188. Memorandum From the Assistant Secretary of State for Economic Affairs (Solomon) and the Deputy Assistant Secretary of State for European Affairs (Stoessel) to the Under Secretary of State (Ball)1
SUBJECT
- A Presidential Push on Wilson toward U.K. Membership in the Common Market—Information Memorandum
E and EUR have endeavored to examine in some depth the implications of a hard pitch by the President to Prime Minister Wilson urging the U.K. to announce its willingness to sign the Treaty of Rome and to accept the legislation enacted by the Community institutions in the past seven and a half years.
The issues are incredibly complex and the staff papers attached to this memorandum2 reflect in some degree this complexity and our confusion in sorting out the issues. We have come out with roughly the following conclusions.
- 1.
- On balance there are advantages in reiterating at the highest level the American view that Britain’s future lies in Europe. These advantages however are largely in terms of political gamesmanship and in clarifying, if clarification is needed, the American view.
- 2.
- We think it likely that if such an approach were made by the President, the Prime Minister would reply with an eloquent exposition of his domestic and foreign problems meant in essence to demonstrate that he is right in his present course of probing for an opening into Europe, protecting his negotiating position and trying to put the British economy on an even keel. It is possible, however, that upon reflection a clear statement by the President would eventually influence his course of action.
- 3.
- If Wilson were to accept the President’s advice, we think it highly unlikely that General De Gaulle would permit his entry into the Common Market, and we suspect that the French argument about the economic dangers for the Community in pledging “mutual support” for sterling is gradually having a debilitating effect on the political will of the Five to welcome Britain.
- 4.
- In the highly unlikely event that something tangible happened, the possible preconditions for adaptation of the British economy to the Common Market, which might include devaluation, would have substantial [Page 438] adverse effects (probably $500–850 million per year) on the U.S. balance of payments position. Moreover, initiation of serious negotiations before the Kennedy Round is concluded could be the death knell of that enterprise. Some negotiations by the U.K. and EEC are inevitable, simply because of the technical features of the Treaty of Rome on such subjects as voting in the Council, budgetary shares and even membership in the Commissions.
- 5.
- In the long run the political gains from U.K. membership in the European Communities are in our interest. As in the short run, an unequivocal British willingness to join the Communities would significantly strengthen the Five in dealing with Gaullist France and indirectly help the Fourteen hold NATO together, whatever the French do.
The attached working papers, while generally compatible with these conclusions, also reflect significant differences of view. The assumptions about whether Britain would or would not need to devalue are particularly critical, and the estimated effects on the U.K. and U.S. balance of payments from a devaluation of sterling must give one pause. We estimate that the short-run economic costs of EEC entry to the U.K. would be very high and might require devaluation as a prelude to entry.EEC entry would cost the U.K. balance of payments as much as $800 million per year over the long run. A 10 percent devaluation supported by internal deflationary measures could gain them at least $1.5 billion annually in the short run and $1.75 billion in the long-run.
On the other hand, in the light of the reportedly Draconian deflationary measures about to be taken by the U.K., there is still some reason to hope that, if Wilson were prepared to withstand the increased political pressures associated with rigorous deflation over an extended time period, Britain could adapt to the Common Market without devaluation. Success for these measures would diminish the objective economic problem and make French opposition to U.K. entry more difficult, but it would not be decisive in eliminating the basic French political veto on U.K. admission.
Note3
I can’t quite go along with the pessimistic tone of these conclusions. Also, paragraph 4 neglects to point out that the adverse impact on the U.S. balance of payments of a British devaluation would still be more or less the same no matter how the U.K. gets into balance of payments equilibrium. I do believe, however, that a public announcement, as distinguished from private feelers, of U.K. determination to enter the Common Market would injure the Kennedy Round at this time.