Austro-Italian ironclad arms race
Austria's defeat in the Seven Weeks War forced Austria to determine a new set of foreign and domestic policies for the future, as Austria's interests since the days of the Holy Roman Empire had primarily been found in Italy and Germany. The Empire thus reformed itself into the Austria-Hungarian Empire following the adoption of the Austro-Hungarian Compromise of 1867 (German: "Ausgleich"), which re-established the sovereignty of the Kingdom of Hungary and placed Hungarians within the Empire on an equal footing with Austrians. Under the "Ausgleich", Emperor Franz Joseph I would be crowned as King of Hungary, while a separate parliament at Pest with powers to enact laws for the lands of the Holy Crown of Hungary would be established.
Seven Years' War
Things were looking grim for Prussia now, with the Austrians mobilising to attack Prussian-controlled soil and a combined French and "Reichsarmee" (German states) army under Prince Soubise approaching from the west. The "Reichsarmee" was a collection of armies from the smaller German states that banded together to heed the appeal of the Holy Roman Emperor Franz I against Frederick. However, in November and December 1757, the whole situation in Germany was reversed. First, Frederick devastated Soubise's forces at the Battle of Rossbach on 5 November 1757 and then routed a vastly superior Austrian force at the Battle of Leuthen on 5 December 1757. Rossbach was the only battle between the French and the Prussians during the entire war. At Rossbach, the Prussians lost about 548 men killed while the Franco-German force under Soubise lost about 10,000 killed. Frederick always called Leuthen his greatest victory, an assessment shared by many at the time as the Austrian Army was considered to be a highly professional force. With these victories, Frederick once again established himself as Europe's premier general and his men as Europe's most accomplished soldiers. However, Frederick missed an opportunity to completely destroy the Austrian army at Leuthen; although depleted, it escaped back into Bohemia. He hoped the two smashing victories would bring Maria Theresa to the peace table, but she was determined not to negotiate until she had re-taken Silesia. Maria Theresa also improved the Austrians' command after Leuthen by replacing her incompetent brother-in-law, Charles of Lorraine, with von Daun, who was now a field marshal.