The Political Economy of the Special Relationship by Green Jeremy;

Author:Green, Jeremy;
Language: eng
Format: epub
Publisher: Princeton University Press
Published: 2020-05-14T00:00:00+00:00

Disciplining the UK State

A formal approach to the IMF was made in December, and by the end of January 1976 the UK had borrowed all of the money available under the oil facility, the gold tranche, and the stand-by credit. In doing so it had now exhausted the borrowing potential under the more lenient first tranche credit conditions (Wass, 2008: 161). Firmer conditionality now lay just around the corner. In March 1976, the Bank of England was detected selling pounds, even though sterling’s value against the dollar was already falling. This led to a sustained period of speculation against the pound. During the next three months the rate fell from $2.02 to the pound to around $1.70, despite the fact that the Bank had expended $1.5 billion in reserves to support the rate over the first night, and a full 30 percent of the reserves between February and April (Burk, 1994: 358). By June, the UK had been forced to turn to the US for support, beginning a process of negotiation that would seriously compromise UK financial sovereignty and rapidly accelerate the internationalization of the UK state under the auspices of US disciplinary power.

The Republican administration in Washington was increasingly frustrated with UK policy. This was not helped by the conservative disposition of influential figures involved in negotiations with the UK. William Simon, the secretary of the Treasury, was a New York bond dealer with a fervent conviction in market forces. Simon’s undersecretary, Edwin Yeo, was a banker hailing from Pittsburgh who believed in balanced budget orthodoxy. The staffing of these key positions within the Treasury by private financiers testified to the intimate relationship between the US Treasury and Wall Street. The influential head of the Fed, Arthur Burns, referred to himself as a “Neanderthal conservative” who thought that the Labour Government was “profligate” (Dell, 1991: 220; Burk and Cairncross, 1992: 37; Panitch and Leys, 1997: 116).

Both Simon and Yeo, in a sign of the hardening of the US position on the management of the international monetary system, now advocated a policy whereby access to deficit financing was to be curtailed for chronic deficit countries, as a strategy to push them toward adjustment. The West Germans adopted a similar stance between 1975–76, but with less severity (Harmon, 2008: 7). The hardening positions of the US and West Germany represented a broader shift in international opinion between 1975 and 1976. Whereas in the immediate aftermath of the oil shock the emphasis had been placed on accommodating the financing needs of deficit countries, the tide had now turned in the opposite direction, with the market-centered approach of the US steering the international community toward accepting the need for adjustment by deficit countries. By 1976, then, the US was intent on depriving countries of financing by any other means than through the IMF. If the necessary steps in the direction of domestic retrenchment were not taken, countries would be drawn into the conditionality and austerity ordained by the IMF.

In general, the US moneymen adopted a very stern stance vis-à-vis the UK.

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