intervention which left the Justice Department ‘stunned’. In March 1985 Reagan intervened again to persuade BA’s biggest creditors to settle out of court, thus clearing the way for privatisation to begin in 1986.
Another running sore was the attempt of some American states to tax multinational companies on the proportion of their profits deemed to have been earned in that state. British objections to this ‘unitary taxation’ – at a time when British companies were investing heavily in America – bedevilled several of Mrs Thatcher’s meetings with Reagan and his colleagues, before this too was eventually settled to her satisfaction. In this case, however, the resolution probably owed more to American multinationals making the same complaint than it did to Mrs Thatcher’s protests.
Above all, she worried about the impact on Europe of the Americans’ huge budget deficit, caused by the Reagan administration’s policy of tax cuts combined with increased defence spending. After five years the deficit was running at $220 billion a year and the US was the world’s largest debtor nation – especially heavily indebted to Japan. This was Mrs Thatcher’s one serious criticism of her ally’s economic policy. When she had been unable to bring spending under control in 1981 she had felt bound to raise taxes and she could not understand Reagan’s insouciance. At successive G7 summits she warned that the unchecked deficit would raise interest rates and ‘choke off world recovery’.41 In fact US interest rates fell in the second half of 1984 and the booming US economy led the world out of recession. But still Mrs Thatcher worried, though she was reluctant to criticise in public. She wrote to him that she remained ‘very concerned by… the continuing surge of the dollar’:
A firm programme for the reduction of the budget deficit is the most important safeguard against financial instability and I wish you every success with your Budget proposals to Congress.
Reagan tried, in his fashion; but in practice the conflicting priorities of the Republican White House and a Democrat-dominated Congress ensured that the deficit persisted for the rest of the decade.
An even more sensitive issue on which Mrs Thatcher’s intransigence exasperated Washington was the future of the Falklands. The Americans had, with some misgivings, eventually backed what the
But Mrs Thatcher was not interested in a just peace. So far as she was concerned, she had defeated the aggressor, at great risk and considerable sacrifice, and she was not now willing to negotiate away what her forces had won. As she defiantly put it: ‘We have not sent British troops and treasure 8,000 miles to establish a UN trusteeship.’45
The first test of her flexibility came that autumn, when several Latin American countries sponsored a UN resolution calling for renewed negotiations to end what they called ‘the colonial situation’ in the Falklands. Mrs Thatcher immediately cabled Reagan asking that the US should oppose the resolution. But George Shultz and others in the administration – not least Jeane Kirkpatrick, still the American Ambassador at the UN – believed that the US should support it, since the whole purpose of the UN was to promote the peaceful resolution of disputes. Shultz initially feared that Reagan would take Mrs Thatcher’s side. ‘But I found that he too was getting a little fed up with her imperious attitude in the matter.’46 The President ticked his agreement to Mrs Kirkpatrick backing the resolution, and wrote a delicate letter – in reply to what his staff called ‘Mrs Thatcher’s latest blast’ – to explain why. Nevertheless the sting was that he was still going to support the UN resolution, which was duly carried by a large majority, with only a dozen Commonwealth countries joining Britain in opposing it.
Mrs Thatcher continued adamantly to reject any possibility of negotiations on the question of sovereignty. A year later, however, with a democratically elected government now installed in Buenos Aires, the State Department took a further step towards normalising relations by ‘certifying’ Argentina as eligible for a resumption of American arms sales. This, Reagan assured Mrs Thatcher, merely ended the embargo imposed in 1982. ‘Certification does not mean arms sales.’47 The announcement was tactfully postponed for a day to spare her embarrassment in the House of Commons; Vice-President George Bush thanked her for her understanding response.48 For the next three years Reagan deferred to her sensitivity, and no arms were sold; but by 1986 the pressure from the Pentagon was becoming irresistible. Once again Mrs Thatcher went straight to the top. ‘You should expect a typical Thatcher barrage,’ John Poindexter briefed Reagan before their meeting at Camp David following the Reagan – Gorbachev summit at Reykjavik. ‘You will want to tell Mrs Thatcher that we cannot continually put off how best to nurture Argentina’s democracy.’49 But this time she was more subtle, waiting until almost the last minute before dropping a final item almost casually into the conversation, as Geoffrey Smith described. ‘“Oh, arms to Argentina,” she said, for all the world like a housewife checking that she had not forgotten some last piece of shopping. “You won’t, will you?”’To the horror of his officials, Reagan fell for it. ‘“No,” he replied. “We won’t.” So in one short sentence he killed weeks of careful preparation within his administration.’50
The most serious public disagreement of their whole eight-year partnership came in October 1983, when the Americans sent troops to the tiny Caribbean island of Grenada to put down a coup by a gang of left-wing thugs against the elected – but already Marxist – government led by Maurice Bishop. The Americans were always concerned about any left-wing takeover on their Caribbean doorstep and, fearful of another Cuba, had already been doing their best to destabilise Bishop’s regime ever since 1979. But Grenada was a member of the Commonwealth, whose head of state was the Queen. The Foreign Office was alarmed at events on the island, but believed there was nothing to be done, since Grenada was a sovereign country. Several neighbouring Caribbean states, however, concerned for their own security, did want something done, and appealed to Washington for help. The Americans responded by diverting ships to the island, ostensibly to evacuate several hundred American students, but in fact to mount a counter-coup. They did so without consulting or even informing Mrs Thatcher until it was too late to halt the action. As a result she was humiliated by the revelation that her vaunted relationship with Washington was rather less close than she pretended.
The story of her reaction to the news of the American invasion has been vividly told from both sides of the Atlantic. According to Carol’s life of Denis, Reagan telephoned while her mother was attending a dinner – ironically at the US Embassy. As soon as she got back to Downing Street she phoned Reagan back and railed at him for several minutes: some versions say a quarter of an hour. ‘She didn’t half tick him off,’ Denis told Carol. ‘“You have invaded the Queen’s territory and you didn’t even say a word to me,” she said to him, very upset. I think that Reagan was a bit shocked. There was nothing gentle about her tone, and not much diplomacy either.’51
The diplomatic exchanges tell a slightly different story. Washington received the call for help from the Organisation of Eastern Caribbean States (OECS), led by the formidable Mrs Eugenia Charles, Prime Minister of Dominica, on Sunday 23 October. The same day a suicide attack in Beirut killed some 300 American soldiers serving in the multinational peacekeeping force in Lebanon. There was no logical connection, but there was no doubt in British minds that the American resolve to act quickly in Grenada was fuelled by the outrage in Beirut: it was easier to hit back in Grenada than in Lebanon. Reagan and his military advisers decided almost immediately to accede to the OECS request and began planning the operation in the greatest secrecy. At four o’clock on Monday afternoon, in reply to a question from Denis Healey about the possibility of American intervention in Grenada, Howe told the Commons in good faith that he knew of no such intention: American ships were in the area solely to take off US citizens if it should become necessary, just as Britain had HMS
Less than three hours later, however, at 6.47 p.m., while Mrs Thatcher was still in Downing Street hosting a reception, there came a cable from Reagan telling her that he was giving ‘serious consideration’ to the OECS request. He assured her that if an invasion did go ahead, the British Governor-General would be the key figure in appointing a provisional government as soon as the troops had landed. He also promised categorically: ‘I will…
