Canberra, 22 July 1971
9585. Confidential
Reference your 13615 to the Prime Minister. 1
I send for your information the text of a statement issued evening of 21 July by the Treasurer 2 in relation to the Jenkins statement.
Quote…
‘Australia has been subject to criticism by Rt Hon Roy Jenkins, Former Chancellor of the Exchequer, which requires that the facts be stated.3 During the period since the Second World War, Australia has given steadfast support to Sterling—we have done this despite the fact that sterling has been devalued twice with consequential heavy loss to the value of our overseas reserves.
For many years, we paid into sterling the net proceeds of most of our transactions abroad including the proceeds of borrowings in United States Dollars and other currencies. Meanwhile we held little more than working balances in United States Dollars and accumulated very slowly a relatively small amount of gold from our own production.
Gradually, as our dollar borrowings and liabilities built up, we started to accumulate larger holdings of dollars. This was simple business prudence and was done with the full knowledge of the British authorities who recognised that we had good reasons for some diversification of our reserve holdings.
Even in 1968, after the second devaluation sterling was still regarded as precarious because of the weak trading position of Britain and because they had accumulated enormous short-term debts.
There had been a heavy outflow of sterling portfolio capital to Australia despite the severe restraints Britain had imposed on portfolio investment under the so-called voluntary prograrri of 1966.4
This capital flow was partly prompted by the mining boom but it also indicated lack of confidence by British investors in their own currency. While this was occurring British companies operating in Australia were being allowed, under our borrowing guidelines, to raise large amounts of loan money here to finance their enterprises.
Suggestions were being strongly made from various quarters that Australia should try to move out of sterling into other currencies or into gold. Contrary to what Mr Jenkins has suggested, these suggestions were never entertained by the Australian Government and during the course of discussions in 1968, the then Treasurer, Right Honourable W. M. McMahon, stated our policy both to the British people and to the British Government.
It has been brought to my attention that in April in 1968 in an interview reported by Mr William Davis of the ‘Manchester Guardian’, Mr McMahon said:
‘I can assure you we are not going to make any large and sudden switches out of sterling and into other currencies and we are not going to deliberately run down our sterling balances to a low level.’
The British Government was informed of this specific statement by Mr McMahon. I am informed that at no time and in no sense did we use a threat of withdrawal from Sterling to secure a more favourable arrangement on our sterling balances.5
In May 1968 the British Government proposed to Australia that we should give a public undertaking to hold the increase in portfolio investment in sterling.
We gave this proposal serious consideration and reached the conclusion that, largely for technical reasons, we could not give a specific undertaking on the lines sought. When this was conveyed to the Chancellor of the Exchequer it was stressed that although we gave no specific undertaking we would “continue, as in the past, to act with a full sense of responsibility towards sterling”.
Around that time the British Government obtained from a group of central bankers at Basle an undertaking to make available dollars US 2 billion on condition that Britain secured arrangements with the countries of the sterling area which would stabilise their official holdings of sterling.
The proposition put to us was that, in return for a guarantee to provide additional sterling up to the value of the U.S. dollar in respect of approximately sixty per cent of our holdings of sterling at any time, we would undertake to retain a minimum proportion of our total external reserves in sterling.
We understood that similar propositions had been put to the other countries of the sterling area but because Australia was by far the largest holder of sterling our response was known to be critical. After negotiations, the United Kingdom agreed to lift the position of our sterling to be guaranteed to approximately eighty per cent.
They also gave us undertakings about our rights of access to the London Market to re-finance Australian Government debt falling due there if market conditions made this possible.
I am informed that during that period Australia became aware that strong elements in the British Labour Party were urging the Labour Government to bring down drastic controls on capital outflow to Australia. We pointed out to the British Government that not only would this seriously affect our external reserves but that, in so doing, it would make impossible the working of the arrangement they had proposed to us.
The British Government accepted our viewpoint.
In the event, we reached an agreement with the British Government that, for a period of three years, we would undertake to hold a minimum of 40 per cent of our total reserves in sterling and that normally we would do our best to hold a rather bigger proportion.
In fact, at all stages since then, our performance has been considerably better than our promise.
Because the United Kingdom was able to reach an agreement with Australia, which was the largest official holder of sterling, it was able to reach satisfactory arrangements with all other sterling area countries.
In consequence the Basle facility of dollars US 2 billion was made available to Britain and the total arrangements [sic] has turned out to be an outstanding success.
It has frequently been described as the cornerstone of the recovery of sterling.
Some time ago, the present British Government asked us to renew the arrangement as it stands for a further period of two years after the present agreement expires in September of this year. That clearly shows that the British Government regards the arrangements as satisfactory.
We have agreed to renew the agreement on the basis requested provided that the other sterling area countries also renew their agreements and that the Basle credit is also made available to Britain for a further period.
In the 1968 negotiations to which Mr Jenkins referred the Australian Government had necessarily to safeguard interests vital to this country.
We also recognised that other responsibilities rested upon us. Had Australia declined to undertake an arrangement as it did, there could have been no Basle facility available to the United Kingdom.
In that event there might easily have been a collapse of sterling with devastating repercussions throughout the international monetary system.
These would have affected us but they would have affected a great many other countries as well.
Although fundamentally we disliked the idea of tying up a large part of our reserves in sterling, which was then so weak, we saw that much depended upon our doing so not only for Britain and ourselves but for the Western International Monetary System as a whole.’
Third time lucky: Britain secures EEC membership
Following the rejection of the Wilson EEC Membership bid in November 1967, Britain’s European ambitions remained in abeyance for two years. With de Gaulle’s resignation on 28 April 1969, however, the prospects began to improve. By December 1969 the Six had agreed to reopen membership negotiations, and the date of 30 June 1970 was .fixed for their commencement. In the meantime, the Conservatives were returned to office in Britain on 18 June 1970, and it fell to Edward Heath to oversee the process that he had begun under Macmillan in 1961. He appointed Anthony Barber initially and then Geoffrey Rippon as Chancellor of the Duchy of Lancaster, with responsibility for conducting the negotiations with the EEC in Luxembourg.1
From the outset, the Australian Government took a dim view of Australia’s prospects—indeed McEwen expected that Britain would seek no special safeguards for Australia’s trade interests. But he advised Cabinet that, in order to keep faith with Australia’s primary producers, the government had to give the impression that ‘we are doing what we can’ (Document 262). When McEwen met with Barber in London early in the proceedings, his only requirement was that the British should seek to secure as long a transition period as possible, so that Australian primary industries might adapt to the gradual imposition of the Common Agricultural Policy levies (Document 264). This was the agreed position when Rippon visited Australia in September 1970. The documents recording Rippon’s activities in Australia illustrate how far the situation had changed since the earlier visit of Duncan Sandys in 1961: there was no discussion whatsoever about the impact of British entry on the ‘cohesion of the Commonwealth’ or the intimacy of Australia’s ties to Britain, and only the most perfunctory references to Britain’s ‘understanding’ that their entry into the EEC would have some unfortunate consequences for Australian primary producers. Although McEwen protested that ‘we’ve been on too many rough tracks together’, this was more an expression of the feelings of futility about devising mutually workable solutions to the problem of British entry than a genuine appeal to past kinship (Document 270). Rippon affirmed his government’s pledge to secure a transitional period, but promised nothing more—and this was broadly accepted by the Australian public and press and, with some misgivings, by the government. As the British High Commissioner minuted in the aftermath of Rippon’s visit, ‘most of the emotion has gone out of the issue’ (Document 273).
And yet the EEC issue was to provide one final emotional outburst from the Australian Government, when it emerged that the British had been unable to deliver on the pledge of a transitional period for Australia’s primary producers.
1 Document 260.
2 Billy Snedden.
3 See Document 260.
4 See note to Document 230.
5 The issue hinges on the interpretation of paragraph 18 of Document 259.
1 Barber was initially given the job but, after the sudden death of lain Macleod only six weeks after the election, was moved to fill Macleod’s post as Chancellor of the Exchequer.
[NAA: A1838, 727/4/2 PART 5]