The pound in your pocket
By Count Dietrich Brühl
First Secretary Economics 1965-1969
It was one of the great questions of the sixties: Should Sterling be devalued while great parts of the former British Empire still kept their currency reserves in the Bank of England? Was not devaluation a great danger for the City of London and its profitable financial services sector? Would not the sale of precious metals, diamonds or even Australian wool move away from London if Sterling ceased to be a hard currency? On the other hand, British investments in the world having already been diminished in two World Wars declined with the growing trend towards independence of the former colonies.
Increasingly people overseas were buying Volkswagen and Mercedes rather than Minis and Jaguars. And so month by month, quarter by quarter, the British nation came to be hypnotised by those balance of payments-results which decided whether Britain had adequate currency reserves to pay for its imports in the immediate future. But of course there were the Germans with their infinite reserves and banks full of money and low interest rates, so that even members of the Bonn Parliament advocated investing in London because it was more profitable.
The British Government, under pressure from the World Bank, was faced with the spectre of devaluation. The alternative seemed preferable, namely to put pressure on Bonn to upvalue the D-Mark, the greatest competitor to British goods. Thus, after midnight on 20 November 1968, Ambassador Blankenhorn received a call from 10 Downing Street. The Prime Minister's Secretary, Sir Michael Palliser, was on the line. Mr. Wilson wanted to see the Ambassador as soon as possible on the matter of the critical international currency situation. The Ambassador agreed to come over at once. In his Memoirs Verständnis and Verständigung (Propyläen Verlag, 1980, p. 543) Herbert Blankenhorn describes what happened then: how he on his own was confronted in the Cabinet Room by Harold Wilson, the Prime Minister, Michael Stewart, the Foreign Secretary, Roy Jenkins, the Chancellor of the Exchequer, and how Wilson, after a brief welcome, had opened the conversation. The German measures, designed to facilitate the import of British goods to Germany (and impede German exports to this country) were quite inadequate, he said. They made no difference to the existing balance of payments and were placing the British Government's monetary policy in great difficulty. The British Government had done everything to build up an effective defence of the Western world corresponding to the threatening world situation, but there could be no efficient military defence without an adequate economic base.
Wilson said that he found himself forced to undertake a fundamental revision of Great Britain's position though this was not what he really wanted to do. Roy Jenkins who was flying to Bonn that morning for the Conference of the ten countries concerned over the currency situation, then said that the British Government might be unable to maintain the Sterling exchange rate. If it were to float the Pound, this would gravely affect the Dollar. The threat of the British Cabinet's guns was clear: the devaluation of Sterling should be avoided by upvaluing the D-Mark. The Downing Street meeting lasted half an hour and ended affably. Blankenhorn returned to the Embassy where I was waiting up for him to take down his dictation and pass the pages to our cipher-clerk for transmission to Bonn where the office of the Federal Chancellor was anxiously waiting for it.
At the Bonn Conference of the Finance Ministers, the German Federal Government, too, was put under pressure from the United States and France. The outcome was that the D-Mark was valued upwards though only later, and that Sterling was devalued. Anglo-German relations, however, re-mained on an even keel thanks to Blankenhorn's diplomatic skill. At a Reception given by the Queen, the British Prime Minister and the German Ambassador could be seen walking arm in arm through the rooms of Buckingham Palace. The great world took note that peace had been restored or better still, that, as Harold Wilson had said after an earlier Sterling crisis (1964): "A week is a long time in politics."
ROY JENKINS, the Chancellor of the Exchequer, who was present has recorded his own impression of that meeting:
"Blankenhorn presented himself at about 12.30 a.m. There was no question of his arriving dishevelled from bed as was subsequently reported. He was bland, alert and in a dinner jacket. Uncharacteristically, I like to think, I was not aware of what a distinguished German he was. He had been an important member of the anti-Hitler group within the German Foreign Ministry in 1943-5 (see the Berlin Diary of 'Missy' Vassiltchikov) and he had also played a key role in the setting up of the Christian Democratic Party at the end of the 1940s. He smiled, nodded, said the message would go at once to both Kiesinger and Brandt, and was no doubt deeply resentful. He had some reason to be, for Wilson spoke very roughly to him. He said that the attitude of the German Government was 'irresponsible' and 'intolerable'. He did not, however, as was also subsequently reported, directly say, 'Revalue or we will withdraw our troops.' The line as spelt out by me, intervening to support Wilson, was: 'If your refusal to revalue forces me to let the pound float down, as it may well do, we could not in these circumstances afford anything like the present level of military expenditure in Germany.'
After twenty-five minutes he escaped, no doubt thankfully. Wilson was put into a euphoric mood by the encounter. "'Irresponsible and intolerable', that's what I told him,' he gleefully repeated, walking up and down the private secretaries' room. And encouraged by this combative self-satisfaction he sent off a second and stronger message to Johnson, the text of which I did not see until the morning. I was less happy. I had agreed to the diplomatic démarche and took some part in it, but when I went to bed at 2.15 I feared we might have done a bad night's work with Blankenhorn, and indeed with Johnson."
(From A life at the Centre, by Roy Jenkins, Macmillan 1991.)
