A Bundle for Britain

Until recently, a grim joke among international moneymen was that British bankers were preparing a special Bicentennial gift for the U.S.: a pound worth $ 1.776. Two weeks ago, the laughter grew thin; sterling fell to $1.705, down from $2.02 as recently as March. The pound's collapse threatened to weaken the international monetary system and cast a shadow over the industrial world's quickening recovery. Then last week a spate of good news buoyed the pound. Its value climbed to $1.771 at week's end, raising hopes that the worst of the sterling crisis might be over.

The biggest lift came from reports that ten of the richest nations, along with Switzerland and the Bank for International Settlements, had provided the Bank of England with a $5.3 billion line of credit--the largest single amount, $2 billion, coming from the U.S. The hefty bundle for Britain strengthened the central bank's ability to halt the sharp decline in sterling by buying up pounds in international markets. Any of the credits the bank uses must be repaid in six months.

Weekend Calls. The action, which resulted largely from a series of weekend phone calls among central bankers, is a direct outgrowth of last November's economic summit at Rambouillet, France. At that meeting, President Gerald Ford and the heads of five other major industrial nations agreed to intervene to keep money markets orderly, which could include support for specific currencies that were deemed to have sunk too low. For months the British argued that investors had overreacted to Britain's formidable economic woes and had left sterling undervalued. While a cheaper pound gave British goods a price advantage in world markets, it also kicked up inflation by making more expensive the huge amounts of food and raw materials that the nation imports.

Additional help for the pound came from Switzerland, which has been worried about losing export orders and tourists as a result of the rising value of its franc. Last week the Swiss moved to push the franc lower by making heavy purchases of other currencies, clamping a curb on speculative dealings, and cutting the central bank's discount rate from 2.5% to 2%--moves meant to make their franc less attractive for investors who want to flee sterling.

At the same time, the Labor government was able to offer investors further proof that it is gaining in its battle against Britain's destructive inflation, now running at an annual rate of about 13%. The often fractious coal miners' union voted to accept an agreement between the government and the leadership of the Trades Union Council to hold wage increases to an average of 4 1/2%, or about $4.61 a week, for the year beginning Aug. 1. The 11 million members of the T.U.C.'s constituent unions are widely expected to ratify the agreement in balloting this week.

The chief result of all this activity is to buy time for the British Labor government to right the wobbly economy. In general, its chances now seem good, though it still faces exquisitely difficult problems, such as how to slash expensive social services without losing the support of unions. Attention is now likely to shift to Europe's other economic disaster area, Italy, which next week faces a national election that for the first time could give the country's Communists a strong presence in government. Indeed, there is some belief, at least in Washington, that the ten-nation mission to rescue Britain may well have been intended partly as a signal to Italy. Its essence: if Italians reject the political blandishments of the Communists next week, they too might well be in line for more support in meeting their awesome economic challenges.

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