Twentieth Century Brit Hist 1994

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KATHLEEN BURK University C ollege London

The Am ericans, the Germ ans,and the BritishThe 1976 IMF Crisis

T he 1976 IMF crisis had as its focus the reque st b y the Labo ur govern -ment under Prime Minister James Callaghan for a loan from theInternational Monetary Fund, and the subsequent negotiations overthe conditions which Britain would have to meet in order to be granted sucha loan, the first made by the Fund to a large industrial nation. On 29September 1976, the Chancellor of the Exchequer, Denis Healey, announcedthat Britain was applying to the IMF for a standby credit. This came at theend of a six-month period of pressure on sterling, during which the poundhad alternately drifted and plunged against the dollar, and at the end ofwhich the value of sterling had fallen by 39 cents, or 14 per cent, and wascontinuing to fall . The announcement was made against the background ofan unusually raucous Labour Party conference, which Healey faced thefollowing day. Anthony Wedgwood Benn (as he then was), the Secretary ofState for Energy, described the scene thus in his diary:

Denis had arrived . . . with a terrific flurry of cameras. There were hisses andboos when he came forward to speak and said, 'I have come from the battlefront.'He then went on to shout and bully and rule out all alternative policies, sayingthis was the only way forward . . . The Conference w as pretty hostile but whenhe finished, it having been such a bold and vigorous speech, parts of the Con-ference cheered him.1Th e reaction of the Labour Pa rty, bo th within and witho ut Parliamen t, re-mained a key element in the IMF crisis; furthermore, it was the focus ofmany of the accounts of i t , both by journalists writ ing during 1976 and byothers writ ing later.2 But if the 1976 crisis is treated only as a domestic1 Tony Benn, Against the Tide: Diaries 1973-76 (London, 1989), p. 616.2 See, inter alia, Susan Crosland, Tony Crosland (London, 1982) and Bernard Donoughue,Prime Minister: The Conduct of Policy under Harold Wilson and James Callaghan (London,

Twentieth Century B ritish History, Vol. 5, No . 3,19 94, pp. 351-69 OUP 1994

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352 KATHLEEN BURK

financial and political event, that makes it merely another episode in thecontinuing saga of Labour and Britain. It had wider ramifications than that:it was a watershed, when the control of inflation took precedence over thecontrol of unemployment, and the postwar consensus on how the economyshould be managed broke down. Furthermore, it was the beginning of theend for the pound sterling as a major reserve currency: as one member ofthe US Federal Reserve System, America's central bank, later remarked, in1976 he had known the pound/dollar rate of exchange daily and sometimeshourly: now (in 1989) he would hardly be aware of it, and his attentionwould instead be focused on the dollar/Deutschmark or dollar/yen rates.3

Clearly, it was an economic and political crisis of transforming impor-tance.4 What is particularly noteworthy is that outsiders, and especially theAmericans, chose to encourage a crisis in Britain in order to force the coun-try's government to change how it managed the national economy. It is,then, an intensely interesting episode in international relations, bothpolitical and economic, with particular resonance for relations betweenBritain and the United States, Britain and Germany, and Britain and theIMF. To add to the complexity, it was not just the political authorities ineach country that were involved, but also the treasuries and central banks.Furthermore, in every case, the treasuries and central banks were at oddswith their respective political authorities. Therefore, there were powerstruggles within all three countries over which policy Britain should be en-couraged to follow.

The first question to ask is: Why was the condition of Britain seen as socrucial to other states7 Why, in particular, should the Americans beprepared to use whatever pressure was necessary to force Britain to changeits ways7 There were obvious systemic reasons, in particular Britain'smembership of NATO and other alliance systems and of the EuropeanCommunity. American officials, such as Brent Scowcroft of the NationalSecurity Council, were reported as fearing that Britain might succumb to aleft-wing-dominated government which would crouch behind a siegeeconomy and withdraw Britain from NATO and Europe.5 The Germans,

1987). Leo Pliatzky, Getting and Spending (Oxford, 1982, 1984) extends the focus to theTreasury, while William Keegan and R. Pennant-Rea, Who Runs the Economy? (London,1979) moves outwards to include the Qty.3 Interview with Stephen Axilrod, 27 July 1989.4 For detailed discussion of the arguments outlined in this essay, as well as extensivereferences, see Kathleen Burk and Alec Cairncross, 'Goodbye, Great Britain': The 1976 IM FCrisis (London and New Haven, 1992), esp. chs 1-4.s Keegan and Pennant-Rea, Who Runs the Economy?, p. 166. Scowcroft was later reportedas saying that 1 spent more time on this matter [the UK crisis] during those weeks thananything else. It was considered by us to be the greatest single threat to the Western world.'Quoted in Stephen Fay and Hugo Young, The Day the Nearly Died', Sunday Times (14, 21and 28 May 1978), 21 May 1978, p. 34.

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THE 1976 IMF CRISIS 353however, believed such fears to be groundless. A senior official of theDeutsche Bundesbank was later quoted as saying: I never accepted theseviews that the system would collapse. That's a naive view . . . I always askedthem [the US] to spell out what they meant by collapse.'6 Another andperhaps more reasonable fear was that Britain might slap tighter exchangecontrols on the pound and, in particular, adopt import controls. As EdwinYeo, then the Under-Secretary for Monetary Affairs in the US Treasury,later recalled, 'we feared that if a country like Britain blew up, defaulted onits loans, introduced foreign exchange controls and froze convertibility, wecould have a real world depression.'7There were, however, a number of countries in NA TO and Europe: Whydid Britain affect Americans emotionally when other countries in difficultyat the same time, such as Portugal and Italy, did not7 Here, for good or ill,and however one defines it, the special relationship came into play.Elements in this relationship of supreme importance in the postwar worldhave been intelligence and the nuclear links, but there were also thelanguage, the common history, what appeared to be the common culture.In truth, the two countries are very different, particularly in vital aspects oftheir political cultures, and this frequently led even the knowledgableastray . O ne example of such m isprision appears to have been the persistentbelief that President Ford could 'help' Britain if he wanted to, when in factthe independent power of an American President is much less than that of aBritish Prime Minister. Nevertheless, because superficially the two coun-tries appeared to have m any traits in common, there was a fear of infectionif the British disease were not cured at source.Secondly, other countries were concerned about what happened toBritain because of the role sterling played in the international economy.Sterling was still an important reserve and transaction currency, althoughone of declining importance. A substantial proportion of the total stock ofsterling was owned by governments, central banks, companies and in-dividuals situated outside the United Kingdom, and one form it took wasthe so-called sterling balances held in the United Kingdom. The officialsterling balances, those owned by other governments and central banks,had ballooned during the Second World War, dropped back in the 1960sand increased again after 1967, while the private balances, those owned bybanks, companies and individuals, had fluctuated but had grown in par-ticular during the late 1960s and early 1970s, especially in 1974 and 1975.(One reason for their increase was that after 1968 their value was, to a cer-tain extent, guaranteed; another was that by the early to mid 1970s, it was

6 Karen Bernstein, The International Monetary Fund and Deficit Countries: The Case ofBritain, 1974-77 (PhD thesis, Stanford University, 1983), p. 118.7 For the quotation see Fay and Young, The Day the Nearly Died', 14 May 1978.


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354 KATHLEEN BURK

clear that at some point soon sterling would become a petrocurrency.)Because sterling balances can be thought of as current account balances,able to be withdrawn at any time and sold for gold or other currencies, theycould be a threat to the exchange rate of the pound.Countries and companies that held sterling as part of their reservesnaturally disliked seeing its value decline. The Americans believed that theanswer was to encourage the British to take hard decisions, particularly torein in the rate of inflation, in order to improve the economy. This wouldhelp to restore confidence and thereby stabilize the value of the pound. Ona personal level, a number of influential Americans were sick of sterlingcrises, which they saw as a repeated and tedious fact of life. There had, afterall, been crises in July-August 1947, in 1949 (ending in devaluation), in1951, 1955, 1957, 1964, 1965, 1966, 1967 (again ending in devaluation),1972 and 1975. By 1976 important elements in the Federal Reserve Bank ofNew York, for purposes of international finance the US central bank,believed that Britain had to be forced to change its ways.8 Yet the UnitedStates could not openly impose its will on the United Kingdom: no matterhow special a relationship the two countries enjoyed, and it fluctuated, itwas inconceivable that the Americans would try to exercise, or that theBritish would accept, direct US interference in Britain's internal affairs. Butthere was another way: by involving the IMF.

The IMF was one outcome of the 1944 Bretton Woods negotiations, andwas set up originally to help make a system of fixed exchange rates work.By 1976, however, when many currencies had floating rather than fixed ex-change rates, it had lost much of its original purpose. The IMF is not an in-dependent power: rather, it serves as the instrument for the co-ordination ofpolicy among its shareholding members, who have the main financialresources. In short, the organization reflects power rather than wielding it.'Predominant power was from the outset wielded by the United States. Itwas the largest shareholder, or contributor of funds, with over 33 per centof the voting power in 1944 (Britain had just under 16 per cent), and eventhough that proportion declined over the postwar years, the United Statesretained a veto over most important IMF decisions. Furthermore,geography is important: the headquarters of the Fund is in Washington.

Two important implications arose from this dominating position of theUnited States: conditionality, and the use of the Fund as a surrogate. Condi-tionality refers to the terms to be imposed on the borrower of funds from orthrough the IMF. Each member has a quota' in the Fund, which is equal to

* Interview with Scott Pardee, 27 July 1989. Mr Pardee ran the foreign exchange desk at theFederal Reserve Bank of New York in 1976.9 Robert O. Keohane and Joseph S. Nye, Power and Interdependence, 2nd edn (Glenview,III., 1989), pp. 125-6 .

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THE 197 6 IMF CR ISIS 355

the member's subscription to the Fund's resources; for Britain this was thetotal amount in gold and sterling which it had originally put into the IMFpo t. A 'loan' from the IMF is not, strictly speaking, a loan: it is a transactionby which a member purchases gold and other currencies, such as dollars,from the Fund by giving it the equivalent amount of its own cur-rency. The amount a member can borrow ' depends on the member's quota,and drawings are divided into tranches. The first tranche, called the goldtranche , is equal to the m ember's net contribution to the Fund, and this levelof borrowing cannot be challenged. Tranches beyond the gold tranche arecalled 'credit tranches', and they are measured at intervals of 25 per cent ofquota. Therefore purchases by a member that increase the Fund's holdingsof a member's currency from 100 per cent to 125 per cent fall in the firstcredit tranche, while 150 per cent would fall in the second credit tranche,and so on.10Conditionality i.e. the conditions to be imposed as the price for bor-rowing from the Fund becomes fiercer as the am ount of support requiredincreases. Very few restrictions are attached to what is called 'first trancheconditionality', but the larger the amount required in relation to themember's quota, the more exacting the stipulations made of the memberwishing to borrow .11 This was to be the main point of conflict between theIMF and the Labour government in 1976: Britain wanted to borrow in thethird credit tranche, and the fight was over the harshness or otherwise ofconditions to be imposed on Britain in exchange for the IMF loan.It is in respect of the imposition of such harsh conditions that the role ofthe IMF as a surrogate for the richer industrial nations arises. Certainlysince the 1950s the United States has used the Fund to try to impose its willin the international monetary arena. The fact that the Fund is a multilateralorganization enables it to make suggestions which, were they to comedirectly from the US or other creditor governments, would be rejected as in-terference in the affairs of a sovereign state. Britain finally accepted condi-tions insisted upon through the IMF by the United States and Germanywhich it would not have accepted if they had come from those countriesdirectly.The political/financial relationships that impinged upon the IMF crisiswere complicated within all three countries. In the United States four powercentres were involved: the President, Gerald Ford; the Secretary of State,Henry Kissinger; the Treasury, in particular the Secretary of the Treasury,William Simon, and his Under-Secretary for M onetary Affairs, Edwin Yeo;

1 0 Joseph Gold, The Stand-by Arrangements of the International M onetary Fund(Washington, DC, 1970), pp. 7-15.11 Sidney Dell, On Being Grandmotherly: The Evolution of IMF Conditionality, PrincetonEssays in International Finance, No. 144 (October 1981), pp. 1-10.


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356 KATHLEEN BURK

and the Federal Reserve, in particular the Chairman of the Governors,Arthur Burns, but also the Federal Reserve Bank of New York. PresidentFord seems to have played only an intermittent role. The British PrimeMinister, James Callaghan, tried to convince him to put pressure on the USTreasury and the Federal Reserve Board (the Fed) to lessen their pressure onBritain, but this was only partially successful. The President has no powerto tell the Fed what to do. Furthermore, Ford seems to have been in awe ofArthur Burns, and never to have ventured a single comment on policy mat-ters.12 What Ford did do that concerned the Labour government was to sup-port Kissinger in his attempts to counter the plans of Simon and Yeo to befirm and even harsh towards Britain.

The President and Kissinger, then, were inclined towards a solution thattook account of the political realities facing the Labour government; the USTreasury and the Fed, on the other hand, were concerned to force Britain tocontrol inflation and to cut public spending; in sum, to change its habits ofpublic finance. The two financial centres were united in this, but they werenot necessarily united on tactics. The Fed controls domestic monetarypolicy, but the Treasury controls international finance, and their ideassometimes conflict. Nevertheless, the money men stood shoulder toshoulder against the White House and the State Department, attempting toenforce a harsh line against Britain.

In Germany the three centres of power which were relevant to the crisiswere the Chancellor, Helmut Schmidt, who sympathized with Callaghanand tried to help him by attempting to lessen the pressure on Britain; theState Secretary in the Finance Ministry, Karl-Otto Pohl (who wouldbecome President of the Bundesbank in 1980), Schmidt's close aide; and theBundesbank. In this case, Pohl and the Bundesbank were united in trying tofend off Schmidt's attempts to put political pressure on the IMF. A possibletrump card in their hand was the fact that the Bundesbank, not the Germangovernment, controls Germany's reserves: this was important, becauseSchmidt apparently made an offer to help Britain by the use of thesereserves. It was fortunate for him that he was not called upon to implementthese suggestions, since it is doubtful that the Bundesbank would haveagreed.

In Britain the weight of political power lay with the Prime Minister andthe Cabinet. The Treasury and the Chancellor of the Exchequer determined

u According to Arthur Burns himself, 'Mr Ford . . . was truly angelic. I met with PresidentFord frequently, alone in the privacy of his office. He never inquired about what the FederalReserve was doing. He never even remotely intimated what the Federal Reserve should be do-ing.' Kenneth W. Thompson (ed.), The Ford Presidency: Txoenty-two Intimate Perspectives ofGerald R. Ford (Lanhan, 1986). He seems not to have been all that knowledgeable aboutforeign affairs, either, although according to one of his aides, he returned 'regularly to the Ova lOffice after dinner to ruminate over the latest news from London'. Fay and Young, The Daythe Nearly Died", 28 May 1978, p. 33.


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THE 1976 IMF CRISIS 35 7

financial policy, such as interest rates, and had the predominant voice onexchange rate policy. The Bank of England had much less influence thanmight have been imagined during the whole IMF crisis; but in general theBank wou ld have to fol low the Tre asury 's lead on policy. Th e Tre asu ry, un-fortunately, was split during most of the period over what policy to follow,with the result that the civil servants were unable to give straightforwardadvice to the Chancellor . The Treasury knights were loyal to the Labourgovernment, but certain civil servants, such as Sir Derek Mitchell, theSecond Permanent Secretary at the Treasury in charge of overseas f inance,gave a warmer welcome than others to IMF pressure on the Cabinet . 13Finally, there was the IMF. Britain, Germany and the United States allhad executive directors on the board of the IMF, and by this means haddirect input into discussions and decisions. But this, too, could be com-plicated. According to Pohl, for example, Germany had two men at theIMF, the executive director and his al ternate: one from the governmentand one from the Bundesbank, who al ternated. As he described thesi tuat ion,

They are under instruction from the government, but the government givesinstructions only with the agreement of the Bundesbank. There's a contractbetween the government and the Bundesbank, but in practice they always con-flict . . . Normally the government usually decides, and we [the Bundesbank] a remore the number two in that. So Schmidt could have been exerting influencethere. If the Finance Ministry says yes, he [the IMF representative] has to do it.14US pressure on the IMF was even more direct . Yeo, the US TreasuryUnder-Secretary, apparently had a desk at the IMF, and certainly was notloath to r ing up the managing director , Johannes Witteveen, whenever hewished. Against direct influence of this sort, that of the UK executive direc-tor , Sir Will iam Ryrie, would probably have been uncertain.The configurat ion internationally became one in which the poli t icianswere ranged against the central banks and treasuries. Callaghan wouldattem pt to mobil ize sym pathe tic polit ical suppo rt from Ford and Schm idt inorder to outf lank the hard-l ine treasury men and the IMF. Those membersof finance ministries who dealt with international finance met togetherfrequently, and had considerable sympathy with each other 's at tempts tomaintain sound policies against the politicians. 15 Thus Pohl of the German

1 3 Interview with Sir Derek Mitchell, 3 September 1991.14 Interview with Dr Karl-Otto P6hl, 15 December 1989.15 Pohl has pointed out that at that time The Secretaries had a very good relationship Yeo, Pohl, Mitchell and Jacques de Larosiere, and our Japanese colleague . . . We met fre-quently, and I always said we governed the world, because we prepared all of the decisions. Iwas chairman of the monetary committee of the EEC, so I met Derek [Mitchell] almost threetimes a month or so.' Interview with Dr Karl-Otto Pdhl, 15 December 1989.



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358 KATHLEEN BURKFinance Ministry, Yeo of the US Treasury and Sir Derek Mitchell of the UKTreasury had inst inct ive empathy for each other 's posi t ions. They also pur-po rted to believe that the IMF sho uld d o its w ork w itho ut interference frompoliticians, and Pohl in fact worked to keep Schmidt from trying unduly toinfluence the IMF: he believed that too much political interference woulddestroy the IMF, and in the end convinced Schmidt . Yeo and Burns alsobelieved that the IMF should be inviolate, but for Yeo this apparently meantinviolate from interference by the President and Kissinger, not from him.

The IMF crisis began in the traditional British way, with an exchange ratecrisis. On 4 March 1976 the Bank of England was detected sel l ing poundswhen the rate of the pound against the dollar was already slipping, and themarket took this as a signal that the Bank wanted the exchange rate todecline.16 Over the subsequent three months the rate dropped from $2.02 tothe pound to about $1.70 to the pound, in spite of the Bank of England'sspending $1.5 billion in the first fortnight to support the rate, and 30 percent of the reserves between February and April. By early June the poundappeared to many to be dist inct ly undervalued, and i t occurred to a numberof central bankers that a short, sharp shock such as a sudden rise in itsvalue fol lowing upon concerted intervention supported by a substantialcredit line might cha nge the percep tion of the mark et an d lead dealers toresume buying sterling, instead of selling it .

On 3 June Dr Jelle Zijlstra, President of the Netherlands Central Bank andof the Bank for International Sett lements, rang Gordon Richardson, theGovernor of the Bank of England, and suggested a standby credit from thecentral banks of the Group of Ten major industrial countries.17 Richardsonrang Burns at the Fed, and after tough negotiations lasting three days, thestand by credit of $5.3 bi ll ion was in place. On M on da y 7 June it was an-nounced, and the Bank of England and the Federal Reserve Bank of NewYork, working closely together, intervened in the market. The tacticworked, and sterling rallied sharply, rising 1.5 cents against the dollar to$1.74.18But there had been a price to pay. O n Sa turda y 5 June, Yeo and SamCross, the US executive director of the IMF, had flown to London for1 6 A dominant question in writings about the crisis has been whether or not the Bank andthe Treasury purposefully caused the rate of the pound to decline, a so-called manageddevaluation. It is the author's belief that they did not. See Burk and Cairncross, 'Goodbye,Great Britain', pp. 21-32.1 7 The Group of Ten consists of the United States, the United Kingdom, France, Germany,Italy, Canada, Japan, Belgium, the Netherlands and Sweden.Interview with Sir Kit McMahon, 3 September 1991; Bums' scribbled notes of telephone

conv ersations w ith Richardson and reflections, and R euter announcem ent, 7 June 1976, bo th inArthur Bu ms Papers, Ford Presidential Library, Ann Arbor, Michigan, Box 113 , File UK Loanfrom G roup of 10, June 1976; interview with Scott Pardee. 26 July 1989; Fay and Young, T h eDay the Nearly Died', 14 May 1978, p. 33.


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talks with Healey and Sir Douglas Wass, the Permanent Secretary to theTreasury. Speaking for Simon and Burns, Yeo had insisted that the standbycredit was for three months, with only one renewal possible. This was, ofcourse, absolutely standard for such arrangements, but the British had ap-parently let a previous one drag on. Nevertheless, that was not the realmotive for insisting that Britain acknowledge the limit in the official letter ofacceptance. The real motive was to hook Britain into the arms of the IMF,because Healey had to promise that if Britain could not repay the credit atthe end of the six months, it would apply to the IMF for a longer-term loan.(Indeed, if Britain drew on the standby credit to any extent at all, it wouldhave to make such application, because with only 3 billion left in itsreserves, it would otherwise be unable to repay.) The plan according to Yeoand Simon was that Britain should apply to the IMF, which would then beable to impose tough conditions as the price for a loan.19Meanwhile, the June standby credit gave Britain a breathing space. TheBritish Cabinet hoped that it would give time for deflationary measuresalready taken to work, while the Americans hoped that Britain would usethe time to cut public expenditure and m op up what they perceived as excessliquidity. Over the summer there were fluctuations in the pound, with thebank supporting the rate by means of the standby credit, but August wasrelatively quiet.20 It was not until September 1976 that the crisis came.

At the beginning of September there was a wave of wildcat strikes in themotor industry. These combined with fears of a seamen's strike to stimulateheavy selling of sterling on 7 September, which continued the following daywhen the National Executive Committee of the Labour Party announcedproposals to nationalize major banks and insurance companies. On thesame day balance of payments estimates for the second quarter werepublished and showed a sharp decline in non-resident sterling balances. On8 September the National Union of Seamen called a strike. The followingday the Bank of England stopped supporting the pound it was estimatedthat it had used over $400 million just since the beginning of September tomaintain the rate at $1.77 and it fell within minutes, touching $1,735before recovering somewhat. The following day the Minimum Lending Ratewas raised to 13 per cent, but by 24 September the pound had fallen bynearly 7 cents in only three weeks.21

1 9 F a y a n d Y o u n g , T h e D a y t h e N e a r ly D ie d ' , 1 4 M a y 1 9 7 8 , p . 3 3 ; in t e r v i e w w i t h S i r K itMcMahon, 3 September 1991; Burns' scr ibbled notes . Burns Papers , Box 113, Fi le UK Loanf r o m G r o u p o f 1 0 , J u n e 1 9 7 6 .

2 0 B u r k a n d C a ir n c r o s s , 'Goodbye, Great Britain', p p . 5 2 - 3 .2 1 Bank of England , Quarterly Bulletin ( O c t o b e r 1 9 7 6 ) , p . 4 2 9 ; K e e g a n a n d P e n n a n t - R e a ,Who Runs the Economy?, p . 1 6 5 ; J a m e s C a l la g h a n , Timt and Chance ( L o n d o n , 1 9 8 7 ) , p . 4 2 2 .Figures from Federal Reserve Board papers show intervent ion suppl ies of dol lars provided tothe mark et to the extent of $6 75 mil l io n in Septem ber , $37 2 mil l io n in Oc tob er and $11 2mil l ion in the f ir s t three weeks of November . See 'Economic and Financ ia l Indicators ' , 22 Nov.



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360 KATHLEEN BURKBy this time, too, the Chancellor had decided that he would have to turnto the IMF, although he did not wish this to be known before the LabourParty Conference, which was scheduled to begin the following week.

Fate, however, intervened. Widespread selling of sterling recommenced onTuesday 28 September, just as the Labour Party conference opened. TheChancellor was due to leave for Hong Kong and then Manila for the IMFmeeting, but when he reached Heathrow airport , the news of the morning'strading in sterling w as so app alling it fell 4.5 cents th at d ay to $1.63 that he returned to London and rang the Prime Minister at the conference inBlackpool. Healey told Callaghan that the Bank of England was forecastingthat sterling would fall a cent a day until it reached $1.50, and might noteven stop there: in other words, sterling was in free fall. Later that day, at ameeting in the Treasu ry, Healey and his advisers decided tha t he should a n-nounce his intention to apply to the IMF for a loan, and Callaghan agreed.The fol lowing day, Healey made his appearance at the conference.22

Meanwhile, Callaghan had made his own contr ibution to steadying themarkets , with a speech at Blackpool which f lashed around the world:For too long, perhaps ever since the war, we postponed facing up to fundamentalchoices and fundamental changes in our society and in our economy. That iswhat I mean when I say we have been living on borrowed time . . . We used tothink that you could spend your way out of a recession and increase employmentby cutting taxes and boosting government spending. I tell you in all candour thatthat option no longer exists, and that insofar as it ever did exist, it only workedon each occasion since the war by injecting a bigger dose of inflation into theeconomy, followed by a higher level of unemployment as the next step.23

It was to be vital to the outcome of the crisis that Callaghan's speech hadfavourably impressed the Americans. When Callaghan rang the Presidenton the following day, Ford greeted him with 'Jim, you made a helluvaspeech yesterday. '" Robert Hormats, the senior s taff economist to the Na-t ional Securi ty Council , was later quoted as saying: That speech, whichwas echoed by Healey subsequently, demonstrated to us that the UK hadchanged course. Without that speech it would have been difficult to obtain

1976, Burns Papers, Box 113, File UK General November 1976-1977; also Edmund Dell, AHard Pounding: Politics and Economic Crisis 1974-76 (Oxford, 1991), p. 235; Fay and Young,The Day (he Nearly Died' , 14 May 1978, p. 35; interview with Jeremy Wormell, 12September 1991.From the private polit ical diaries and p apers of To ny Benn in the Benn Archives, Londo n(hereafter Manuscript Diary), 23 September 1976; Dell, A Hard Pounding, p. 236; Callaghan,Time and Chance, pp. 427-8; Fay and Young, The Day the Nearly Died", 14 May 1978, p.35 ; Margaret Garritsen de Vries, The International Monetary Fund 1972-78: Cooperation onTrial, vol. 1: Narrative and Analysis (Washington, DC, 1985), p. 468.23 Callaghan, Time and Chance, pp. 425-6.M Ibid., p. 429.


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THE 1976 IMF CR ISIS 36 1

support in the US. With it, we could point to a genuine turn-around inthinking in Whitehall which merited our support.'25During October, and indeed until the very end of the crisis in December,Callaghan attempted to mobilize that support. The conviction had grownon him that there was a conspiracy between the US and UK Treasuries touse the IMF as a weapon to force undesirable changes in British governmentpolicy. David Owen, then Minister of State at the Foreign and Com-monwealth Office, told Tony Benn on 27 October that 'Jim really distrustedthe Treasury',26 and Callaghan himself later wrote in his memoirs that theTreasury officials were 'shortsighted'.27 His response to this 'conspiracy' wasto try to mobilize the American and German political leaderships toneutralize the finance ministries.28

Callaghan wanted two things: a standby loan from the IMF, withoutonerous conditions, and what was termed a 'safety net' for the sterlingbalances. He believed that the government had already put the necessarypolicies in place. First of all, a system of cash limits had been imposed ontwo-thirds of all public spending since early 1976, and, indeed, on the mainpublic sector building programmes since the 1974/5 spending round. Inaddition, public spending had been further cut back in July 1976.29 On thewages side, a voluntary incomes policy, supported by the trade unions, hadbeen agreed in July 1975 and was moderating the increase in wage rates.30 Inshort, Callaghan felt, there was little more that the IMF could realisticallyexpect Britain to do. All he wanted was a standby loan as an insurancepolicy while the economy pulled itself back into shape and of course, torepay the standby loan from the Group of Ten in December. WhatCallaghan really believed was necessary was to get rid of the sterling

2 5 K e e g a n a n d P e n n a n t - R e a , Who Runs the Economy?, p . 1 6 6 .2 6 B e n n , M a n u s c r i p t D i a r y .2 7 C a l l a g h a n , Time and Chance, p p . 4 3 1 - 2 .2 8 M e m b e r s o f C a l l a g h a n ' s c l o se s t e n t o u r a g e c e r t a i n l y b e l i e v e d i n t h e e x i s t e n c e o f s u c h a

c o n s p i r a c y . B e r n a r d D o n o u g h u e , t h e h e a d o f t h e P r i m e M i n i s t e r ' s P o l i c y U n i t a t N u m b e r 1 0 ,h a s s t a t e d t h a t ' i n t h e m i d d l e o f t h i s c r i si s I w a s p r i v a t e l y s u m m o n e d t o t h e U n i t e d S t a t e s E m -b a s sy f o r a s e c r e t me e t i n g w i th a v e r y s e n io r o f f i c i a l t h e r e w h o s a id "Y o u sh o u ld b e a w a r e o fs o m e t h i n g , w h i c h i s t h a t p a r t s of t h e T r e a s u r y a r e i n v e r y d e e p c a h o o t s w i t h p a r t s o f t h e U ST r e a su r y a n d w i th c e r t a in o th e r s i n G e r m a n y w h o a r e o f v e r y ri gh t- wing i n c l i n a t i o n a n d t h e ya r e a b s o l u t e l y c o m m i t t e d t o g e t t i n g t h e I M F h e r e a n d i f i t b r i n g s a b o u t t h e b r e a k - u p o f t h i sg o v e r n m e n t , t h e y w il l b e v e r y , v e r y h a p p y . " H e a c t u a l l y s h o w e d m e a c o p y of a s e c r e t c o m -m u n i c a t i o n b e t w e e n L o n d o n a n d W a s h i n g t o n w h i c h s e e m e d t o c o n f i r m t h i s v i e w . . . T r e a s u r yi n d i v i d u a l s w e r e in d i r ec t c o m m u n i c a t i o n w i t h s o m e p e o p l e i n W a s h i n g t o n a b o u t t h e sed e v e l o p m e n t s a n d t h e d e s i r a b i l i t y o f g e t t i n g t h e I M F in a n d b e i n g a b l e t o c h a n g e t h e b a s i c d r i f to f t h i s g o v e r n m e n t ' s p o l i c y . ' K a t h l e e n B u r k et al., ' S y m p o s i u m : T h e 1 9 7 6 I M F C r i s i s ' , Corn-temporary Record, 3 / 2 ( N o v e m b e r 1 9 89 ) , p . 4 3 .

2 9 I n f o r m a t i o n f r o m S i r D o u g l a s H e n l e y a n d H a r o l d C o p e m a n ; Public Expenditure to1979-80, C m n d . 6 3 9 3 , F e b r u a r y 1 9 7 6 , p a r a s 1 4 a n d 1 5 ; B u r k a n d C a i r n c r o s s , 'Goodbye, GreatBritain, p p . 1 5 - 1 6 . T h e c a s h l im i t s y s t e m e x c l u d e d s o c i a l s e c u r i t y p a y m e n t s in c a s h a n dv a r i o u s o t h e r e x p e n d i t u r e s n o t u n d e r s h o r t - t e r m c o n t r o l b y t h e g o v e r n m e n t .

3 0 J a c k J o n e s , Union Man: The Autobiography of lack Jones ( L o n d o n , 1 9 8 6 ) , p p . 2 9 6 - 8 .



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362 KATHLEEN BURKbalances. He believed that they were the real threat to economic stability,since they could be dumped on the market without warning, and thatwithout their existence sterling crises might become a thing of the past.Therefore he wanted the balances to be funded that is, the overseasholder of sterling would exchange sterling deposits for medium-term bonds an d he wante d help to guaran tee them w hile this was being carr ied out .

Callaghan spent much of his t ime trying to convince the Germans andAm ericans to prom ise aid to get r id of the balances. Unfortun ately, the USTreasury was extremely suspicious of this. It had managed to get Britaininto the IMF net, and it saw the issue of the sterling balances not only as adiversion, but as genuinely dangerous: providing a safety net for thebalances might give Britain access to other sources of money which it wouldthen use to finance high rates of public expenditure and high wage rates. Inthe end the Am ericans agreed to app rov e a ster ling balances agreem ent, butonly after Britain had come to an agreement with the IMF.31Callaghan rang both Ford and Schmidt on 30 September 1976. Callaghantold Ford that he wanted an IMF loan and a safety net for the sterlingbalances, and Ford undertook to be as helpful as possible. His helpfulnesswould be limited, largely because all those surrounding him, and not justthe Treasury men, shared the worries about Bri tain and i ts policies. Theywere, af ter al l , conservative Republicans. An added drawback was thatFord lost his re-election bid on 2 November, the day after the IMF missionarrived in London: consequently, during the height of the crisis, he was alame duck.32Callaghan seems to have found Chancellor Schmidt more sympatheticpersonal ly than Ford. Germany would natural ly share American concernsabout Bri tain as a fel low member of NATO; in addit ion, Germany wouldobject very strongly to any British attempts to fall down on its obligationsto the EEC, by putt ing up import controls , for example, s ince a strongBritish economy was seen as in Germany's own interest. Yet there wereother t ies between the two European countries. A Social Democratic Ger-many would have special l inks with a Labour Bri tain. By one account,Schmidt himself had always had a special relationship with the BritishLabour Party since his days as a Hamburg poli t ician' ; he also believed thatwhile the Bri t ish economy had deep problems, Callaghan was the last besthope' of its changing course.33 Schmidt spent the weekend of 9-10 Octoberat Chequers with the Prime Minister , during which t ime Callaghan wentsome way towards persuading Schmidt that the deflat ion l ikely to be re-quired by the IMF could destabilize the British political system. Further-more, he argued, public spending was now under t ight control: the problem

31 Fay and Young, The Day the Nearly Died 1 , 2 1 May 1978 , p . 3 4 .3 2 Callaghan, Time and Chance, pp. 429-30.3 3 Fay and Young, The Day the Nearly Died' , 2 1 May 1978 , p . 3 3 .



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was the money markets, and their antics were bound up with the sterlingbalances. Schmidt agreed to try to help.3*When they spoke again the following week, Schmidt made a tremendousoffer, according to Callaghan: 'he undertook that if ever an acute danger ofnecessity should arise, Britain could draw upon Germany within twenty-four hours, and the German Government would make whatever improvisedarrangements w ere necessary.'35 Callaghan does not say what the offer was,but Pohl assumes that it was an offer to guarantee the sterling balances byusing Germany 's reserves; an offer, he says, which Schmidt was not in aposition to make. (As noted above, the Bundesbank, not the government,controls the reserves.) At any rate, the offer made Callaghan feel better, andSchmidt seems to have worked through the German executive director ofthe IMF to try to lessen pressure on Britain. According to Pohl, 'Callaghancalled Schmidt nearly every evening and asked him to support Britain in itsnegotiations with the IMF. And Schmidt, who always liked this kind ofcrisis management,' later sent Pohl on trips to London and Washington totry and help Callaghan.3*Pohl would not be the only person doing a lot of travelling once the IMFmission had arrived in London on 1 November. The usual mode of opera-tion of an IMF mission is this: the mission goes through a country's books,decides what is wrong and informs the country's ministers and officials; itthen invites the government to propose a cure. All of this usually takesabout a fortnight. In the case of Britain, things went awry. Callaghan wasacutely concerned that the price of an IMF loan should not be the destruc-tion of the Labour Party. He had in mind the precedent of 1931,37 and wasdetermined that the government and Party should stay together. Therefore,he decided not to force anything, to give everyone in the Cabinet a chanceto speak, to let things drag along if necessary while opponents talked andargued themselves out. The problem was that this ended up taking sixweeks rather than two. During this period Callaghan tried desperately tofind outside support to neutralize the pressure of the IMF; at the same timethe Americans worked to counter this pressure, and as a result Simon, theTreasury Secretary, and especially Yeo, embarked on travels of their own.Upon hearing that Callaghan might have swayed Schmidt, for example,Yeo flew off to Bonn to counter this.38 Yeo was frequently on the plane toLondon, sometimes without even telling his secretary.

3 4 Ibid.; Callaghan, Time an d Chance, p p . 4 3 1 - 2 .3 5 Callaghan, Time an d Chance, p p . 4 3 1 - 2 .36 Interview with D r Karl-Otto P6hl , 1 5 December 1989.3 7 A s did many others: Benn, for example, had xeroxed the minutes of the Cabinet meetin gsof 19-24 August 1931 and had them printed first in the 25 November issue of Tribune, the left-wing newspaper, a n d then in th e Journal of the Institute for Worker's Control, n o . 3 4 . I o w ethe latter reference t o Phil ip Wil l iamson.3 8 Fay and Young, T h e D a y the Nearly Died", 2 1 M a y 1978, p . 3 3 .



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364 KATHLEEN BURK

Callaghan's one attempt at sending a political envoy was the mission byHarold Lever, the Chancellor of the Duchy of Lancaster and the Cabinet'sresident financial wizard, to Washington on 14-16 November. The IMF hadmade drastic proposals for cuts in public expenditure which Callaghanbelieved would be politically impossible for the Cabinet to accept, let alonefor the government to implement, and the Prime Minister decided that heneeded to get through to Ford, to request his help. He sent Lever, who wasto reassure Ford that Britain would eventually come to an agreement withthe IMF, although the Fund had to be realistic about what it could demand.Beyond that, Lever was to emphasize that it was vital to Britain that it ob-tain an agreement on the sterling balances. Lever got an agreement out ofFord that he would help on the latter point, which the US Treasury, fearingthat somehow Britain would slip out of the IMF net, tried frantically toundo. Kissinger then became involved, arguing in favour of givingassurances to Callaghan that the United States would be sympathetic, andthe end result was that the United States would be helpful about the sterlingbalances but only after Britain had come to an agreement with the IMF.39There was to be no escape hatch there.

Callaghan's only other hope now was Schmidt. While Schmidt was in-clined to help Callaghan by leaning on the IMF, Pohl was trying to convincehim that if he did this, it would destroy the IMF. Pohl was frequently in aninvidious position, being sent by Schmidt to London and Washington toargue a case in which he did not believe.40 In the end, Schmidt apparentlyaccepted Pohl's argument. He also apparently decided that the whole crisishad dragged on for far too long, and on 30 November he told Callaghanand Anthony Crosland, the Foreign Secretary and one of the Cabinet leadersopposed to the IMF, that Britain would have to settle with the Fund.41

This development more or less coincided with intellectual exhaustion onthe part of the Labour Cabinet. Callaghan's main worry had been that theCabinet would split over the harsh decisions which had to be taken. Themajority of the Cabinet believed that they had already put in place thenecessary reforms, as to both public spending and wage restraint, and thatto give in to IMF demands for further cuts would not only be economicallyridiculous, but politically and economically damaging. Crosland, for ex-ample, believed that the IMF demands were an economic nonsense and thatthe Cabinet should sit tight, calling the IMF's bluff:

3 9 Ib id . , p. 34; in terview with Lord Lever , 4 May 1989; in t e r v i e w w i t h Sir Wil l ia m R y r ie , 28July 1989; br ie f ing paper for Ford's meet ing with Lever , 12 N o v e m b e r 1976, and C a l l a g h a n toFord, three page letter , 12 N o v e m b e r 1976, both File CO 160, White House Central Fi le s , FordPapers , Ford Pres ident ia l L ibrary. The Callaghan le t ter is cited here as l isted in the c a t a lo g u e ,b u t the a u t h o r was u n a b l e to c o n v i n c e the N a t i o n a l A r c h i v e s to dec lass i fy it. The a r g u m e n t s ,h o w e v e r , are c lear from the Lever in terview and o t h e r so u r c e s .

4 0 In t e r v i e w w i t h Dr K a r l - O t t o P d h l , 15 D e c e m b e r 1989.4 1 C a l l a g h a n , Time and Chance, p. 438.



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The Government should then say to the IMF, the Americans and the Germans, ifyou demand any more of us we shall put up the shutters, wind down our defencecommitments, and introduce a siege economy. As the IMF was even more pas-sionately opposed to protectionism than it was attached to monetarism, thisthreat would be sufficient to persuade the Fund to lend the money without unac-ceptable conditions.42

Benn, on the other hand, propounded what he and others referred to as the'al ternative strategy': this would involveimport controls fed in by a period of import deposits, and exchange controlswhich would certainly be necessary in the short run. This would permit us tohave a differential interest rate for official holders of sterling. We'd need a capitalissues committee, control of bank borrowing and to keep an eye on the directionof investment and planning agreements under reserve powers more moneyfor the NEB [National Enterprise Board]. But the most important thing is that weshould consult the TUC 1 3

Michael Foot, the Leader of the House of Commons, supported Crosland'sanalysis, believing that the threat to the Labour Party of a split as in 1931was so great that the government should resign rather than agree to theIMF's demands.44 Those backing the IMF demands included only theChancellor of the Exchequer, Denis Healey, and Edmund Dell, Secretary ofState for Trade.4 5 Callaghan's strategy was to allow the Cabinet to talkthemselves out, and throughout November the members argued andcaballed, the factions forming and changing as the pressure to take a deci-sion increased.46Callaghan himself refused to reveal his own mind, waiting until theCabinet meeting on 2 December to state that he would support theChancellor.47 Callaghan's announcement was crucial . A Cabinet decisiontaken against the combined forces of the Prime Minister and Chancellor ofthe Exchequer would hav e necessitated their resignations, thereby thro w ingboth government and party into turmoil . This consideration was in fact thedeciding one for Crosland, who told his colleagues in Cabinet that theycould not vote against the Prime Minister. For others, al ternative options,such as import controls, seemed even less attractive than making the

4 2 Crosland, Tony Crosland, p p . 377-8 . Cros l and made th e speech at Cabinet o n 2 3November . Accordi ng t o Benn, h e ended with: 'our weakness is our strength . . . i t i s a test ofnerve, a n d t h e IMF must give us the loan. ' Benn, Manuscript Diary.4 3 Benn, Against the Tide, p . 6 6 5 .4 4 Benn, Manuscript Diary, entry for 23 No vem ber 1976; Cal laghan, Time an d Chance, p p .4 3 8 - 9 .4 5 Healey wrote in his memoirs that Dell w a s ' th e only member of the Cabinet o n w h o m Icould count' : The Time of M y Life (London, 1989) , p . 4 3 1 .4 6 Burk a n d Cairncross, 'Goodbye, Great Britain', ch . 3 passim.4 7 This w a s t w o days after h i s a n d Crosland's meeting with Schmidt.


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366 KATHLEEN BURK

necessary cuts. The left had nowhere else to go except out, and in the eventnone of them resigned. On 2 December the Cabinet finally agreed terms tosubmit to the IMF.

Who lost and who won in all of this? Looking at Britain first, an IMFagreement was absolutely vital. It had lost the confidence of the markets,and such confidence is vital if a country wishes to borrow money atreasonable rates of interest or wants its currency to be worth something.Once Britain had turned to the IMF, it had to secure the loan: failure to doso would have destroyed the government, and gone some way towardsdevastating the economy, as holders of sterling dumped pounds and lendersrefused to lend. The question was, how onerous would the terms be7 In theend, they were considerably lighter than the IMF had set out to impose, andto this extent Callaghan's mobilization of external political support had ap-parently worked. At the outset, the IMF had asked for public spending cutsof 3 billion in 1977/8 and a further 4 billion in 1978/9: they settled forcuts of 1 billion in 1977/8 plus the sale of 500 million worth ofgovernment-owned British Petroleum shares, and a further 1 billion in cutsin 1978/9. Britain also secured a sterling balances agreement the followingmonth. Confidence was restored in the markets, the pound shot up in thespring of 1977 and Britain needed to borrow less than half of the total loanof $3.9 billion.48 All in all, Callaghan and Healey could deem the wholeepisode a success.

What about the United States? The Treasury had successfully hookedBritain into the arms of the IMF, and had forced it to undertake a publicreformation of its habits of public finance: not only had public expenditurebeen cut, but strict controls had been agreed on the amount of credit allowed.If terms had not been as onerous as Simon, Yeo and Burns would have liked a failure which they attributed to the White House, with Burns especiallybitter at the 'weasel words from the White House word architects'49 Yeocertainly believed that he and Burns had saved the pound. Kissinger and hisallies on the National Security Council (and, presumably Ford) also feltsome satisfaction in having helped Callaghan to stave off politicaldestruction.

What about Germany? Again, there was general satisfaction. Schmidthad helped Callaghan fight off the more stringent proposals of the IMF,while at the same time encouraging him to be realistic as to what Britainwould have to do to restore confidence in its government and economy. Forhis part, Pohl, along with Dr Otmar Emminger, the Vice-President of theBundesbank, were relieved that the position of the IMF had not been overlycompromised by political interference.

44 Burk and Caimcross, 'Goodbye, Great Britain', ch 3 and 4 passim.49 Fay and Young, The Day the Nearly Died", 21 May 1978, p. 35.


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THE 1976 IMF CRISIS 367And finally, what about the IMF7 This had been a testing time for theFund. A successful outcome would herald a new career as internationalbank manager to replace the now redundant one of defender of fixed ex-

change rates. The Fund was acutely aware of the attempts to politicize it,and in response took comfort from the support emanating from the centralbanks and treasuries although not, apparently, from the Bank ofEngland. In the end, an agreement was reached, and the British economyrevived; and, at least as of the end of 1978, according to the Fund'shistorian, 'the stand-by arrangement had to be termed a success. Somemem bers of the Executive Board went so far as to label it "the most suc-cessful ever implemented".'50Britain had an IMF crisis, rather than a traditional economic or sterlingcrisis, because it had been lured into one by the Americans. On the otherhand, the outcome of the crisis was much less onerous than it might havebeen, in no small measure because of the support of the Germans. TheLabour government had not needed the IMF to convince it to change certainpolicies, but it had needed the IMF to convince the markets that ithad changed its fundamental app roach. In fact, it had not but that'sanother story.PostscriptWriting this article, as well as the book on which it is closely based,engendered some reflections on the writing of very contemporary Britishhistory. It has its undeniable attractions: talking to and sometimes workingwith the participan ts themselves, finding out about events which took placein one's own lifetime, even perhaps writing about events which may attractpublic interest in the form of non-academic reviews and commentaries. Onthe other hand, there can be problems: these include access to documents,problems of oral history, questionable freedom to publish, libel laws andReviewers, Who Were There.Access to documents is indeed a problem: although this article (and thebook) focuses on a crisis of a type for which Cabinet and Treasury papers,at the very least, w ould ordinarily p rovide the foundation, the existence ofthe thirty-year rule rendered a visit to the Public Record Office wholly un-necessary. The question then became one of finding enough detailed writtenmaterial of substance to make up for this deficiency. There were two advan-tages to this particular topic. First, it could draw on the papers of TonyBenn and particularly on his voluminous diary, the published version ofwhich is but a small portion of the whole. This was important in that theCabinet discussions formed a very important part of the story and the lack

5 0 Garritsen de Vries, The International Mone tary Fund 1972-78, vol. 1, p. 478.



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368 KATHLEEN BURK

of Cabinet minutes could have been crippling; Benn provided descriptionsof Cabinet meetings which were pages long. (It is worth noting that thiscrisis produced a very leaky Cabinet, and readers of Peter Jenkins' columnin the Guardian received quite full coverage. However, this is not, alas,always the case.)

The second advantage of this topic was that it contained a strongAmerican component, and there was thus a strong probability that evidencewould be found in American archives. The possibility of lifting this crisisout of its wholly domestic context and placing it in the international arenacame from the availability of American material (and, to a lesser extent,German material, access to which arose from wholly serendipitous cir-cumstances). Although there was less American material than anticipated,this was because central White House files which specifically focus onforeign policy frequently remain closed, on the wish of the foreign govern-ment, for far longer than those files dealing with domestic policy.Therefore, the White House file on the visit of Lever to Ford was notavailable; but this was less crucial than it might have been because the brief-ing paper drawn up for the meeting by the National Security Adviser for thePresident, which set out the problem and the line Ford should take, wasavailable. However, there is a general point here, which is that anyhistorian working on the very modern period on a topic which has anyAmerican angle should immediately book a trip to the appropriatepresidential library.

It should be noted that in the quest for material it is always worthwhileseeking out civil servants who may have their own reasons for helping. Inthis case, various civil servants, both domestic and international, were inthe front line and were quite eager to help. Several were keen to helpreconstruct an important period of history in which they had been in-volved; one or two others were concerned to correct accounts written bypoliticians which they believed were economical with the truth. It is not in-conceivable that, in the course of research and over a cup of tea, the odddocument may appear for perusal.

The second main problem, which can also be a brilliant opportunity, isthat of oral history. Naturally one advantage, and attraction, of very con-temporary history is the opportunity of talking to the participants; but in-terviews are double-edged. On the one hand they can be useful, althoughless for chronology than for indications of important people or topics, orfor atmosphere or relationships, or for useful anecdotes. On the other hand,interviews can be dangerous: the historian can easily be led astray,benignly by a sympathetic but wrong-headed or confused interviewee,more malignly by those who, for whatever reason revenge, say havetheir own line to purvey. Frequently, it is merely the case of old men forget-ting and, not wanting to disappoint the interviewer, tending to make it up.


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The third problem is that of the freedom to publish. This is perhaps lessrelevant in the political field than in, for example, business history orbiography . People are very protective of client confidentiality (in the case ofbanks), of their business failures or their past indiscretions, and of those oftheir immediate forebears. However, one can imagine problems arising inthe burgeoning field of intelligence history. A related problem is that of thelaw of libel certainly the publisher of the book on which this article isbased w orried about it. This again is more of a problem with biographies, atleast in Britain, although not in the United States. The answer is either tohire expensive lawyers who will crawl all over the manuscript, or tochance it.The final problem was more unexpected: reviewers who had, as jour-nalists, covered the crisis and therefore had strong ideas as to what the bookshould say. The worst example of this in the present case was a reviewerwho not only had covered the crisis, but had also toyed with the idea ofwriting such a book himself. More usual, admittedly, were those journalistswho had covered the crisis, thought they knew what had happened andwere now eager to compare their memories with the book. This elicitedsome very interesting reviews generally on the theme of appearance andreality.In general, of course, the same rules apply here as for all history writing:close scrutiny of sources but a t least they can sometimes be personally in-terrogated and especially close matching of one source against another.However, a more unexpected conclusion is that researching in and writingvery contemporary history shares at least one characteristic with that ofearly medieval history: because of relative scarcity, every scrap of informa-tion is vital.


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