Because of external and internal problems, reforms seemed inevitable to secure the integrity of the Habsburg Empire. Major military defeats of Austria, like the Battle of Königgrätz (1866), forced the Emperor to concede internal reforms. To appease Hungarian separatism, the Emperor made a deal with Hungary, negotiated by Ferenc Deák, called the Austro-Hungarian Compromise of 1867, by which the dual Monarchy of Austria–Hungary came into existence.
The two realms were governed separately by two parliaments from two capital cities, with a common monarch and common external and military policies. Economically, the empire was a customs union. The first prime minister of Hungary after the Compromise was Count Gyula Andrássy. The old Hungarian Constitution was restored, and Franz Joseph was crowned as King of Hungary.
Austria-Hungary was geographically the second largest country in Europe after the Russian Empire (239,977 sq. m in 1905), and the third most populous (after Russia and the German Empire).
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