little
importance to be reckoned with as serious factors in the general situation.
 No monarch has ever led such a secluded existence as the present Tsar.
Life at Court, which used to be so bright and cheerful, is now sad and dull.
Festivities there are none, except one reception on New Year’s Day, at
which the young Empress never appears, and even that did not take place in
1913. Balls are no longer given, and foreign princes, when they arrive upon
a visit to the Russian Court, are received at one or other of the country
residences of the Sovereign. The Winter Palace, once so animated, has
taken the appearance of a lumber room, and presents to the visitor an
unkempt, forlorn, dirty, neglected sight.
No reign in Russia from the time of Peter the Great has been so
unfortunate as the present one. Calamities have followed its course from the
very beginning. The prestige of the country, which was so great when
Alexander III. died, has been seriously impaired by the failure of the
Japanese campaign and the Revolution that followed upon it. Discontent is
rife and becoming stronger every day; and though the financial prosperity
of the country has certainly increased and reached hitherto unknown
proportions, yet it has not done away with dissatisfaction.
The most curious feature of this situation is the total lack of respect and
consideration the public feels for the person of Nicholas II. and for his
family. Formerly, Grand Dukes were considered as something quite apart
from the rest of mankind, and as for the Emperor—one stood in awe of him,
whether one loved him or not. Now, no one thinks about them at all; they
simply do not exist either in the public or the social sense. Respect has
gone, and familiarity has not arrived. The presence of a member of the
Imperial Family at a ball or party is no longer considered as an honour, and
is not looked upon as a pleasure.
No misfortune has been spared to Nicholas II., and had he only
understood their importance, he would have been the most unhappy man in
the whole of his vast Empire. War has humiliated his country, revolution
has enfeebled it, bad and tainted politics have dishonoured it, the blood of
thousands of people who perished quite uselessly cries out for revenge, the
tears of other thousands of unhappy creatures who languish in prisons or in
hopeless exile appeal to Heaven for the chastisement of those in authority
who sent them to a living death. Danger surrounds him, treason dogs his
footsteps; his nation dislikes and distrusts him; his family is hostile to him;
his only brother is banished, his mother is estranged from him, the wife of
his bosom is the victim of a strange and mysterious malady; his only son,
and the successor to his Throne and Crown, is smitten with an incurable
illness. He has no friends, no disinterested advisers, no Ministers whose
popularity in the country could add something to his own. And amid these
ruins he stands alone, a solitary figure, the more pathetic because he does
not realise the tragedy of his own fate.
 CHAPTER III

THE EMPRESS ALIX

When the Princess Alix of Hesse left Darmstadt for the Crimea in order to
be present at the death-bed of the Emperor Alexander III., there was one
paper in Germany that dared to print what was spoken of in secret among
many people, and to express some apprehension as to the fate that awaited
the young bride in that distant country whither she was speeding in quest of
an Imperial Crown.
Her marriage was not popular among her own country folk. The
Protestant feelings of the German people revolted against the change of
religion to which she would have to submit, and moreover there existed at
that time a terrible prejudice in Hesse against Russia and everything that
was Russian. The union which the Princess was about to contract was not
popular, and, rightly or wrongly, it was firmly believed that she was being
forced into it against her will; that, left to herself, she would have preferred
to end her days in the peace of the little Darmstadt Court than to live among
the splendours of St. Petersburg. It was this feeling that she was about to be
sacrificed to reasons of State which inspired for her a pity that was freely
expressed in the article already referred to and which is quoted hereunder:
—
“It is only with feelings of deep grief and pity that the German people
can follow during her journey to Russia the gracious and beloved Princess
Alix. I cannot banish from
 ALEXANDRA FEODOROVNA, TSARINA OF RUSSIA
Photo: Boissonnas & Eggler, St. Petersburg

my thoughts the secret forewarning that this Princess, who wept such bitter
tears when she left Darmstadt, will have a life full of tears and bitterness on
foreign soil. One need not be a prophet to foresee what conflict of thoughts
and impressions will crowd within the heart of the august bride during these
decisive weeks: Human law requires that a young girl follows the husband
of her choice into the unknown.
“But the German people cannot consider this marriage with joy nor with
the charm of things where the heart alone is in question. The German
people cannot forget the old saying of the poet: ‘Princes are only the slaves
of their position; they must not follow the leanings of their own hearts.’
“If we cast a glance upon the Tsar fighting against the throes of death;
upon the ‘private life’ of the bridegroom; upon the renunciation of the
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