Good News Amid the Gloom

For the first time since he left office in 1963, former British Prime Minister Harold Macmillan spoke out on day-to-day political affairs last week. In a television interview, he called for "a government of national unity" to lead the country through its latest economic crisis. Macmillan, now 82, recalled the wartime coalition of parties under Winston Churchill. Such a government, the former Tory leader argued, would have enough popular support to take the tough measures necessary to stave off economic collapse. Macmillan declined to name any prospective leader for such a government, but, he added, "somebody will come along, of course."

Macmillan was not the first to offer such a solution to Britain's problems. Ever since the pound took its disastrous nosedive during the last days of September--thereby forcing James Callaghan's Labor government to ask for yet another $3.9 billion loan from the International Monetary Fund--Britons have been treated to a Cassandra's chorus of elder statesmen appealing for a government of national unity.

Dose of Escapism. In somewhat more veiled fashion, former Prime Minister Edward Heath said much the same thing as Macmillan at the Tories' conference in Brighton earlier this month. Another former Tory minister, Lord Hailsham, recently called for nothing less than scrapping the ancient parliamentary system ("an elective dictatorship") and replacing it with an American-style written constitution.

Laborites and even some Tories dismiss the coalition talk as partisan. "Old men's twaddle," snorted George Gale, the crusty columnist for the Daily Express. "What is being offered in all this talk of 'government of national unity' is yet another dose of escapism." Callaghan's predecessor, former Prime Minister Harold Wilson, told TIME that he opposed such a plan in peacetime because a national government "almost invariably produces fudged decisions." Moreover, Wilson added, the inclusion of Tories in the government would jeopardize the tenuous working agreement between the Callaghan government and the unions and lead to widespread labor unrest.

More pertinent, perhaps, is the fact that a new poll out last week gives the Tories a 14.8% lead over the Laborites --more than double what it was a month ago. With that figure to encourage her, Tory Leader Margaret Thatcher is aiming at leading Britain's next government rather than playing second fiddle in a Callaghan-led coalition.

Reasons for Optimism. Despite all the doomsday talk, there were some compelling reasons for optimism. British Petroleum, the oil giant that is 48% government-owned, announced that unexpectedly good geological conditions in the North Sea's largest field have enabled the company to increase its production schedule by 25%. At the same time, a survey released by DeGolyer & MacNaughton, an oil consulting firm, forecast a 12% increase in yield from another large North Sea field that is being developed by Occidental Petroleum.

The two announcements sent investment bankers to their calculators to take a fresh look at just how much longer it will be before Britain's seemingly bottomless trade deficit--already $2.1 billion for the first nine months of this year --is wiped out by North Sea oil. Some analysts have already concluded that the government's target date of self-sufficiency in oil by 1980 should be moved ahead. The oil is expected to shave more than $1.75 billion off the trade deficit next year, more than $4 billion in 1978 and $9 billion by 1980.

These glowing figures tend to support West German Chancellor Helmut Schmidt's oft-repeated view that the pound sterling, which has dropped 20% in value against the dollar in the past year, is actually undervalued. Says the research director of one of London's biggest merchant banks: "The North Sea will give sterling holders plenty of reason for encouragement if the government can only convince them it won't fritter it away in foolish increases in public spending. Once that message gets across, I wouldn't be surprised to see sterling firm up immediately."

Meanwhile, Callaghan seems to be pinning his hopes on the West Germans. Schmidt recently met with Callaghan; he has agreed that West Germany will give full support for Britain's IMF loan application, much of which will in fact involve German funds. Bonn will also drop its demand for a revalued "green pound," the rate of exchange at which agricultural transactions are conducted within the European Community and that now amounts to a subsidy for British food prices. Thus, as in Italy, the economic clout of the West Germans may well be a decisive political factor in Britain.

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