Downing Street Years - Margaret Thatcher [101]
President Reagan was subject to some criticism at Montebello about the level of US interest rates. He explained that he had inherited these from his predecessor. ‘Give me time’, he said; ‘I want them down too.’ He was as good as his word on this. He also hoped to control the US deficit by cuts in public spending, but that proved more intractable. The deficit continued to rise until about 1985. The US deficit was to be the one topic on which the President and I continued to be at odds, until the latter half of his second term when it entered a sharply declining path. My own experience of getting down deficits was that you had to keep a very firm hand on the purse strings and say ‘no’ to much public spending. If you are controlling public spending, you can temporarily put up taxes because in those circumstances the revenue will help to cut the deficit (and therefore interest rates). But if you are increasing spending, then a tax increase will only serve to encourage even more spending and thus may even increase the deficit. Given the separation of powers in the US Constitution, which enabled Congress to spend over and above the president’s wishes, holding taxes down may be the only effective tool a president has to hold spending down. So I came to have some sympathy with Ronald Reagan’s position. Where the President and I were at one was when he argued for the greatest possible international free trade. Trade also figured in others’ contributions. The Japanese were, as usual, sound on the principle of free trade, but, in spite of pressure, definitely less willing to take practical measures to open up their own markets.
Helmut Schmidt, who was known to be privately critical of the policies of the new US Administration, argued for sound and orthodox public finance and open trade, and I did the same in quite a long off-the-cuff speech. My contribution was, I suspect, the more convincing because, as a result of the cuts in government borrowing in our 1981 budget, British interest rates had fallen by this time — even while we were continuing to fight inflation.*
Perhaps my most useful discussion at Ottawa was at a private meeting with President Reagan. Since we had met in Washington he had survived injuries from an assassination attempt which would have crippled many a younger man. But he looked fine. I briefed him on events in Britain, putting both our economic problems and the recent inner-city riots in perspective. As regards American relations with Europe, I was becoming increasingly worried about some of the Administration’s rhetoric: for example, I urged him to discourage talk about a ‘rising tide of neutralism’ in Europe: while I agreed with his underlying point, such warnings could all too easily prove self-fulfilling. I took this opportunity to thank him warmly for his tough stand against Irish terrorism and its NORAID supporters. It was good to know that, however powerful the Irish republican lobby in the USA might be, the Reagan Administration would not buckle before it.
MELBOURNE CHOGM AND VISIT TO PAKISTAN
Almost two months later the Commonwealth Heads of Government Meeting opened in Melbourne (on Wednesday 30 September).
The conference was overshadowed, as usual, by South African issues. Robert Mugabe, with whom I had a separate meeting, was there for the first time representing Zimbabwe. There was a good deal of hostility to the new American Administration’s attitude to the problem of Namibia. I was determined to hold the line so that the so-called ‘Contact Group’ of five nations, including the US, should continue to be the means by which pressure for a settlement was exerted. At one point Maurice Bishop, the Marxist Prime Minister of Grenada, delivered an eloquent plea that we should send a clear message of support to our brothers