By the middle of the summer of 1720, George I's anti-Russian policy was on the verge of failure. Most people in England realized that Peter and Russia could not be defeated without a far greater effort than they were willing to consider making. Veselovsky reported from London that eight out of every ten Members of Parliament, both Whig and Tory, believed that war with Russia would be contrary to the best interests of England. Peter, wisely, had always made it abundantly clear that his quarrel was not with the English people or English merchants but only with the King. Thus, although the Tsar had broken off diplomatic relations and expelled both the English and Hanoverian ministers from St. Petersburg, he had never allowed any break in commericial relations. Before his departure, Jefferyes had attempted to order home English shipwrights and naval officers in the service of the Tsar, but most were Peter's favorites who enjoyed many privileges in Russia, and few heeded Jefferyes' demand. Similarly, the Tsar personally told English merchants in Russia that they were welcome to stay under his protection. Veselovsky passed the same message to those trading companies in London which traded with Russia. Soon afterward, Peter lifted his blockade of Swedish ports in the Baltic, allowing free passage of Dutch and English commerical shipping. In every way, the Tsar emphasized that his quarrel was not with England but with the King's policy of using England to advance the interests of Hanover.
Finally, in September 1720, the likelihood of any serious British military involvement in the Baltic was terminated by an event in Britain which distracted attention from everything else, the bursting of the South Sea Bubble. Shares in the South Sea Company, chartered to trade with South America and the Pacific and enjoying the governorship of the King, had stood at 128.5 in January 1720, rose to 330 in March, 550 in April, 890 in June and 1,000 in July. In September, the bubble burst and shares plummeted to 175. Speculators from all levels of society were ruined, there was a rash of suicides, and an angry roar of indignation rose up against the company, the government and the King.
In this crisis, Sir Robert Walpole emerged to save the King and secure his own position for the next twenty years. Walpole was the living embodiment of the educated eighteenth-century English country squire; his private language was that of the barnyard, and his rhetoric in the House of Commons was superb. Short, weighing 280 pounds, with a heavy head, a double chin and strong black eyebrows, he had the habit of munching little red Norfolk apples during a debate. Walpole had invested in the company and had suffered losses, but had retired both from the company and from the government before it was too late. Summoned back, he worked out a scheme to restore confidence by transferring large blocks of South Sea stock to the Bank of England and the East India Company. In parliament, he vigorously defended the government and the crown from charges of scandal. By so doing, he earned the gratitude not only of George I but also of George II, both of whom passed into his hands more responsibility for administering the realm that any king had previously given up to one of his ministers. It is for this reason that Walpole is often called "the first Prime Minister."
Having steered the King to safety, Walpole took charge of British policy. A Whig to his eyebrows, Walpole believed in avoidance of war and encouragement of trade. This teasing, dangerous semi-war with Russia had no part in his view of the future prosperity of England. The subsidies paid to Sweden and the costs of sending the fleet could be better spent elsewhere. With Walpole at the helm, it became British policy to end the war as speedily as possible. The King was chagrined, but even the King could see that his plan to roll Peter back from the Baltic coast was not succeeding.
It did not take Frederick of Sweden long to realize where matters stood. Disillusioned by the impotence of George I's support, and aware that continuation of the struggle meant further Russian attacks along his coasts, Frederick decided to face the fact that the war was lost. This decision was spurred by the arrival in St. Petersburg of Duke Charles Frederick of Holstein-Gottorp seeking asylum. Reports reached Stockholm that the Duke had been magnificently received by the Tsar, and that Peter proposed to marry him to one of his own daughters. This attention to Charles Frederick, implying Russian support to the Holstein faction in the struggle for the Swedish throne, was a well-aimed stroke by Peter. It clearly implied that only by signing a peace treaty with the Tsar which incorporated Russian acquiescence in Frederick I's possession of the Swedish throne would the new King ever be easy in his new title.
Frederick informed Peter that he was ready to reopen negotiations, and a second peace conference was convened on April 28, 1721, in the town of Nystad on the Finnish coast of the Gulf of Bothnia. Again, the Russian representatives were Bruce, now a count, and Osterman, now a baron. In the opening sessions, the Russians were astonished to find that the Swedes expected easier terms than those they had been offered at Aland. The Swedes in turn were dismayed to learn that Peter now demanded permanent cession of Livonia, whereas previously he had been content with a "temporary" occupation of forty years. "I know my interest," the Tsar now declared. "If I leave Sweden in Livonia, I would harbor a serpent in my bosom."
Great Britain's new desire for peace in the North did not entail a total abandonment of its Swedish ally. In April 1721, King George I wrote to King Frederick I that, in accordance with treaty obligations, a British fleet would enter the Baltic that summer. But George begged that Sweden attempt to conclude a peace with Russia. The cost of sending a fleet every summer was prohibitive, George explained; the sum expanded on the present squadron came to 600,000 pounds. A few weeks later, Norris' twenty-two ships-of-the-line appeared, but throughout the summer the British squadron lay anchored in Stockholm Skargard, completely idle.
Meanwhile, with the negotiations at Nystad deadlocked over Livonia and no military truce arranged, Peter once again launched his galley fleet against the Swedish coast. Five thousand soldiers under Major General Lacy landed one hundred miles north of Stockholm and attacked the fortified town of Gefle, but the town was too strong for Lacy's strength and the Russian troops moved south, leaving a swath of destruction. Sundeval and two other towns were burned, along with nineteen parishes and 506 villages. Lacy defeated the Swedish force sent against him, while his galleys burned six Swedish galleys. On June 24, having ravaged 400 miles of Swedish coastline, Lacy was ordered to withdraw.
Lacy's raid, although oh a smaller scale than those of the preceding summers, appeared to be the last straw for Sweden. Frederick I finally yielded Livonia. The main articles of the peace treaty granted Peter the territories he had so long desired. Livonia, Ingria and Estonia were ceded "in perpetuity" to Russia, along with Karelia as far as Vyborg. The remainder of Finland was to be restored to Sweden. As compensation for Livonia, Russia agreed to pay two million thalers over four years, and Sweden was granted the right to purchase Livonian grain without paying duty. All prisoners of war on both sides were to be freed. The Tsar pledged that he would not interfere in Swedish domestic politics, thus confirming Frederick I's right to the throne.
It was on September 14, 1721, when Peter had left St. Petersburg for Vyborg to inspect the new frontier which would be drawn by the treaty, that a courier arrived from Nystad with the news that the treaty had actually been signed on September 10. The Tsar was exuberant. When a copy of the treaty was placed in his hands, he wrote joyfully, "All scholars in arts usually finish their course in seven years. Our school has lasted three times that long. However, thank God, it is so well finished that better would have been impossible."