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 Confederation under the presidency of Austria—(in a secret treaty concluded some months before the opening of the Congress Austria joined England and France to check Prussia and Russia). This position, more effective than the abandoned imperial title, brought Austria and Prussia into close connection: and the two states led the reaction against the modern democratic and national movements through-out what is known as the "Metternich Era." This close connection strengthened Austrian imperialism and Pangermanism, and it was the Austrian Minister Schwarzenberg who formed the plan of "a seventy millions Empire." But it was this very imperialism which revived the old antagonism, until Austria, defeated by Prussia in 1866, was obliged to withdraw from Germany. Four years later her successful rival assumed the German Imperial crown.

The defeat of Königgrätz was followed by years of apparent consolidation. In 1867 the Dual System was created; in 1871 an agreement with Bohemia was attempted, and Austria seemed to be recovering her old historical foundations, as a federation of Austria proper, Hungary and Bohemia. But Francis Joseph broke his plighted word; instead of being crowned King of Bohemia, as he had promised, he reverted to the old policy. Vienna refused to learn the lesson of 1866 and 1870. Acting upon the old approved formula "Divide et Impera," Austria became Austria-Hungary: one part of the Empire was delivered over to the Germans, the other to the Magyars, and their combined influence interrupted the negotiations of Vienna with the Czechs. Austria-Hungary—no longer Austria—gave up her antagonism against Prussia, and Austro-Hungarian and German imperialism were soldered into a Pangerman Central Europe.

Bismarck, the founder of Prussian Germany, devised a very effective policy towards Austria to induce her to accept the new German Empire and its leadership. King William in 1866 would have asked from Austria a territorial indemnity; Bismarck resolutely opposed such an idea, and eventually prevailed. He understood official Austria very well, and realised that she dreads exposure above all else and is content with outward appearances.