August 1961 may or may not go down in the books as a turning point in our own and European political and economic history. Whether we go into the Common Market, whether many others follow us if we do, and how that institution will finally turn out have all still to be decided. As none of this involves a simple straight fight between different countries or international factions, any firm forecasting at this stage is likely to be based more on recklessness and prejudice than on anything else. Even if it were just a case
In fact there is a rather bewildering array of interested parties lined up with, so far, no indication of strong coalition groups emerging. Even before Britain had had time to implement the decision to apply formally for membership of E.E.C. the German Federation of Industries produced its own plan to solve the problem of “Europe divided”. Not for the first time, it proposed that the tariff and quota concessions made within the Six and the Seven should be be extended by each group to the other. All would then move toward a common external tariff some 20 per cent lower than at present envisaged by the Six. The German businessmen are certainly shrewd enough to see that these steps would militate against a tightly knit and exclusive political club. Why they should on balance prefer it that way is easy to see. Germany’s overall trade surplus last year was virtually equal to her trading surplus with the E.F.T.A. group. One away from one leaves very little to feel happy about.
But whatever the eventual verdict on the fatefulness of last August, there can be little doubt about the significance of July. After Selwyn Lloyd’s “little budget” it will need a lot more than one and a half million pounds ever again to sell the line that Conservative Freedom Works. As an admission of failure it was complete. Crises have become routine for most of us and the measures taken to deal with them predictable. But hitherto the seriousness of the situation has been outweighed by the severity of the supposed remedy—toughness has been dictated more by Tory dogma than by force of circumstance. This was not the case in July. The chicken finally came home to roost and the situation really was as bad as the steps taken made it seem. Our reserves fell by £114 million and the European central banks had already hoarded another £200 million at least which they did not really want. All thought of new approaches and long-term programmes had to be abandoned as the bills for past stupidity rolled in alarmingly, in spite of the polite noises that were made about next year, sometime . . .
With our bank rate wildly out of line once more with everyone important except Japan, the “hot” money started to pile up again—returning expensively after leaving embarrassingly. (It has been reckoned that 2 per cent on our rate costs us something like £15 million in interest to foreigners over a period of six months.) The point of similar exercises in the past has been to convince the world of our determination to defend the poor old pound. The same claim was made this time, but one hopes it was intended primarily for home rather than overseas consumption. For one thing, the world knows very well that however strong we may be on determination we tend to be sadly lacking in skilful economic management and now we have finally exhausted our room for manoeuvre. Moreover, even quite reactionary elements abroad are so gratified with the growth of their own economies that they are being forced to abandon the shibboleths of the old orthodoxy and openly advocate policies of expansion. Just when our own government wanted to do the same, though for very different reasons, events caught up with it. Demand had to be cut back and “hot” money pulled in at almost any price.
Suggestions that the restrictive measures were adopted at the behest of Mr. Per Jacobsson, the Swedish managing director of the International Monetary Fund, are rather beside the point. Naturally, he must have insisted on certain reassurances before agreeing to provide a loan of $2 billion. Who wouldn’t? And it may also be perfectly true that he first proposed the measures that the chancellor eventually announced. But it seems reasonable to suppose that, limited though our Treasury officials may be, they had the sense to see for themselves that nothing else could be done.