The Austro-Hungarian Compromise of 1867 ("the Compromise") is born through Act 12, which establishes the Austro-Hungarian Empire.
The Austro-Hungarian Compromise of 1867 (German: Ausgleich, Hungarian: Kiegyezés) established the dual monarchy of Austria-Hungary. The Compromise only partially re-established the former pre-1848 sovereignty and status of the Kingdom of Hungary, being separate from, but no longer subject to, the Austrian Empire. The compromise put an end to the 18-year-long military dictatorship and absolutist rule over Hungary which Franz Joseph had instituted after the Hungarian Revolution of 1848. The territorial integrity of the Kingdom of Hungary was restored. The agreement also restored the old historic constitution of the Kingdom of Hungary.Hungarian political leaders had two main goals during the negotiations. One was to regain the traditional status (both legal and political) of the Hungarian state, which had been lost after the Hungarian Revolution of 1848. The other was to restore the series of reform laws of the revolutionary parliament of 1848, which were based on the 12 points that established modern civil and political rights, economic and societal reforms in Hungary. Even the April Laws of the Hungarian revolutionary parliament (with the exception of the laws based on the 9th and 10th points) were restored by Francis Joseph.
Under the Compromise, the lands of the House of Habsburg were reorganized as a real union between the Austrian Empire and the Kingdom of Hungary, headed by a single monarch who reigned as Emperor of Austria in the Austrian half of the empire, and as King of Hungary in Kingdom of Hungary. The Cisleithanian (Austrian) and Transleithanian (Hungarian) states were governed by separate parliaments and prime ministers. The two countries conducted unified foreign diplomatic and defence policies. For these purposes, "common" ministries of foreign affairs and defence were maintained under the monarch's direct authority, as was a third ministry responsible only for financing the two "common" portfolios.
The relationship of Hungary to Austria before the 1848 revolution had been personal union, whereas after the compromise of 1867 her status was reduced to partnership in a real union. Thus the compromise was widely considered as a betrayal of the vital Hungarian interests and the achievements of the reforms of 1848 by Hungarian society. The compromise remained bitterly unpopular among ethnic Hungarian voters: ethnic Hungarians did not generally support the ruling Liberal party in Hungarian parliamentary elections. Therefore the political maintenance of the Austro-Hungarian Compromise, and thus Austria-Hungary itself, was mostly a result of the popularity of the pro-compromise ruling Liberal Party among ethnic minority voters in the Kingdom of Hungary.
According to Emperor Franz Joseph I of Austria, "There were three of us who made the agreement: Deák, Andrássy and myself."