Although today they are two different countries, Austria and Hungary were once joined together in a dual monarchy which lasted from 1867 through World War I.
The Royal House of Hapsburg had ruled in Europe for over five centuries. The Hapsburgs held territory in Spain, the Netherlands, Germany, Austria and Hungary. However, in 1866, Austria was defeated by Prussia in a crushing war. As a result the aristocracy of Hungary- the Magyars- seized the opportunity to declare Hungarian independence from the emperor of Austria. Austria, already weakened from fighting, had little choice but to agree with the Magyars demands. In the Augleich (compromise) of 1867 Hungary would henceforth be a separate kingdom, with full political powers for its diet (parliament). The Emperor of Austria Franz Joseph, would be given a separate title, King of Hungary.
Why Austria-Hungary Worked So Well
Austria was a highly industrialized country with thriving industries in manufacturing and natural resourcs. The capital city of Vienna was a cultural center of music and art. Medicine and psychology also flourished. Hungary, on the other hand, was much more rural than its western counterpart. Much of the farming land in Hungary was owned by titled aristocracy, other gentry and catholic prelates. To encourage manufacturing and shipping in Hungary, the government offered tax concessions and subsidies. The construction of railways helped connect western Austria with eastern Hungary. Common tariffs also helped protect both economies, while Viennese banks financed loans through both countries.
The Fall of Austria-Hungary
During the second half of the 19th Century, Nationalism was taking hold in many European countries, including Germany, France, and Italy. While this political movement helped to strengthen most countries, giving citizens a unified national identity, it wreaked havoc on Austria-Hungary. There were many ethnic groups in both Austria and Hungary, including Jews, Poles, Czechs, Croatians and Romanians. In Austria, German was the language of the government and royal court, even though only a third of the population of ethnic Germans. In Hungary the Magyar (Hungarian) language was used in government and schools, which was resented by minority groups. Many minority groups in Austria-Hungary became clamoring for independence, spurned in part by nationalism. Fighting in the Balkan Wars and then in World War I caused further fractures in the Hapsburg Empire. By the end of WWI, the already weakened Austria-Hungary was separated permanently by the Treaty of Versailles. Hungary lost the territories of Czechoslovakia, Romania and Yugoslavia. Austria lost Southern Tyrol to Italy.