The Austro-Hungarian Empire

In 1859 and 1860, during the period of Italian unification, the Austrian-dominated areas of Modena, Tuscany, and Lombardy were absorbed into the new Italian state. In 1866 Austria lost its leadership of the Germanies. Prussia defeated Austria in the Seven Weeks' War (a dispute over the control of Schleswig and Holstein) and abolished the German Confederation in favor of a North German Confederation from which Austria was excluded. (The new confederation became the German Empire.) Austria also lost Venetia, which it had gained in the Treaty of Campo Formio in 1797.

Deprived of influence in the Germanies and in Italy, Emperor Francis Joseph I attempted to strengthen his hold on the non-German parts of his empire. In 1867 he reached an agreement with Hungarian leaders who desired greater autonomy for Hungary. This agreement, known as the Ausgleich , established the Austro-Hungarian Empire, also often called Austria-Hungary and the Dual Monarchy.

Hungary was made a semi-independent nation, ruled by its own government, but with the Austrian emperor as its king. Purely domestic affairs in the two nations were handled by the separate governments, but foreign affairs, finance, and the military were jointly controlled. Just as the German-speaking Austrians denied the other nationalities a voice in their government, so the Hungarians refused to share any power with the national minorities in Hungary.