The Austro-Hungarian Compromise of 1867 (Ausgleich, Kiegyezés) established the Dual Monarchy of Austria-Hungary. It was signed by Emperor Franz Joseph of Austria and a Hungarian delegation led by Ferenc Deák. The compromise followed a series of failed constitutional reforms of the Habsburg Empire. The compromise granted the Hungarian government in Buda (subsequently Budapest) equal legal status to the Austrian government in Vienna, while the common monarch retained responsibility for the army, navy, foreign policy, and customs union. The compromise was made with the suggestion of the Habsburg family as an attempt to shore up Hungarian support for the monarchy in the wake of the Austro-Prussian War, as well as dampen the internal discontent of various other nationalities of the Empire. The compromise was formally erected law by the Hungarian Diet at 29 May, 1867.
The compromise was rather unpopular with many ethnic minorities of the multinational Empire, most notably Czechs and Romanians, who resented the fact that the Austrians had only approached the Hungarian nobles and had not consulted them.
Under the dual arrangement, Vienna and Budapest each ruled half of a twin country united only at the top through the Emperor-King and the common Ministries of Finance, of Foreign Affairs and of War. Each half of the country had its own Prime Minister and parliament: in Hungary the Diet was restored to power. The special status of Transylvania and the Military Frontier ended, as these areas became part of the Hungarian and Austrian crowns. A new Nationalities Law was enacted which in theory preserved the rights of ethnic minorities, but this was often violated in practice, and enforcement was compounded by the vagueness of the legislation which guaranteed the many ethnic groups equal status under the law.
Every ten years, details of the compromise were renegotiated, and this often led to constitutional crises, as both the Cisleithanian (Austrian) and Transleithanian (Hungarian) halves of the empire desired to have the upper hand in national affairs. The two governments also proved more than willing to disrupt the other for their own advantage, although it was often to the detriment of the empire as a whole.
Ferenc Deák, a Hungarian statesman, who had broken with Lajos Kossuth after the unsuccessful 1848 Hungarian revolution, was the primary intellectual force behind the compromise. Deák's main motive was to unite the Habsburg dominions for once and all by giving in to most of the liberal Hungarian demands, and to give Hungary a stake in continued union with the Austrian crown; because the Austrian half of the empire contained a larger share of the population and wealth, treating the two halves as politically equal enhanced the power of the Hungarian half and also ended, for the time being, fears from the Austrian half of having to chose between granting either the Slavs or the Magyars greater rights. Because it left the military essentially as it had been previously, and because it resolved, temporarily, the racial tensions within the empire, the compromise was tolerated by the Emperor and the nobles on both sides.