247. Memorandum From Francis M. Bator of the National Security Council Staff to the President’s Special Assistant for National Security Affairs (Bundy)1

McG. B.


  • The UK Problem, and “Thinking About the Unthinkable”

The Fowler-McNamara and Ball positions add up as follows:

East of Suez and BAOR are sacrosanct (by and large);
$2.80 is sacrosanct;
no pre-crisis preventive package is obtainable;
an emergency rescue package, in the face of a crisis, must be multilateral—we will not foot the bill without substantial help from others. (Substantial: Fowler—2/3; Ball—1/4?)
no multilateral rescue package is obtainable unless the UK takes still further steps to compress internal demand, etc.
UK troops in Vietnam, while not strictly a necessary condition for us to be forthcoming on sterling, would greatly improve the odds.

On a strict construction—and even if we leave out Vietnam—the position is that they must under no circumstances devalue, or impose comprehensive trade and exchange controls, or cut back on East Suez or on the Rhine, yet we will not take part in a rescue operation unless they are prepared sharply to deflate at home.

As a shopping list of objectives—of what we should like from the UK—this is unexceptional if incomplete: one would want to add sensible UK handling of the Germans on nuclear arrangements, proliferation, unification, and perhaps even some things on the Kennedy Round. But as a bargaining strategy, it is badly askew. We cannot hold both to $2.80 and to no-rescue-without-painful—internal-measures as absolute objectives. In a crisis, Wilson might just decide that devaluation would be better than the alternative we might wish to impose in return for rescue-money. More likely, he will simply tell us that either we come through with a rescue package on what he would regard reasonable terms, or he would have to cut loose.
The point here is not one of tactics, e.g., of what we say to the British now, but one of preparing the President’s mind and getting a reading on his priorities. Assuming that they do not come through on [Page 502] Vietnam, but that they are prepared to promise to stay on the Rhine and East of Suez:
Would he prefer to bail out the British with the U.S. putting in the bulk of the money even if they will not promise the internal measures that are needed to avoid another crisis a few months later? In other words, are we prepared simply to underwrite $2.80 indefinitely?
If not, it is useless to say to ourselves that devaluation is unthinkable. It had better become thinkable, not only in the contingency group, but also in the minds of the principals and the President.
The interesting question, assuming that I am right that the President would opt for (b) above and not (a), is one of tactics. Does it really make sense to hold to the Fowler line of laughing off any talk of devaluation? My own recommendation would be to make very clear just how bad we think any devaluation would be, but to begin conditioning them to the need to keep any change in rate, if it does happen, small—small enough to give us a reasonable chance to hold the rest of the Group of Ten from also going down, and, also, to the need to complement devaluation with further internal measures.
The premise of all the above is that, for Wilson, there are some things worse than devaluation. If I’m wrong—if he makes an absolute objective of $2.80—then of course we are in the saddle and can impose whatever terms we wish when he comes for help on a Friday evening. But I am inclined to think that, even apart from extreme political demands, that the proposition that devaluation would be a total and certain disaster for Wilson is wrong. My guess would be that he might have a better chance to survive if he does a relatively small devaluation, with some complementary internal demand compression, than if he holds out at $2.80, takes Draconian measures, and gets the bankers to ante up for 90 days.
Francis M. Bator 2
  1. Source: Johnson Library, Bator Papers, Callaghan Visit. Secret; Sensitive.
  2. Printed from a copy that bears this typed signature.