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Recent Developments
8. The general background to the further series of studies is that the
likely rate of growth of the economy and the balance of payments will place
severe restraints on the fulfilment of present national economic objectives.
Every step possible should therefore be taken to relieve the strain on the
balance of payments by reducing Government oversea expenditure; and public expenditure will need to be rigorously contained in order to strike a balance between the claims of the public and private sectors on the resources
available. Since the defence studies were commissioned the economic and
political pressures to reduce defence expenditure have increased. The results of the studies, along with the results of the current reviews of
civil expenditure, will form a picture of the outlook for public expenditure
as a whole. Ministers intend to consider this when the reviews have been
completed with the object of taking long-term decisions in the context of
the Government's general economic strategy.
9. A number of developments since the Defence Review have made the achieve- ment of the savings then decided even more difficult. In the first place,
it is now clear that short of the total withdrawal of all our forces and
facilities from the continent of Europe, the foreign exchange costs of our
forces in Germany cannot be met in full. Furthermore, the reduction of our
combat forces by one-third and the reduction of their logistic support would still leave a gap between foreign exchange (deutschmark) costs and offsetting payments which would be even greater in 1967-68 than the pro- spective gap for 1966-67, and only somewhat less than this in 1968-69 when
savings from troop withdrawals would become fully effective. Discussions about this problen continue in tripartite meetings with representatives of
the United States and Germany but no acceptable solution is yet in sight.
In Malta concessions have been made in relation to the run-down there.
10.
us.
Recent events in Aden have illustrated the difficulties in which military
withdrawal from overseas bases, or even their early announcement, involve
The dangerous, and perhaps chaotic, situation which is likely to follow our withdrawal there will be damaging to our standing in the short term and may make more difficult early withdrawal, or perhaps even large reductions,
elsewhere. In particular there will be heavy United States pressure for us
to retain our military presence in other theatres.
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