How Does the Public Perceive Alliances?: The Central and Allied Powers in World War I

World War I was fought by numerous countries siding together as the Central Powers and, respectively, the Allied Powers. The former began with the German Empire and Austria-Hungary and grew to four allies when the Ottoman Empire entered the scene in late 1914 and Bulgaria in late 1915; the latter centred on the alliance between England, France, and Russia and was informally extended to many more countries as they entered into the war ad-hoc by signalling common interests with the core Allied Powers. This article addresses a neglected dimension of the alliance formation phenomenon, namely how alliances were perceived by the public, in contrast to the perceptions of political and military leaders. Were the Central and Allied Powers perceived to be credible alliances – monolithic blocks – in the eyes of contemporaries? We seek to determine the degree of “alliance integration” among pairs of countries by applying cointegration analysis based on prices for securities. It is assumed that the prices of countries perceived as “integrated” should show signs of co-movement. In particular, we focus on the Amsterdam market for foreign government bonds providing us with a neutral perspective. Our analysis is based on the yields for representative bonds traded by 13 belligerent countries not only during the war, but also before and after. Among other findings, we cannot corroborate that investors simply recognized two monolithic blocks fighting the war against each other.