What kind of miracle ?
`Britain is on the way to an economic miracle' —that, according to the Coud of Downing Street, is now an 'objective' assessment of our present situation. There is no doubt a sense in which any improvement whatever in our economic situation under the present Govern- ment may be termed something of a miracle. But this apart, the prospect before us is any- thing but miraculous. It is that gradually, slowly and painfully the devaluation, of last November will set our balance of payments to rights, and enable us o make a bela'ed start on paying off our massive international debts. `Two years' hard .slog' is Mr Jenkins% version of the future, and-it is plain that the Chan- cellor of the ,quer's understanding of the position lor to that of the Prime Minister. 4i4 in the circus k ices we may count our- selves as fortunate sbat Mr Wilson's charac- teristically inopportubt P :noria last week- end did not trigger off a new burst of speculation against the poiond. That it did not is probably largely becabse it was swiftly followed by the announcement that, after lengthy negotiations, the governments and central banks of the major industrialised countries have agreed in principle to take the strain of any deliberate running dotrn of the sterling balances to the tune of anything up to $2,000 million, and for a period of ten years.
This is a most valuable extension of the network of international financial coopera- tion that has grown up over the past seven years, since Mr Selwyn Lloyd concluded the first Basle agreement. But it is no miracle. We still have to pay our way; nor will this help us to do so. What it should mean, how- ever, is that a genuine, hard-won improve- ment in our balance of payments will not be eclipsed and cancelled out by the desire of holders of sterling balances to 'diversify' out of sterling at our expense.
Further than that, if, as seems likely, the Treasury decides to complement the opera- tion with a system of currency (but not gold) guarantees to traditional holders of sterling balances, under certain conditions, this might enable us to end the anomalous situation in which there is the most stringent control of all British investment in the non-sterling area, but only a voluntary limitation of non-port- folio investment in the sterling area. And if these steps mark a further stage in the demise of the sterling area system, which has been such an incubus over the past decade, that is all to the good.
But we are still faced with the task of get- ting our own balance of payments right, on cur own. We can achieve this, even though the incomes policy is already proving the fiasco the SPECTATOR has always warned that it was bound to be, but only provided that Mr Jenkins does not allow himself to be panicked into taking premature reflationary steps.
When Mr Wilson, last weekend, spoke of an 'economic miracle,' what in fact he had in mind was an electoral miracle; and this, if responsible economic policies are followed, is not going to happen. As soon as Mr Wilson realises this, the pressures on Mr Jenkins to diverge from the path of responsibility will be powerful ones. They must be resisted.
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