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Timeline: The Third Coalition and the Continental System (1804-1807)

On May 1804, Napoleon made himself Emperor of France, and, functionally though not in name, Emperor of the Italian Republic and the Confederation of Switzerland. With the Holy Roman Empire clearly on its way into the French sphere of influence, Holy Roman Emperor Francis II joined in the name-game and proclaimed himself Emperor of Austria soon after Napoleon's coronation. In 1805, Austria allied with Britain. When the Russian Czar, Alexander I, joined this group in April, the Third Coalition was born. (Prussia, under Frederick William III, did not join the coalition.) By 1805, Napoleon was preparing to attack England. He had forces massed on the French coast of the English Channel, and was preparing them for an amphibious assault. The Channel was heavily defended by Nelson's fleet, but England held no sizeable English army to stop Napoleon if his forces got through. Britain breathed a sigh of relief when word came through that a combined Russian and Austrian army was marching on France. Napoleon diverted his army from the invasion of England to handle this new threat, though he continued to put naval pressure on England. On December 2, 1805, Napoleon solidified his own hold on Europe by smashing the Russo-Austrian offensive in Moravia, at Austerlitz. The Russians retreated to Poland and the Austrians signed the Treaty of Pressburg, which gave Napoleon even more Austrian territory in Italy. In his campaigns of 1805 and 1806 Napoleon's victories allowed him to impose his terms on the defeated Habsburgs. His elder brother was made king of Naples, and a new kingdom of Holland was created with another brother as king.

In 1806, Napoleon finally dissolved the tottering Holy Roman Empire, replacing it with the Confederation of the Rhine, with himself as its "protector". Prussia, which had stayed out of the Third Coalition, became concerned with Napoleon's expansion of power in Germany leading Frederick William III to foolishly go to war with Napoleon without any allies. Prussia was soundly defeated at the battles of Jena and Auerstadt in October 1806 and forced to retreat east to Konigsberg. Along with the Confederation of the Rhine, Napoleon now controlled western Prussia, including Berlin. Prussian resistance continued. On 7-8 February 1807 Napoleon fought the bloody but indecisive battle of Eylau against the Prussians and Russians before on 14 June finally crushing the Russians at Friedland. The Grand Duchy of Warsaw was created in the subsequent Treaty of Tilsit (July 1807) with Russia. Napoleon also forced Tsar Alexander I of Russia into an alliance with Napoleon based on the Continental System, which would last until 1812.

But even at the summit of his glory, Napoleon's empire was vulnerable to erosion from two sources, soon to be combined: Great Britain and Spain. Before Napoleon's triumph at Austerlitz, Nelson's destruction of the French and its allied Spanish fleet at Trafalgar on 21 October 1805 had confirmed British mastery of the seas. Having abandoned all plans for an invasion of England, Napoleon's only weapon against his irreconcilable island enemy, the principal trading nation on the oceans, was economic warfare. The Continental System, inaugurated by the Berlin decrees of 21 November 1806, was meant to prohibit all trade, even by neutral countries, with Britain, the nation that Napoleon derisively referred to as 'an island of shopkeepers,' thereby sealing it off from continental Europe. A reluctant Alexander was forced at Tilsit to commit Russia to the boycott of British trade.

Napoleon came very close to incorporating all of Europe into the system: by the 1807 Treaty of Tilsit, Russia and Prussia agreed to cooperate. In fact, Russia, Prussia, and Austria all officially declared war on Britain during this period.

Napoleon next tried to force Denmark and Portugal to join the system. Since Denmark contained ports crucial to British trade, the British Navy bombarded Copenhagen and attacked the Danish fleet in hopes of keeping this port open. British belligerence against the Danes, however, only made them more willing to cooperate with Napoleon.

Portugal, on the other hand, refused adamantly to join the Continental System. Portugal was pro-British because it depended on its colonies. Because of Britain's dominance of the seas, Portugal knew that continuing trade relations with its colonies depended on good relations with Britain.

Although industry in some areas of Europe, notably Belgium and the Rhineland, was to benefit from the ending of British competition, the System was doomed to fail in its goal of bringing Britain to its knees by ruining its finances and provoking social unrest. Smuggling and other methods of avoidance, often developed by French officials, were common; some countries, including Holland ignored it. Most importantly, the Continental System and its economic consequences on Continental Europeans heightened the unpopularity of Napoleon in Europe. Napoleon was forced first to strengthen then eventually to grant exceptions to the ban. Britain replied with its own Orders in Council against French trade.

The Continental System represented an attempt at economic warfare. However, the system ended up hurting Napoleon more than it hurt Britain. The British blockade of Europe badly slowed the internal European economy; the ill-sighted imposition of tariffs from country-to-country within Europe also hurt the volume of European trade. Napoleon himself put tariffs on goods coming into France, but didn't let anyone in his empire put tariffs on goods coming from France. Although this did cause an increase in French manufacturing and industry, it also caused a lot of resentment throughout the Empire. Since land transport was so slow, Eastern Europe had major problems getting goods from Western Europe. The continental system also led to the Peninsular War, which sapped French strength, morale, and prestige. In the end, the Continental System damaged France, but not Britain. Britain compensated for the loss of European trade by stepping up its volume of trade with its colonies. Britain's Gross National Product (GNP, a measure of national wealth) actually continued to increase every year under Napoleon's economic sanctions.