BRITISH PROBLEMS AND POLICIES ON THE EVE OF THE WILSON VISIT

Created: 12/13/1965

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LLIGENCE MEMORANDUM

british PROBLEMS' ANDON THE.EVX OF THE WrLSOtf VISIT

DIRECTORATE OF INTELLIGENCE

APPROVED jllH BE1EASE UTL.IIIfjMt "':

CENTRAL INTELLIGENCE AGENCY DIRECTORATE OF INTELLIGENCE5

INTELLIGENCE MEMORANDUM;

SUMMARY

Prime Minister Wilaon, who arrives lor talks Inonecember, isave of popularity In Britain. Although the UK is far from out of tho woodstho recent improvement In the balance of payments has removed the immediate threat to the pound, but at the coBt of economic growth.

Britain Is searching for the minimal nuclear sharingacceptable to Bonn and would, in fact, trade any sharing plan for Moscow's agreementonpro Life ration treaty. The moat critical decisions have yet to be taken In Britain's comprehensive defense review, but the government Is strongly disposed to reduce tbe UK's military position East of Suez.

Still shying from the use of force In Rhodesia, WilBon la employing strong economic sanctions to effect aof the independence declaration, and la also working for renewed political negotiations. He publicly supports USIn Vietnam, but out of deference to British opinion would like to actediator.

BRITISH PROBLEMS AND POLICIES ON THE EVE OF THE WILSON VISIT

NlnUter Wilson willecember Mating with the Presidentnumber of aerloua problems on his Bind, declaration of Independence baa added

an acute current crisisengthy list ofBritish problems, all of which revolve about tbe nation's economic difficulties and Itstoew role in eorld affairs tailored to present British resources and interests. If the Rhodealan crisis worsens and is prolonged, ss seeaa likely, auch of the iaproveaent ofmonths In the UK econoay and in Wilson'sposture could be lost.

Wilson's Political Situation

a parliamentary majoritythe past ysar froa one toMinister Wilson has not onlyhis government, but hasstrengthened its positioo. He bassome troublesome Issues, such asof steel and has conducted affairs as If

he had aeat majority on others, such as his program for coping with the be lance-of-pay-ments crisis. Bis narrow majority has at least had the advantsge of keeping the Labor Party's left" Wing In line, although it may not remain so. While Labor came to power In4 with lessne-percent margin over therecent pollsuch wider lead. Press opinion has rsflected the general rise in tho esteem In which Wilson is held by the public. This Is due, aaong other things, to his handling, thus far, of the Rhodesian crisis, to bis success at the recent Labor Party conference In squelching opposition to his foreign and domesticeneral disappointment with tbeof his rival, the Conservatives' new leader, Edward Heath. Nonetheless,majority Is constantly threatened by the possibility of deaths or illnesses among Labor MPs, several of whom are octogenarians.

general situation night seem tothat Wilson would find It to his advantage

to call for new elections to strengthen hisbut he denies an; such intention. Heshares the views of some experts that the polls are not wholly reliable. In fact, they have not been borne out by the results of recent by-elections. Moreover, Wilson would probably prefer toolid foundation of legislativebefore going to the country. It now seems unlikely that Wilson will call for new elections before next fall.

Economic Trends

The recent Improvement in the British balance of payments has removed the Immediate threat to the pound, but has been achieved at the costharply reduced rate of economic growth. The government's measures to hold downand stimulate exports have shown positive In the first ten monthsmports rose only about one percent4 while exports roseercent. esolt, the deficit In the balance of trade was cut by about half. ThisIn the trade balance, combined with the sharp reduction in the outflow of long-term capital in the second and third quartersed to marked improvement in the balance of payments. in sterling was further reinforced inby the availability ofillion In new foreign central bank credits. By the end of September, the pound was traded above parity for the first time in two years, and official reserves began to rise.

This improvement Is likely to contloue with the present low level of reserves, bow-ever, the pound is still highly vulnerable toforeign developments, orsening of the Rhodesian situation will halt or reverse thistrend. As In earlier sterling crises, payments have been balanced by curbing the growth ofproduction; consequently, ws believe that any significant growth in industrial production during

s unllkfely.

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6. As the payments situation has sased, the British Government has turned its attentionto the fundamental problems which have kept Britain's rate of economic growth far balow that of most other European countries. The will to doabout these problems has grown, and both major parties have seen the need to raise tho rato of stimulate technological Improvement, industrial management, restrain prices, and keep wages in line with productivity. The National Plan, announced lo September, callspercent increase in the national product5onsiderably faster growth than in the paet. It is not at all clear, however, how the Britishhopes to achieve these desirable objectives. Whatever progress there may be in the very long-term, for the next few years stimulationigh rate of growth, financing of Britain's foreign political and military obligations, and maintenancealance in foreign payments cannot be achieved simultaneously.

Nuclear Weapons

7. The interwoven questions of Britain'sforce, nuclear sharing in thendare commanding priority attention in London. The government's attituderitish nuclear deterrent is ambivalent. Before coming into office inhe Labor Party opposed the retention of the British force on the grounds that it adds: nothing to Britain's security, was costly, and impeded efforts toonprollferstion. agroemont and reduce East-West tensions. In office, the Labor party promptly decided to go ahead with the construction of four Polaris submarines already begun under the Conservatives. One reason for Labor's change of attitude was probably the political advantage of nuclear status. Another factor may have been the Chinese entry Into the field, carrying implications for Britain's position Bast of Suez and suggesting that proliferation is by no means ended. There wore misgivings over retiring from the nuclear arena just as others come in.

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Nonprollfarstion

9. While London would find some comfort onproilferationi> clause In an ANF agreomont, it would find even greater comforteneral oonproLltera-tlon treaty, assuming that the Soviet Union and West Germany were among the signatories. Since Moscow contends that West German nuclear sharing would rule out agreement on nonprollfer*vti on , London wants to make every effort toreaty before making any decisions on nuclear sharing. It would bein fact, to dropping the idea of nuclear sharing if It could thereby obtain Soviet agreementon-proliferation treaty.

British Defense Review

10. The thoroughgoing review of defense policy which the Wilson government began early this year was

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Inspired by the Intention of holding the defense budget0 to the presentven allowing for rising costs, and by the belief that Britain's overseas commitments should be reduced. The review Is only now approaching its most critical

keep within its coot celling, thedecided that it was necessary to parefrom the defense program. It wasillion of this amount by adoptingin tbe military establishment and droppingweapons development programs andas theomber. Tbe4 It seemed, would have to come from forceand the abandonment of garrisons andthis setting, various events occurredaffected the frame of mind in whichHealey approached his task; the British forces in Aden reachedso that London had to suspend theconstitution; Singapore was detached from, casting wore doubt on the future ofbase; and the Indonesian coup andbrought atull in the confrontation

With Malaysia.

upshot so far has been that Healeyother party leaders are strongly minded toBritish forces in the Mediterranean and Eastto plan for tbe closing of the Aden base,contemplate a large reduction inew years. They feel thatstill meet Its many commitments In SoutheastMiddle East, and the Commonwealth countries from

a series of bases In Australia and islands of the IndianDiego Garcia, and the Cocos Islands. In the British view, these bases, and their cost, must be shared with the US and Australia. This would reduce sharply the present expense to Britain of maintaining operations Bast of Suez, However, tbe British reluctantly recognize that thiscannot be completed until Indonesian aggression against Mb laysla has ended.

13. Britain would like also to cut itsforce In Germany. The British believe that an all-out war would be nuclear, and that anything loss would be border clashes requiring only small, highly mobile forces. London recognises, however, that the political complicationseduction or withdrawal makeong-range prospect. For the Immediate future, Britain will, probably continue to uso the Rhine Armytrategic reserve for overseasand may seek to formalize that practice in NATO

Rhodesia

14. In the Rhodesian question, Wilson's main considerations are to avert damage to Britishwith African and other developingreakup of the Commonwealth, and retaliation against Britons throughout Africa. These objectives require that hetsrn view of the Rhodesianof Independence, andtrong effort to get it rescinded, while still not moving further or faster than British opinion will support. He has repeatedly said that be would not use force to crush Rhodesian Independence, but there are clearly situations in which British force would be used. Byquadron of RAF fighters to Zambia in response to President Kaunda's request, Wilson has served notice that he will defend Zambia's Interests. He has given assurances that Britain will act to prevent aof Zambia's power supply from the Xarlba power station across the border in Rhodesia. And,most significantly, British troops wouldbe used In the unlikely event of widespreador racial conflict within Rhodesia.

IS. To bring the Smith regime to heel, Wilson will probably continue to rely on political andthe almost total boycott on Rhodesian products. These measures, however, have numerous drawbacks. They will probably take months toerious economic Impact on Rhodesia, and there is little chance that they will actually bring down tho Smith regime. In addition, thsy will cost Britain heavily in foreign exchange. For example, if all trade between Rhodesia and Zambia were broken off, so that Zambian copper could not be exported to Britain,UK would lose5 million in foreignfrom that alons.

NO FORKIG

It in reasonable, therefore, for Wilson to try to return to political negotiations. He isto contact Rhodesian moderatespeaceoping to persuade then to accept it, overturn Smith, and assume control. The "peacehodesian retraction of theof independence, modification ofo provide for consultation with thethe holding of early elections, and the opening of discussions on ways to move Rhodesia towardrule. Wilson Is not advocating an immediate "one man. one vote" solution. The British have not ruled out the possibility that Smith himself might shift course enough to return to negotiations.

Even if the Smith regime is brought down, It will be extremely difficult, if not Impossible, for tbs OK touccessor government which would have the confidence of both blacks and whites In Rhodesia. This might, therefore,eriod of dlroct British rule in an essentially hostile atmosphere, with all the difficulties that this would Imply.

Vietnam

18. Wilson has so far glvsn strong publicto US policy In Vietnam. He is faced, however,mall circle of pacifists and neutralists in the left wing of his own party, and he Is conscious of the strength of British public opinion for detent with the East. In his Judgment, the role he must play to keep matters under control at home is thatesponsible world statesman, patiently seeking ths resolution of disputes while remaining loyal to his chief ally. This accounts for ths variousbe has taken to bring about negotiations. Wilson will probably make new attempts to find the key to unlock ths Vietnam problem and would beto be assignedission by the US at an opportune moment,

NATO

19. Britain is taking virtually the saneas the US on the problems being created for NATO by De Gaulle. Its basic position is that the Allies should notonfrontation, but that

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they ohould engage in thorough planning forexpected in the near future. The Britishbelieves that the Fourteen must preserve the Alliance and the Organization built up under it,with the integration of commands, and Ifmove the headquarters, facilities, and supply lines out of France.

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