Austro-Italian ironclad arms race
Seizing upon the decline of the Regia Marina in the years immediately after the Battle of Lissa, Tegetthoff worked to continue the efforts of Archduke Ferdinand Max of expanding the ironclad fleet of the now Austro-Hungarian Navy. Tegetthoff found political allies in the Austro-Hungarian Minister of War Carl von Franck and retired Admiral Bernhard von Wüllerstorf-Urbair. Wüllerstorf's and Franck's primary arguments in favor of continuing with the ironclad program Austria had engaged in prior to the Seven Weeks War lay largely along economic grounds. The two believed that constructing new ironclad warships would rejuvenate Austria-Hungary's economy following the defeat at the hands of Prussia and Italy, and that such a fleet would help to open up new commercial opportunities in the Levant and the Middle East. These proposals would be shelved however while Austria continued to reel from the military defeats inflicted by Prussia, and several cabinet reshufflings by Emperor Franz Joseph I resulted in a government more interested in pursuing revenge against Prussia than constructing new ironclads, which would be of little use in a hypothetical second war with Prussia.
War of the Bavarian Succession
By the late 1770s, Joseph also faced important diplomatic obstacles in consolidating Habsburg influence in Central Europe. When the British had been Austria's allies, Austria could count on British support in its wars, but Britain was now allied with Prussia. In the Diplomatic Revolution, the French replaced the British as Austria's ally, but they were fickle, as Joseph discovered when Vergennes extricated Versailles from its obligations. Russia, which also had been an important Austrian ally for most of the Seven Years' War, sought opportunities for expansion at the expense of its weak neighbors. In 1778, that meant Poland and the Ottoman Empire, but Joseph fully understood the danger of appearing weak in Russia's eyes: Habsburg lands could be carved off easily by the cagey Catherine's diplomatic knife. Still, Frederick of Prussia was the most definite enemy, as he had been throughout the reigns of Theresa and Franz before him, when the Prussian state's emergence as a player on the European stage had occurred at Habsburg expense, first with the loss of Silesia, and later in the 1750s and 1760s. Joseph sought to unify the different portions of his realm, not the German states as a whole, and to establish Habsburg hegemony in German-speaking central Europe beginning with the partition of Bavaria.