238. Diary Entry by the Ambassador to the United Kingdom (Bruce)1
February 9, 1965—Tuesday
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Went to see Bill Martin at the Federal Reserve Board. I explained to him my fears about another run on the pound if the British Government perseveres in its present budgetary plans. The budget will be presented in early April, and may engender, especially on the Continent, a further lack of confidence in Labour’s fiscal policies; this would, in turn, affect the action to be taken on the British submission, in late April, of another application for withdrawals from the IMF.
In spite of the current prosperity, so widely diffused in Great Britain, their foreign payments problems have never been more dangerous. Whether they are manageable, without a large cutback in prestige expenditures abroad, and a reduced standard of living at home, remains to be seen. The drastic measures probably required would, if enacted, be likely to cause the downfall of any government that courageously sponsored them.
One of the important factors in the long process, commencing during the First World War, of deterioration in British revenues from abroad has been the loss of former dependencies. Many of these newly independent states are bountifully supplied with larger subsidies than they received during their former status; in addition, their contributions to UK reserves and resources have greatly diminished. The most [Page 484] prosperous and dependable members of the Commonwealth, Canada and Australia, are more interested in world markets, and in their own development, than in the trade and other difficulties of the Mother Country.
Bill Martin told me of the rough going Cromer had last weekend at Basle in obtaining an extension of the short term credits. At least the British have another breathing spell during which they can again scrutinize their financial position.
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- Source: Department of State, Bruce Diaries: Lot 64 D 327. Secret.↩