The financing crisis of 1876–1878

From 187 to 289 million: the discovery of the overrun

The financial plan of 1869 rested on an estimate that proved far too low. When the first chief engineer, Robert Gerwig, left the company in 1875, he identified a shortfall of about CHF 34 million. His successor, the German engineer Wilhelm Hellwag, carried out a complete revision and arrived at a deficit of CHF 102 million, which would have raised the cost of the enterprise from CHF 187 million to about CHF 289 million.¹ Hellwag attributed the error to several causes. The 1869 estimate had used lump sums for the most difficult sections of the line, wages and the prices of materials had risen sharply during the boom of the early 1870s, and the costs of financing, including interest during construction and the discounts at which shares and bonds had been placed, had been underestimated. For individual categories of work his figures exceeded those of 1869 by between 51 and 368 per cent.

The revelation came at the worst possible moment. The financial crisis of 1873, which began with the crash of the Vienna stock exchange in May of that year and spread to Berlin and New York, had ended the speculative boom in railway shares. Swiss railway securities lost much of their value in the depression of the 1870s and 1880s. The Nordostbahn, Escher's own company, fell into a severe crisis in 1876 because of competition and the depression, and the Schweizerische Nationalbahn, the democratic rival of the Escher lines, went bankrupt.² In this climate no investor would provide new capital for the Gotthard without new guarantees from the states. A commission of experts appointed by the company confirmed that the total cost would be about CHF 261 million even with economies, far beyond the available resources.³

The Lucerne conference of June 1877 and the reduced programme

Because the network, the technical standards and the time limits were fixed by treaty, the company could not reduce its programme on its own authority. In June 1877 the subsidizing states met at an international conference in Lucerne and agreed on a reduced programme. The mountain sections were to be built with single track for the time being, except in the tunnels, the minimum radius of curves was reduced from 300 to 280 metres and the maximum gradient was raised from 25 to 26 or 27 per mille. Three lines were postponed: Lucerne–Immensee, Zug–Arth and Giubiasco–Lugano, that is, the line over the Monte Ceneri.⁴ These measures reduced the estimate to about CHF 227 million and the gap to CHF 40 million. The conference proposed to close it with CHF 28 million of supplementary subsidies, of which Germany and Italy were each to pay CHF 10 million and Switzerland CHF 8 million, while the remaining CHF 12 million had to come from private sources.⁵

The postponement of the Ceneri line was a heavy blow for Ticino. Without it, the Sottoceneri and Lugano would have remained separated from Bellinzona and the north by the mountain, and the international traffic would have run from Bellinzona via Luino to Italy and bypassed Lugano and Chiasso. The canton therefore fought for the simultaneous construction of the Ceneri line. Its claim was later met by a special federal subsidy, which became part of the political compromise that saved the whole enterprise.⁶ The states signed the supplementary treaty on 12 March 1878. It increased the subsidies by CHF 28 million, with CHF 8 million for Switzerland, and it deferred the construction of the access lines in central Switzerland until the main line from Immensee to Pino was completed.⁷

Notes

1. Die Grenzboten 45 (1886), article on the Gotthard railway, https://brema.suub.uni-bremen.de/grenzboten/download/pdf/254228, for Gerwig's shortfall of CHF 34 million, Hellwag's deficit of CHF 102 million, its causes and the range of 51 to 368 per cent; H. Etter (as above), for Gerwig's resignation in early 1875 and Hellwag's figure; HLS, art. "Gottardo, Ferrovia del" (as above), for the names "Robert Gerwig e Konrad Wilhelm Hellwag". ↩
2. HLS, art. "Escher, Alfred" (as above), for the crisis of the NOB in 1876; HLS, art. "Eisenbahnen" (as above), for the crisis of the 1870s and the insolvency of the Nationalbahn; HLS, art. "Gottardo, Ferrovia del" (as above), for the fall of Swiss railway securities in the depression; Wikipedia (de), "Gründerkrach", https://de.wikipedia.org/wiki/Gr%C3%BCnderkrach (used as a last resort), for the Vienna crash of 9 May 1873 and its spread to New York (September 1873) and Berlin (October 1873). ↩
3. Die Grenzboten (as above), for the expert commission's figure of about CHF 261 million. ↩
4. Die Grenzboten (as above), for the conference of June 1877, the technical economies and the postponement of "Luzern-Immensee, Zug-Arth und Giubiasco-Lugano"; HLS, art. "Gottardo, Ferrovia del" (as above), for the steeper gradients and tighter curves. ↩
5. Die Grenzboten (as above), for the reduction to CHF 227 million, the gap of CHF 40 million and the shares of CHF 10, 10 and 8 million; Wikipedia (de), "Gotthardbahn" (as above): "Der restliche Betrag musste von Privaten bezahlt werden." ↩
6. Federal Act of 22 August 1878 (as below), Art. 4. The account of Ticino's campaign is the author's summary. ↩
7. Federal Court, judgment of 1 November 1889 (as above), for the supplementary treaty of 12 March 1878 and the deferral of the Zug–Goldau line until completion of the main section Immensee–Pino. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of October 2026.