CAB129-52 — Page 184

Page 184 not yet working to full capacity. There is still heavy unemployment in Germany and Belgium; and West European industrialists are again beginning to talk of over-production. They have been cut off by the Iron Curtain from much of their traditional and natural trade. It should, therefore, be possible to obtain a sub- stantial investment of West European capital equipment in the sterling area, provided that the West European countries and their overseas dependencies were admitted, at least in part, to some of the reciprocal trade and currency arrangements envisaged here for the Sterling Area.

The West European countries are in much the same position vis-à-vis the dollar world as we are ourselves. Many of their economists and industrialists have already. been thinking of insulating their economies from the dollar on lines similar to those indicated here. Uncertain of British policy they are tending to the idea of making the Schuman Plan Community a more or less exclusive trading area; an eventuality which would only increase our own problems. The difficulties in their way, however, are at least at great as those which we should encounter if we tried to restore the Sterling Area by our own unaided efforts. There is reason to believe, therefore, that they would be greatly attracted by the prospect of becoming in some way associated with us and our plans for restoring our economic strength.

VIII.-The Political Approach

The ideas which I have tried to put forward are too tentative to form the subject, at this stage, of a cut and dried plan. The following are the kind of steps which would be necessary to their fulfilment.

(1) At Home

The first step is to have a sound and simple plan. Once this is agreed, we must consider how to secure the support of public opinion at home. This is mainly a matter of presentation and of convincing the public that only in this way can independence and prosperity be regained.

(2) In the Sterling Area

No policy of sterling area development can prosper unless it has the support of other Sterling Area Governments and peoples. Their attachment to this country, their interest in preserving the value of sterling and their political interest in the continuance of the Commonwealth should all work in our favour. The details of the plan can, of course, only be worked out in full consultation with the sterling area Governments. It will be no use, however, holding such consultations until we have something definite to propose. If we expect others to follow, we must give the lead.

(3) Western Europe

Once a general plan has been agreed with the sterling Commonwealth we should approach the countries of Western Europe to consider how they might be associated with it. The O.E.E.C., of which the Foreign Secretary is now Chairman, would seem to provide the most suitable machinery for such an initiative.

(4) The United States

The next stage would be to initiate consultations with the new United States administration and seek their backing for our policy. I do not myself believe that our adoption of frankly " discriminatory

discriminatory" trade measures will create anything like as much friction as many forecast; particularly when it is understood that "discrimination " may lead to early convertibility. I doubt, in any case, whether the American attitude to such a Sterling Area policy will be determined solely or even mainly by economic considerations. The real interest of the United States is that Britain should make the maximum contribution to the common defence and that the British Commonwealth should be strong. In so far as a Sterling area policy. contributes to these objects, it should be possible to get American acceptance and even support.

IX.-Canada

In all this, Canada presents a special problem. Canadian exporters may fear that they will suffer from certain aspects of our discrimination against the dollar world. There is no reason, however, why Canada should not also benefit from any

Page 184

Page 184

206