<P> In 1866, Austria was completely defeated in the Austro - Prussian War . Its position as the leading state of Germany ended, and the remaining German minor states were soon absorbed into the German Empire, created by Prussia . Austria also lost much of its remaining claims and influence in Italy, which had been its chief foreign policy interest . </P> <P> After a period of Greater German ambitions, when Austria tried to establish itself as the leading German power, Austria again needed to redefine itself to maintain unity in the face of nationalism . </P> <P> As a consequence of the Second Italian War of Independence and the Austro - Prussian War, the Habsburg Empire was on the verge of collapse in 1866, as the wars caused monumental state debt and a financial crisis . </P> <P> The Habsburgs were forced to reconcile with Hungary to save their empire and dynasty . The Habsburgs and part of the Hungarian political elite arranged the Austro - Hungarian Compromise of 1867, but the overwhelming majority of the populace wanted full independence . </P>

What is one of the main factors in the collapse of the habsburg empire