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1980 Jun 25 We
Margaret Thatcher

Press Conference for American correspondents in London

Document type:public statement
Document kind:Press Conference
Venue:No.10 Downing Street
Source:Thatcher Archive: COI transcript
Journalist:-
Editorial comments:1700. MT’s next appointment at 1830. A note filed with the transcript states that "one or two repetitions" had been cut out, but that "the sense and feel" of the occasion had been retained. Material from the press conference was published in the US press on 29 June 1980.
Importance ranking:Major
Word count:6685
Themes:Agriculture, Economy (general discussions), Employment, Industry, Monetary policy, Privatised and state industries, Pay, Public spending and borrowing, Trade, Energy, European Union (general), European Union Budget, Foreign policy (general discussions), Foreign policy (Middle East), Foreign policy (USA), Foreign policy (USSR and successor states), Foreign policy (Western Europe - non - EU), Foreign policy (development, aid, etc), Northern Ireland, Terrorism, Trade unions, Strikes and other union action

Q ( Len Downie)

I'd like to ask you a question on the Venice Communique and the passage on inflation which could be taken to be broadly in line with what your Government is doing here. Do you take that as an international endorsement if you will, of policies that are still somewhat unpopular with some people in this country?

PM

It's certainly not meant as an endorsement of policies here, it's meant as a statement that this is what to do under these circumstances if you really want to solve them in the long term. And it's interesting that it is just exactly what we were doing. I think for too long politics has really gone for the short-term solution often at the cost of the long term, real solution. What we're really trying to do is to get things right in the longer term. We had an accumulation of problems in this country which have not been fundamentally dealt with. They are the structural problems of having tried continually to support dying industries at the cost of having inadequate resources for the growth industries. Now you can do it for a time but the time eventually comes when you haven't got enough productive industries to go on supporting the dying industries and this I think is one of the problems we're facing now and why we are having in fact to run down some of the older ones, to slim them right down. And because a lot of it has not been done in the past, a lot of it is coming all at once now. Now this is very very difficult for us, as a Government. There's shipbuilding, there's steel, there's still some run-down in the older coal pits and will always be because some of them are geologically faulted and are very very difficult to mine. We've got some of the older engineering companies that are having to be run down. We have traditional over-manning and restrictive practices. Now, at a time when you have to be competitive to survive, you can't just go on supporting these things if you're to keep your flourishing industries going. We are certainly mitigating the effect of a run-down in shipbuilding, we're giving very good redundancy payments to steel, there's been a steady closure of some coal mines for quite a time. We also have problems as[fo 1] with British Leyland. We also had an over-run on our electricity financing requirements this year, which was totally unexpected, but that's not a structural problem. We've certainly had structural problems with the electricity industry, we've had the Isle of Grain power station being constructed for years, we've had Dungeness being constructed for years. But all of these problems have become accumulative and the day of reckoning had to come some time and we've now got to deal with them fundamentally. We've tried to do patching up for too long. So we are going through a difficult time because they've all come together.

That's on the industrial side. On the financial side, basically, the very word inflation means that you've got more money in the system than is backed by goods. Now you've got to go through a time when you squeeze out the printed money. What monetarism really means—I don't need to explain it to you—is that you decide to have a lesser proportion of printed money for a sequence of four or five years. And people have to live within that lesser proportion, and how quickly we get through, depends upon how quickly people will change their demands for increased pay, how they relate to the reduced amount of money available. They can always have increased pay if they'll earn it, that's never in doubt, as long as they earn the increased pay by greater output of goods or services. The problem we're talking about is one that almost bedevils Britain now, perhaps because we've had more statutory incomes policies than other people, many of our people have come to expect an automatic increase each year of almost as much as whatever is the inflation figure. Anyone who was brought up in self-employment knows that your standard of living is not what anyone owes to you but what you can earn. So our problem is not wages related to increased actual output, they earn that, therefore they get it. Our problem is to bring down the wage increases that are not earned by increased output to within the money supply. We have a problem of distribution across the board but the fact is, this is why you get more unemployment related to pay. If some people take out a large chunk of the money supply for extra pay which is not earned by extra output, then there's a lot less out of that total for someone else and it means some will become unemployed. That of course is the relationship between your pay claims and your unemployment within a money supply policy which says, at the end of so many years, the increase in the supply of[fo 2] money must be in line with the increase in growth of goods and services. That is the only sound way to conduct an economy in the long run. The problem is to conduct it for long enough. Really, it's for the people to see that you mean what you say and to make it work.

Q ( Bob Erlandson)

In the House yesterday you also said that restraint on wage demands requires cooperation, presumably that means with trade unionists, to hold down the growth of pay rises.

PM

Cooperation between management and the unions, yes. Because they are running the business.

Q (BE)

Do you believe, given the attitude of the TUC towards your Government and its policies, that you can realistically expect cooperation?

PM

You find it in many firms. You don't discover what's going on in others, you only hear about the big ones. We have more trouble I think in the really big firms, you mentioned cars and nationalised industries, than we do in many others. You take textile workers! They've not been the ones that have demanded enormous increases. Textiles have always had excellent unions and now they are cooperating in introducing restraints. As a matter of fact, British Leyland took only a 7½%; wage increase. And they did cooperate with the management because they knew that the alternative was probably that many of them would be without jobs. What they're complaining about is that a number of their component suppliers nevertheless took out very large wage increases, more nearly related to the current rate of inflation and now those components are coming through more highly priced than they need be. That's going to be positively damaging for the sale of British Leyland's goods. And of course British Leyland would have cause to complain if they took a 7½%; wage increase and they had to have more highly priced steel, because steel took out a bigger wage increase. But it is happening. The difficulties are where you've got the statutory monopolies and certainly it's a problem but the problem can be solved. There's a lot more cooperation at shop floor level than one knows.[fo 3]

Q ( Phil Revzin)

On the same issue of cooperation a major problem looming, it seems, will be public sector pay. Obviously that was a problem for Mr. Callaghan, coming out of his incomes policy trying to limit those wages led to a very messy winter of strikes. How do you think this next winter will turn out in terms of public sector pay? How will you get across to them better than Mr. Callaghan did that there's only so much money about and they must accept wage increases below that of inflation?

PM

I think, in a way, the fact that we went through that winter was a rather shattering experience for many many people and particularly the trade unions. Because the whole of public opinion was massively against them and I think they'll think twice before they go through that again. Those particularly in the part of the public sector dealing with the social services. Yes we do have to get across to them that every penny we provide to the public sector, the non-marketing public sector, has to be earned for us by the marketing sector, whether it's public or private. All of those in the public sector, who are not in the business side of the public sector, depend upon the success of business enterprise. And what is in danger of happening is that so much seems to be going into public sector pay, that the private sector is being drained of resources that it needs. That's another reason why we simply have to stick and say I'm sorry there's only so much money, there isn't any more. And we just do have to stand and say no. But equally, I think we have a duty to explain. Some people then say to me, ah, you've got a pay policy. Of course I have. My pay policy is for the public sector to live within what the nation earns. It was called good housekeeping and living within your means long before it was called a pay policy.

Q ( Rush Kidder)

You speak about the need for mitigating the effect of the run-down. Can we talk about the private sector for a moment? I had dinner the other night with a businessman who described himself as a true-blue Conservative supporter of yours who is nevertheless terribly concerned about the number of bankruptcies, about what he considers to be a dogmatic policy on the Government's part, about high interest rates and the strength of the pound. And his real concern I think was, given that the theory is right, how do you inject into that what he calls warmth so that those people who really are pressed to the wall, deserving businesses and others, and go bankrupt, have something there to fall back on?[fo 4]

PM

If you're trying, as I said in the House yesterday to squeeze out inflation, there's no way of doing it without some painful results. How do you justify it? The fact that if you don't squeeze it out it will accelerate and you will get "suitcase money". You understand what I mean by "suitcase money". That's why you have to do it. So it is the lesser of two evils. And the fact is that if you just go on printing more money, you'll finish up with everyone pricing themselves out of the market and enormous unemployment, a flight from money into goods and total chaos. So that's why you have to do it. It does take a time to work through. As you know, we're still suffering from the ejection of the extra money coming out of the election. It takes about fifteen months to work through and then you have to squeeze. And in the end it does work to the real economy. So in a sense we do have to do it. Because there really is no alternative. Now can I just go on to high interest rates? Interest rates, as I'm constantly saying to people, are high because we're trying to borrow too much money. Now why are they trying to borrow too much money. Now why are they trying to borrow too much money? Usually because they've given larger increases in pay than they can afford. They've put more money into stocks than was wise. It's a classic thing to put more money into stocks and then have to borrow to finance them. They want interest rates lower to make it easier for them to go on doing that. I mean, the person who isn't into the market for so much isn't bothered quite so much about high interest rates. Now supposing we dropped interest rates. First, the market wouldn't take the slightest bit of notice that Government dropped interest rates. The demand for money at the moment is greater than the supply of money it wouldn't make any difference if I dropped the Minimum Lending Rate and the market was still above it. Just for a time the market has been slightly above. You can only drop the interest rate by following the market. Otherwise it has no effect. But the real reason why interest rates are high is because a combination of Government borrowing plus industrial and business borrowing is greater than the supply the price goes up. And the price is the interest rate. The answer's not wholly in my hands. As you know I'm trying to do everything possible. I've bullied the Government out of the borrowing by saying we're cutting down on spending. Now we are succeeding in cutting the programme spending and we've put a cash limit on the[fo 5] wages bill. At the moment it looks as if there's a tendency to exceed that cash limit. Also people look not at the cash limit or the Budget but to the Department which has to work with a percentage increase in pay when we get these interest rates. Strength of the pound. There's nothing a Government can do to resist the market on the pound. You can smooth it going down, and you can smooth it going up for a day or two, but the strength of the pound will have its way if money is flooding in. People will say all right, if money's flooding in, it could pour pounds into the system and bring the exchange rate down. But every pound I pour into the system increases the money supply which is not backed by goods and services. So bang goes my inflation target. The strength of the pound might come down a little bit when interest rates fall. But interest rates falling will depend on borrowing falling. Borrowing falling will depend, taking it backwards, on Government not borrowing so much which I'm trying to do. On private industry not borrowing so much, which means they must liquidate some of their less high stocks, and not have such large wage increases, so it all holds together. Of course they would like them to have a slightly easier time. I can't offer it to them. With inflation at about 18%;, I've got to pull it down. Otherwise the people who pay are those who've saved in pounds.

( Rush Kidder)

You speak about mitigating the effect of the rundown which I understand you can do ...

PM

You mitigate the effect of the rundown. And of course if a firm goes out of business they have in fact paid into a redundancy scheme. On top of what I'm doing here, trying to get the structural side of industry right, we're bound to be in a world of recession because of the increase in the price of oil. It happened last time we had a sharp increase for the very simple reason we've all got to pay more for one commodity, and we had much less to pay for others, and therefore those firms that were producing others were bound to diminish.[fo 6] That's a direct consequence of the increase in the oil price. Sorry, I'm going all round your question.

Question

Could you give us some idea of what is your long-range policy on North Sea oil? The Community to share some of the North Sea oil?

PM

North Sea oil at the moment. I don't know whether you realise there are terms and conditions which already attach to it. The Government has the right to purchase 51%; of the oil produced from oilfields within our waters. But that 51%; must by law be at world price. This is why North Sea oil has to follow the world price. I can't sell it to anyone, even the British people, under world price, so they can't buy it under world price. Those were the terms and conditions of the oil companies in the North Sea. Our grade of oil is similar to that produced by Algeria, Libya, Nigeria.

So every time Libya, Algeria, and Nigeria put up the price of oil we are bound to follow because otherwise under the legal powers, the companies would have to sell to us, they'd be entitled to go to arbitration, if they thought the prices we were buying at weren't world prices. So I've no power to sell, to purchase for Britain at less than world prices, and because we're part of the Community we've no power to sell to the Community at a lesser price, no power to buy at home at a lesser price, and no power to sell to the Community at a lesser price than we pay in Britain. That's the pricing point. With regard to export, 50%; of our exports already go to the Community. So the Community does tend to have more access to the purchase of oil from the North Sea than anyone else. And there is a trigger clause in the IEA Agreement that if a shortage gets to greater than 7%; then we have to start a sharing exercise. The shortage terms and conditions are not really properly defined. But it's usually on the previous year, and all of us are well below what we had the previous year. That's because the price has brought consumption down, for very obvious reasons. On gas flaring we were flaring quite a bit. We stopped some of the flaring of gas because it's a terrible waste of energy just to flare the gas.

Slightly less oil is coming out than would be the case otherwise.[fo 7] It is of course justified. The fact that we have to flare it until we get a pipe line, it would still have to be flared. Of course, we'll explore for more. Really that's the general background.

CBS ( Susan Peterson)

At the Summit was there any mention of a possible face-saving solution for the Soviets on Afghanistan with respect to a total military withdrawal, and the possibility of sending in a neutral peace-keeping force?

PM

No. The first thing is to secure the acceptance by the Soviets that they must withdraw all their forces. Lord Carrington put up the suggestion of a neutral and non-aligned Afghanistan. We did not go into detail as to how it can be effected. At the moment there's total unwillingness on the part of the Soviet Union to withdraw all her forces. Until one sees the sign of some movement, well, then none of us are very optimistic. When one sees the sign of some genuine movement, then there might be more detailed discussions. Certainly at the Summit we did not go into that.

NBC ( John Hart)

What could Jimmy Carter learn at the Summit? What messages were given to him? I'm asking you for your assessment now, if any perceptible changes occurred there?

PM

There was no disarray there—now you don't know what to write about. I sometimes wondered when I saw the reports at the end of the first day whether I'd been at the same Summit! There was no disarray that in itself was an extremely good thing. And there is a great realisation that the West must in fact stand absolutely together. We stand together because we wish to do so, to defend the things we believe in. The Warsaw Pact countries stand together by force—they're not allowed to do anything else. I think it's an enormous mistake to think that each and every Summit is going to come out with great new solutions. You can no more go around looking for the philosopher's stone in politics than you can in alchemy. It doesn't exist. And the Summits were never really meant for the kind of thing that they've turned out to be now. They were really meant for seven Heads of Government to get together to talk quietly over the problems of the day and to see if they can learn from one another and concert a more general approach to them. I think we do concert[fo 8] a more general approach to them. On economic policy, to concert a generally accepted approach. And after all, it is the approach which has made Germany such a successful country economically. Because she's had an orthodox financial policy, and you must realise that you don't vote yourself or strike yourself into extra prosperity you work yourself into it. So we generally had that acceptance, that unless you tackle inflation you will not have a basically stable society economically, and therefore you will not be able to go forward either to greater prosperity or have influence in the world, or to have the essential condition of stability and confidence. It was a pretty forthright statement on Afghanistan, particularly with the ploy of the Soviet Union, coming out with that little withdrawal announcement that day, to see if it could work. It didn't. I think the discussions on oil were extremely valuable, although we hadn't sorted out the problems. When we had the 1973/74 massive increase in the price of oil—it went up five-fold. It went up and stopped. You gradually came down in real terms over the next five years. Interesting—it went up for a political reason—the Yom Kippur War. Then it gradually came down. Now it's gone right up again, for political reasons, don't forget. Increases in the price of oil are usually triggered off by a political reason. Recently it was Iran, and the world really being robbed of the certainty that it had a regular supply of oil from Iran. Now the question this time is whether this increase is in fact going to stop, because one always thinks it must stop sometime. There's no sign of it yet. It's still going up at $2 a barrel at 4–6 weekly intervals, and what do you do if it doesn't stop because already it's putting the world into recession? Now the OPEC countries aren't going to stop because we say so. They're only going to stop if it's in their interest to do so. One has to show them that it's not in their interest to undermine the economies of the Western world on whom many of them rely to recycle their money. Or to invest their money. Nor is it going to help any of us if they totally undermine the developing countries some of whom are relied on for raw materials, but all of them will have political reasons to hope for a higher standard of living. That natural hope is being frustrated by what they're having to pay for oil, and they're being made more poverty-stricken. There has been an assumption that because the first oil price increase ended, this one will all of a sudden end. We none of us quite see that it's going to because the normal supply and demand mechanisms aren't working because of the[fo 9] colossal uncertainty. Actually demand for oil this last year has been slightly less than the supply of oil. It hasn't led to a reduction in price because people will buy because of the uncertainty factor. The uncertainty is a very big factor in this whole equation. We haven't learned quite how to deal with it except I think that by talking about the damage it's doing, the damage becoming apparent, in the form of recession in the industrialised economy, and much worse for the lesser developed world. It's no good lending them more money—they can't afford to borrow it—they can't afford to pay the interest. There's no point in talking about it in terms of recycling Arab money which usually means putting it through a banking system and lending it on. They can't afford to borrow it. You've got to think in terms either of their not having price increases or some more aid to cancel out that price increase. All of this was discussed, and you ask me what we learned. I think what we learned was a greater understanding of the nature of the problem I think we've to talk less in jargon—I get very worried when people talk in jargon. Let's not talk about recycling. What it means for the industrialised countries like us whose credit is good is, yes, we can borrow the money back from the oil producers. We can borrow it back through the ordinary banking system. There's another group of countries which have borrowed from the international institutions, perhaps at soft loan rate because they're still credit-worthy enough to borrow at soft loan rate. Then we come to the others who can't afford a penny piece. It's no good recycling money to them. They've got to have grants. (Tape change) …   . Some countries in OPEC who realise the problem are desperately trying to help by holding down the price of oil. Others who I believe would follow their lead and others who are determined to put it up at first possibility. All of this was discussed in Venice. We don't necessarily just find answers—answers come more slowly, through persuading people that in the end what they're doing is not only bad for other people's interests, it is bad for their own interests. One tries to stop talking about North/South dialogue because North/South is the old-fashioned way of looking it. It's aid from the industrialised countries to the less developed countries. Since that phrase was coined you've had the big oil producing countries, you've had the redistribution of money towards them, and with the redistribution of money you've also got the redistribution of power. So it's not north-south—it's almost[fo 10] further along the road. I hate the jargon—it's a kind of shorthand for a lot of big thoughts, but in the end the danger is that it conditions the way you think because you've been put onto thinking tramlines by virtue of your jargon. I don't know whether Jimmy Carter learned that.

Baltimore Sun ( Bob Erlandson)

Venice I. Having solved your budget problem, and enlisted Chancellor Schmidt's assistance, when do you think there will be serious revision of the CAP?

PM

I think it'll take at least eighteen months. The Commission's been charged with the duty of bringing forth proposals for the CAP and restructure of the budget by June 1981. That was in the communiqué. I myself doubt whether it will be complete by that time. But between now and then there are two elections in two major agricultural countries, Germany and France. I don't think you will get that change unless, very strong positions are taken up by the Heads of Government. And I think they will have enough on their minds at the moment without putting sufficient impetus behind that. And so I think therefore it's more likely to come in the time after that. Eighteen months will just about be enough. But don't underestimate the difficulty of getting it. What we've done at the moment is not finally to solve the problem. We've mitigated the immediate problem, and we've bought time. Within that time we have to solve it. We're already half way through 1980—the temporary budget problem wasn't solved till half-way through 1980. We've got a formula for 1980 and 1981. There's a formula for 1982 but its precise formulation still has to be determined. Now to manage to get fundamental changes in the Common Agricultural Policy and budget problems is going to mean enormous concentration, enormous negotiation. It's taken me a year from June last year to May this year to get one small problem—small against the background of the whole Community—sorted out. So don't under-estimate the difficulty of doing it.

AP ( Nikki Finke)

President Carter.

PM

I have met President Carter many times, and always got on well together. America's and Britain's interests are very similar. I have a passion for the free society of the kind you and I live in—so superior to anything the world has ever known that we shall be doing very much more to proclaim it as well as an awful lot to defend it.[fo 11] So we're very much at one. I haven't of course met Mr. Reagan many times. I was always very grateful that I was met as a Leader of the Opposition, and always now that I am in Government meet Leaders of the Opposition. That is always understood. I've side-stepped that beautifully!

Time-Life ( Ray Cave)

President Carter changing his view with regard to European Heads of State meeting with Mr. Brezhnev. Do you have views about meeting with the Soviets?

PM

I don't know what his view was. The fact is that President Giscard has been to see President Brezhnev in Poland, and that Chancellor Schmidt is going to see Mr. Brezhnev in Moscow. One might as well just accept it. Not much point in kicking against it. One has happened; one is happening. Each of them went representing their own country and no one else, and that is perfectly clear. I rather thought you said President Carter had changed his view. No, I wouldn't consider such a meeting at the moment. But then I'm not likely to be asked!

UPI ( Joe Grigg)

Is there any possibility of negotiating with the Soviets about withdrawal from Afghanistan or does any kind of discussion with them depend on total withdrawal? Is Chancellor Schmidt likely to take this up with Brezhnev when he's in Moscow?

PM

I don't know. He will speak wholly for Germany and not for the West. He's not going as the emissary of the West in any way. I have not the slightest shadow of doubt that whatever he says he will be a totally devoted member of the Western Alliance and will put his position in the Western Alliance very firmly indeed. At the moment I see no signs of negotiation with Russia over Afghanistan, but I do think the non-aligned countries and the Committee of three are a very important factor because I think that what really surprised Soviet Russia was the fierce stand taken by the non-aligned countries against what Russia had done. And I think that those countries, if they keep actively together, are in a good position to take an initiative. The most we said in the communiqué was that we would support any such initiative. The fact is that they are an occupied country and the occupying power must withdraw their troops. Suppose Britain had been occupied, and we'd had a total condemnatory resolution in the UN, it is totally unacceptable[fo 12] that Afghanistan should be occupied by alien troops. It must remain unacceptable. And they really must withdraw. And Russian action must remain totally unacceptable, not only to the Western world, not only to Afghanistan, which I'm sure it will, as the resistance has been tremendous; fine, of course, they're fighting for their own country, and I get very angry if any of the Press call them rebels. It's their country. If the non-aligned countries realise that so long as the occupation of Afghanistan continues the non-aligned countries are not safe either. I don't see any negotiated settlement—they've got to withdraw.

US News & World Report ( Robert Haeger)

You seem to be quite pleased with what happened at Venice II. Is there any particular way in which you found it disappointing?

PM

No. Hitherto it's always been an Economic Summit. But if you look back to see what's happened since last year, really rather a lot has happened. When we assembled in Tokyo last year the price of oil was $14 a barrel, some charging $16. OPEC was meeting at the same time—it actually went up to $20 a barrel. It's now over $30 a barrel. All that's happened in a year. The Afghanistan invasion. The whole situation in Iran including the taking of the hostages. Now we really couldn't just stick to an Economic Summit. We really had to discuss the situation in Afghanistan, and some of the other refugee situations too. We had to turn it into a political discussion as well. Not surprising to me, because when you think about it, most economics come from political causes, so we certainly did discuss all of those things. I think sometimes the difficulty we have sitting there is that you think we're going to have great magic pronouncements. There aren't any or other people would have found them before us, or we would have found them separately. But it does help to know that you're thinking along the same lines.

Supplementary

Suggested that it might have been healthier and more useful to have had this meeting earlier?

PM

No, we have them regularly, but don't forget the number of visits that take place regularly from one country to another. It isn't as if[fo 13] there's no contact at all. There's regular Ambassadorial contact. Secondly, Cy Vance used to come here, Peter Carrington has been to Washington ... there's a regular procession of people going round the world, seeing other leaders. A lot of them come to London, it's a natural place to come. Far more of my time is taken up on foreign affairs than I ever thought before I came here because so many people come to London. It's actually extremely useful because whereas foreign affairs used to be something that happened overseas, now it's something that actually affects your life at home. Foreign Affairs aren't strange any more. They are things which directly affect the lives of people in a small town in the United States, and oil prices have affected them. So don't think that we don't see one another. There's always the telephone too. Don't think it's nothing or the Summit. It's probably because we do communicate so often that nothing absolutely fresh comes out of a Summit.

Question

On the Iranian hostages, did President Carter brief you and the other Heads of State on what the current stage of play is behind the scenes?

PM

I don't think there was anything extra that could be told to us. We are all just as anxious as you are. What we're anxious about is that they all come out all right. When Mrs. Kennedy came to see me here, one of the wives of one of the hostages—a very remarkable person—I gather so is her husband—what they're very concerned about is that the hostages should come out, all of them, and as reasonably fit as anyone could be who'd gone through that dreadful experience. And we believe that they will. We can't precisely see the time and the way, but I think we all of us believe that they will, that there's an increasing number of people in Iran who'd really like to solve the problem, because they too have enormous problems, and don't forget they came out with a pretty firm statement against Soviet Russia and the invasion of Afghanistan. If only this one were solved, it would make it so much easier to deal with the urgent affairs in that part of the world. It's flaunting every single international law, and that no-one can ignore.

Question

EEC sanctions. Do you think they're having any effect?[fo 14]

PM

[words missing] and to have sanctions is another difficult factor for them on top of the difficulties they're already experiencing, and that after all is the object of the exercise. I think what they are finding difficult is something which technically is not in the sanctions order but which we've been supplying—first they can't get spares for things which they need—none of us have been supplying anything in the nature of armaments. We've been holding up a ship for a very long time although it's virtually paid for and ready to go. Those things are difficult. I think they're finding the maintenance of their oil installations difficult because so many of our people are not there, and after all we were pretty close with the Iranian oil company. Most difficult is that for eight weeks we, in conjunction with the Germans, the Japanese, have not purchased oil from the Iranian oil company. They put up the price from $32.50 to $35. We said that's too much—can't go on going up. And so they'll find that their exports—they tried as you know to replace it by orders from the Warsaw Pact countries—I don't think they've succeeded in very large measure, perhaps because they haven't got the hard currency. Therefore their oil output is down to something like ¾ m. barrels, well below 1 m. barrels a day. That means that their income is down a very great deal, that they haven't got the money to buy supplies, and I think that must be having very considerable effect upon them. Technically it was not within the sanctions order. It is in fact a sanction that—a measure that has been applied because they tried to put up the price of oil too high. It was a joint effort between us, those people who normally try to purchase oil from Iran. Where it is very difficult is where those who have urged you to take this action, if other people then go and buy oil at higher prices from other suppliers.

Question

I was thinking of the Middle East now. In view of the mixed reception to the EEC initiative towards PLO, is there anything else being contemplated from the British side—any new approaches?

PM

No, this one hasn't worked through yet. Of course there was a mixed reception, but I do think it's accepted in the United States this is not to undermine Camp David at all, but to try to do something[fo 15] complementary to it. Let me explain my view on this. For years in this particular part of the world there's been talk about a national identity for the Palestinian people, a homeland, self-determination. No-one has sorted out precisely what this means. These words in the end have to be clothed with practical effect. I should think every State Department of every Foreign Office has had a paper on options. What could happen. No-one I think has ever gone round to all the people concerned and said "How do you see the future, because there are various options?". We, as a matter of fact, recognise the West Bank land as belonging legally to Jordan. There are only two countries in the world which recognise that—Britain and Pakistan. The United Nations never got the legal status of the land sorted out. It's sort of land in limbo. But used to be in Jordan before the several wars. Now some of our Israeli friends say all right, Jordan took it at the time of the 1947/48 war. But certainly we recognise that long before there was any trouble about it for years as belonging to Jordan, and so did Pakistan. Now, I just mention that by the way because the legality of that—if you enquire from the UN—has never been sorted out in this part of the original problem associated with 1948, if you look back at the UN resolutions in the General Assembly at the time of the birth of Israel. Now, what we are trying to do therefore is to do something which we hope will be helpful in sorting out finally the problem of the area—I don't think we can sort it out finally—I think it's the United States that probably has far greater ability to do so than we have, but we can in fact, we felt, do that. And I beg of you look at that communique extremely carefully. It isn't undermining anything—it's trying to do something that no-one else is doing, so that we believe that we can help by doing that. It is saying that as a condition Israel has an absolute right to exist behind secure boundaries and this must be accepted by all the Palestinian people including the PLO. And that Israel also must recognise the legitimate rights of the Palestinian people. Now those conditions are binding on all parties including the PLO which must be associated with the settlement. Not which must participate in the settlement. Associated with the settlement. So if these two things are not accepted there's no possibility of a settlement. The difficult thing here all along has been to get two things to happen[fo 16] simultaneously. Israel to recognise the legitimate rights of the Palestinian people, and the Palestinian people openly and avowedly to recognise Israel's right to exist behind secure borders. Whether, what they're first going to do is to go round and say to them do you accept these principles. And then one hopes that there will be some possibility of sorting out the sort of options that could lead to a solution. I don't think it will come about quickly.

Question

Situation in Northern Ireland.

PM

We are doing our level best on security, and we know that the Republic of Ireland also realises and cooperates on cross-border security, and just as it's in our interest that they have maximum security, so it is in their interest to cooperate on cross-border security. They're having a lot of incidents as you know in the Republic of Ireland. Sometimes you'll find the IRA robbing banks to get the money, and so they are in fact having problems too. So we do get cooperation on cross-border security. Of course we have not solved the problem. I only wish we had. If you look at the border you can see why it's so difficult. If you look at the number of little roads that go across the border. It's just not possible to blow them all up. But with the security position we go steadily on. It still causes us very great problems.

Question

We believe (you say) that the American hostages will come out all right. On what do you base that—assume something about American policy?

PM

No, it's a feeling that Iran will eventually release them. I don't see what they're gaining by holding them except the condemnation of a large part of the world and sanctions on the part of some. I feel it—it's not the sort of statement that bears total cross-examination.

Question

Longer-term economic. Do you see any danger in the combination of your policies and the inheritance since the last war of the economic decline to the extent it was in Britain leading to Britain becoming some other sort of economic animal—not a manufacturing country so much as a service, banking centre? If not, how does industry regenerate itself?[fo 17]

PM

Look at how industry regenerates itself in the United States. Look at the reports you've had—one on small business—50%; of the jobs now, new jobs in last ten years have come from industries which employ fewer than twenty people. Who could have foreseen the great development, fifty years ago, of television, or radio? Who when we got it could have seen the transformation of the old valve system into transistors? Who could have foreseen the micro circuitry to computers—smaller and smaller—that you could in fact almost have a computer in your pocket?