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alternatehistory.com
First years of the civil war went well for the confederates, Jackson and Lee are leading the confederate armies to numerous victories over the Union. Brtiain is watching from the sidelines waiting for the right victory to begin aiding the south. Still uneasy about the whole slavery issue but not ready to commit to funding/aiding the south quite yet. In a suprise move by the Union, a diplomatic envoy is sent to Britian to try and coax British into staying out of the war. While on a routine stop the American diplomatic envoy is assisinated by an militant Irishman (upset about the forced drafting of Irish immigrants in the Union) dressed as a British Army Captain. The media in the Union has a field day with this and anti-British sentiment is reaching uncontrollable levels. War is demanded and the populace is putting extreme amounts of pressure on Congress to do something. The amount of resources being devoted to fighting the South is a strain on the Union and fighting British and the Confederates would be a nightmare. The twist is: Lincoln sends a confidential message to Jefferson Davis promising a ceasefire and eventual Confederate Independence (even throwing in Kentucky). For aid in fighting the British, the Confederates would recieve their pickings at the Carribbean, and whatever Southern privateers could aquire. While the Union would gain all of Canada.
Lincoln sees that the Union is going to lose a lot more fighting the British and Confederates, and losing the South while gaining Canada is a worthwhile trade.