Great Britain: The $3 Billion Bail Bond

Harold Wilson came to power seven weeks ago promising that "Britain will have just as much influence in the world as we can earn and deserve"—and gave his Labor government 100 days to make its mark. The financial world passed judgment in less than half that time, and in a crushing vote of no-confidence last week mounted the heaviest attack on the pound that Britain has faced since the early postwar years.

Thanks to a $3 billion, eleven-nation bailing-out operation backed by the U.S., both the pound and the Prime Minister managed to survive. But the lesson of Wilson's first major crisis may be felt for many times 100 days.

The Laborites—as even most Tories now admit—inherited an Augean mess.

The Conservative government had closed its eyes too long to a mounting trade deficit that by year's end seemed certain to top $2 billion, almost equivalent to the gold reserves of the entire sterling bloc (see charts}. Theoretically, few economists quarreled with Wilson's first, stringent measures to close the gap: a "temporary" 15% tax on virtually all imports reaching Britain, plus tax incentives for British industrialists who boost exports. Practically, however, Wilson could hardly have acted more ineptly.

Waiting for Noah. The surcharge on their exports was a jolting setback for the Commonwealth nations and Britain's trading partners in E.F.T.A., Europe's Outer Seven: yet the Prime Minister made no attempt to soften the blow by consulting them in advance.

Too late, British officials scurried across the Continent to plead their government's case—resembling, in former Tory Party Leader Iain Macleod's withering phrase, "doves sent out from the Ark to tell people that Noah's sorry it's raining." Even so, hardheaded foreign bankers might have waited for Noah to reach dry land if there had been any real sign that the government was coming to grips with Britain's basic economic ills. On the contrary, Wilson clearly assigned priority to expanded welfare statism that Britain can patently ill afford. He also insisted on doctrinaire legislation such as renationalization of steel, hinted at new, incentive-stifling corporate and capital-gains taxes. Convinced that Britain's financial position could only worsen, international bankers scrambled to unload their sterling holdings.