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example but there have been a number of others as well. Unless this tendency can be checked we may do lasting damage to the sterling area and the sterling system. It can only be checked if we can restore our balance of payments to a strong and healthy condition.

Conclusions

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15. I must state what the result will be if we find that our commitments, whether new ones or even existing ones, prove to be more than we can meet with a continuance of our present policies. We shall have either to make severe changes in our policies political, social and military or to adopt drastic internal measures, or both, the total changes and measures being designed to secure that the tasks we have undertaken are within our power to fulfil These courses are unpleasant. The serious weakening of our status as a major Power, which reversal of our policies overseas would involve, is obvious. As regards internal measures, experience on the autumn Budget has shown the difficulty of serious action at home. To take further measures would certainly not be impossible, Indeed, we might find that it is necessary to do so in order to restore our balance of payments to a healthy position even on the basis of our present commitments. But, beyond some point, they would cause serious industrial and social strains at home. If this is so it would surely be only elementary prudence not to incur fresh commitments until we can see our way to carrying out those we have incurred already. And, if subsequently we do decide to incur further commitments, we must recognise that this can only be done at the cost of an equivalent sacrifice in our standard of living at home.

16. If we fail to recognise this and try to take on new commitments without imposing the degree of restraint which they make necessary at home, we face irreparable damage to our economy and, of course, to sterling, and to the sterling area system, with all that this implies for our position as a centre of the Commonwealth and as a leading world Power.

Treasury Chambers, S.W.1,

28th November, 1955.

R.A.B.

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