Sterling Liabilities
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27. Finally there is a possibility of reducing United Kingdom sterling liabilities. The total of United Kingdom sterling liabilities (i.e., including sterling area and non-sterling area countries) was £4,373 million at 31st December, 1951. The biggest individual holders of sterling at that time were members of the Common- wealth, Japan, Egypt, and the Colonies. Theoretically it would be possible to reduce these liabilities by scaling them down or reducing the rate of release of sterling allowed for in individual financial agreements But from the standpoint of foreign policy this process must be one brought about by negotiation and agreement. The prospect for success of such negotiations will vary according to the country and the type of obligations.
Conclusions..
28. It is apparent from this review that there are few ways to effect any reductions in our overseas commitments which would provide immediate relief to our economic difficulties. Some immediate relief could be afforded by a reduction in our economic assistance to certain foreign countries (paragraph 26), though it is very questionable whether the relatively small economic gain would be worth the loss of prestige and hence influence: we might obtain some alleviation by arrangements within the Colonial Empire (paragraph 20) and with the Common- wealth (paragraph 21), and we may be able to save the expense of the maintenance of British forces in Trieste (paragraph 19 (b)). But these would be matters for negotiation and persuasion, with no certain prospect of substantial alleviation of the burden on the United Kingdom.
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29. If, on a longer view, it must be assumed that the maintenance of the present scale of overseas commitments will permanently overstrain our economy, clearly we ought to recognise that the United Kingdom is over-committed and must reduce the commitment. The only practical way of removing this permanent strain would be for the United Kingdom to shed or share the load of one or two major obligations, e.g., the defence of the Middle East, for which at present we bear the responsibility alone (paragraph 22), or the defence of South-East Asia, where we share responsibility with the French (paragraph 23). Our present policy is in fact directed towards the construction of international defence organisations for the Middle East and South-East Asia in which the United States and other Common- wealth countries would participate. Our aim should be to persuade the United States to assume the real burdens in such organisations, while retaining for ourselves as much political control-and hence prestige and world influence-as we can. As regards the defence of Western Europe, we should seek to induce the United States to assume a larger share of the common burden. A further substantial alleviation might be possible in 1954 and subsequent years if the build up of German contingents enables us to reduce British forces in Germany without endangering the common Western defence effort (paragraph 18).
30. The success of this policy will depend on a number of factors, some favourable, some unfavourable. The United States is the only single country in the free world capable of assuming new and world-wide obligations; being heavily committed to the East-West struggle they would not readily leave a power-vacuum in any part of the globe but would be disposed, however reluctantly, to fill it them- selves if it was clear that the United Kingdom could no longer hold the position (as they did, for example, in Greece). On the other hand, the history of the Middle East command negotiations and the unwillingness of the United States Chiefs of Staff to commit forces to it illustrates the American reluctance to enter into new commitments in peace-time. In South-East Asia only the sketchiest form of co-operation exists. Moreover, distrust of the British and fear of becoming an instrument to prop up a declining British Empire are still strong. (This is truer among Republicans than Democrats, but we must clearly prepare ourselves to deal with either Government.) As regards the United Kingdom part, a policy of this kind will only be successful with the United States in so far as we are able to demonstrate that we are making the maximum possible effort ourselves, and the more gradually and inconspicuously we can transfer the real burdens from our own to American shoulders, the less damage we shall do to our position and influence in the world.
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Foreign Office, S.W.1,
18th June, 1952.
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