Christopher Meyer: Farewell to Britain’s US mortage from hell
At midnight tonight the Bank of England will transfer $83m (£42.4m) to the US Federal Reserve. This will be a historic moment: the last repayment of the loan that the United States made to Britain in 1946 and the final chapter in the story of Britain’s alliance with America in the second world war.
The negotiation of the loan is a tale of high drama. When I got involved in making a documentary about it I found myself, a former diplomat and historian, immersed in a narrative of endless fascination. It involves a human tragedy. John Maynard Keynes, Britain’s principal negotiator and perhaps the foremost economist of his time, was broken by his failure to get the only deal he felt was just or prudent. It illuminates the unsentimental reality of diplomatic bargaining between even the closest of allies. And, 60 years later, it still teaches lessons about the “special relationship” between Britain and America.
For much of the second world war the US supported Britain through the Lend-Lease programme. This delivered billions of dollars of military equipment, goods and food in return for leases on British military bases around the world. Without it our war effort would have been crippled. As it was, by the end of the war in 1945, we were exhausted and bankrupt. Two world wars in 30 years — a total of 10 years’ fighting — had broken us.
On August 17 1945 the Americans announced, suddenly and unexpectedly, their intention to end Lend-Lease with retroactive effect from VJ-Day, two days previously. This was shocking news for Britain’s new socialist government under Clement Attlee. To almost universal surprise, especially in America, Attlee had emphatically defeated Britain’s war hero, Winston Churchill, at the July 1945 general election.
This was the first Labour government with an overall majority in the House of Commons. It had ambitious plans to rebuild Britain: to create a welfare state, to put in place free health care for all, and to nationalise Britain’s main industries. It was this promise to build a New Jerusalem that had won Attlee the election. But it would be expensive; and there was little money in the bank. Labour’s eyes turned immediately to the US, Britain’s wartime partner and the richest country on earth.
In September 1945 Keynes was instructed by the cabinet to go to Washington and to return with a grant, or gift, of $5 billion. Keynes convinced Attlee’s ministers that he could get the grant. Underlying Keynes’s confidence and that of the cabinet was a belief that the Americans owed us the money: that because the US had come “late” into the war at the end of 1941, while we had been fighting for almost two years, some of the time alone, it had a moral obligation to give us a large grant, no strings attached.
But what Keynes called his “Justice gambit” provoked acrimony on both sides, furious mutual attacks and criticism in the press, parliament and Congress. His bid for a $5 billion grant became an Anglo-American agreement on a $3.75 billion loan fixed at 2% over 50 years (we are discharging the loan a few years late). This was a better deal than returning GIs got and Churchill had to be called in to persuade a reluctant Congress to ratify it.
In cabinet discussion of American insistence on a loan Ernie Bevin, Attlee’s foreign secretary, talked of Shylock. An American congressman accused Keynes of being a communist. It was as if there had never been the intense comity and co-operation of the wartime years.
The stress of negotiation, and of selling its outcome to a bitterly disappointed cabinet and parliament, killed Keynes, who was enfeebled by heart disease. The affair left behind a sour taste in the mouths of many in Britain, not least because the Americans used the loan to force Attlee to make the pound sterling freely convertible by 1947. In a world that wanted only the mighty dollar this was disastrous for Britain. ...
What emerges with the greatest clarity from the American interviews is that, however deep and sincere the esteem for Britain, sentiment will not trump what the Americans deem to be in their national interest. That interest is a shifting amalgam of things, made up of the instincts of heartland America, attitudes in Congress, a hard-headed cost/benefit analysis of this or that course of action, and the ambitions and aims of the president and his administration. It is no law of nature that the American national interest will automatically coincide with that of the UK. ...
Read entire article at Sunday Times
The negotiation of the loan is a tale of high drama. When I got involved in making a documentary about it I found myself, a former diplomat and historian, immersed in a narrative of endless fascination. It involves a human tragedy. John Maynard Keynes, Britain’s principal negotiator and perhaps the foremost economist of his time, was broken by his failure to get the only deal he felt was just or prudent. It illuminates the unsentimental reality of diplomatic bargaining between even the closest of allies. And, 60 years later, it still teaches lessons about the “special relationship” between Britain and America.
For much of the second world war the US supported Britain through the Lend-Lease programme. This delivered billions of dollars of military equipment, goods and food in return for leases on British military bases around the world. Without it our war effort would have been crippled. As it was, by the end of the war in 1945, we were exhausted and bankrupt. Two world wars in 30 years — a total of 10 years’ fighting — had broken us.
On August 17 1945 the Americans announced, suddenly and unexpectedly, their intention to end Lend-Lease with retroactive effect from VJ-Day, two days previously. This was shocking news for Britain’s new socialist government under Clement Attlee. To almost universal surprise, especially in America, Attlee had emphatically defeated Britain’s war hero, Winston Churchill, at the July 1945 general election.
This was the first Labour government with an overall majority in the House of Commons. It had ambitious plans to rebuild Britain: to create a welfare state, to put in place free health care for all, and to nationalise Britain’s main industries. It was this promise to build a New Jerusalem that had won Attlee the election. But it would be expensive; and there was little money in the bank. Labour’s eyes turned immediately to the US, Britain’s wartime partner and the richest country on earth.
In September 1945 Keynes was instructed by the cabinet to go to Washington and to return with a grant, or gift, of $5 billion. Keynes convinced Attlee’s ministers that he could get the grant. Underlying Keynes’s confidence and that of the cabinet was a belief that the Americans owed us the money: that because the US had come “late” into the war at the end of 1941, while we had been fighting for almost two years, some of the time alone, it had a moral obligation to give us a large grant, no strings attached.
But what Keynes called his “Justice gambit” provoked acrimony on both sides, furious mutual attacks and criticism in the press, parliament and Congress. His bid for a $5 billion grant became an Anglo-American agreement on a $3.75 billion loan fixed at 2% over 50 years (we are discharging the loan a few years late). This was a better deal than returning GIs got and Churchill had to be called in to persuade a reluctant Congress to ratify it.
In cabinet discussion of American insistence on a loan Ernie Bevin, Attlee’s foreign secretary, talked of Shylock. An American congressman accused Keynes of being a communist. It was as if there had never been the intense comity and co-operation of the wartime years.
The stress of negotiation, and of selling its outcome to a bitterly disappointed cabinet and parliament, killed Keynes, who was enfeebled by heart disease. The affair left behind a sour taste in the mouths of many in Britain, not least because the Americans used the loan to force Attlee to make the pound sterling freely convertible by 1947. In a world that wanted only the mighty dollar this was disastrous for Britain. ...
What emerges with the greatest clarity from the American interviews is that, however deep and sincere the esteem for Britain, sentiment will not trump what the Americans deem to be in their national interest. That interest is a shifting amalgam of things, made up of the instincts of heartland America, attitudes in Congress, a hard-headed cost/benefit analysis of this or that course of action, and the ambitions and aims of the president and his administration. It is no law of nature that the American national interest will automatically coincide with that of the UK. ...