‘Well, boys, Britain’s broke; it’s your money we want.’
(Lord Lothian, His Britannic Majesty’s ambassador to the United States, to American reporters, November 1940)
The Phoney War was discouraging as well as dull. And those who were at sea were angry at the phrase, for many sailors and passengers died in this period at the hands of U-boats and surface raiders. There were some naval triumphs – the destruction, partly by bluff and partly by rash courage, of the German raider Graf Spee, the Altmark incident, the severe mangling of German destroyer forces at Narvik. But the war on land rapidly went against us. Poland was quickly defeated and dismantled while we and France did nothing. Winston Churchill’s Norway adventure blew up in his face, leaving Germany in charge of much of Scandinavia. It is still hard to grasp that it was this typically Churchillian disaster which finally swept away the nation’s confidence in Neville Chamberlain and propelled Churchill into Downing Street.
And, despite being not merely predicted but actually known about through captured plans, the German attack through Belgium and Holland destroyed the French Army and expelled us from the Continent for the next four years. Dunkirk did terrible damage to the Royal Navy’s force of modern destroyers, carefully built up over many years and impossible to replace at short notice. For all the talk of ‘little ships’ and the undoubted bravery of those who crewed them, it was destroyers which did most of the rescuing at Dunkirk.
What of the Royal Air Force? In the months ahead its existence would be justified by its part in the Battle of Britain. But at the time it was regarded with suspicion and scepticism by the other services. They believed (with some justification) that air power should provide support to those fighting on land or sea, not pose as an independent fighting force. The RAF’s chiefs had placed – and would again place – great faith in the power of bombing. But the RAF was not very good at bombing. During the brief and sorry land war in May 1940, it was found that our RAF bomber force was poorly designed and committed to outdated tactics. It was terribly savaged as a result. Folly has hard consequences.
The warship shortage would, eventually, bring about the extraordinary Destroyers for Bases Agreement with the USA, under which 50 decrepit American World War I destroyers would be grudgingly handed over to us. For American domestic political reasons this could only be done in return for the USA’s obtaining bases in several British territories on the Western side of the Atlantic, which I detail in Chapter 5. This was a shocking surrender of sovereignty by what had been the world’s greatest empire, and one of several indications that Britain was, piece by piece, handing naval and imperial supremacy to its former colony. It was a very hard bargain. It symbolises the true relationship between the USA and Britain in the post-Dunkirk months, as opposed to the sentimental fable still commonly believed.
But much less well known, indeed, barely referred to in most histories, is the transatlantic transfer of the British empire’s life savings, in gold and negotiable securities, first to Canada and then on to Fort Knox in Kentucky, where much of it still remains. Despite later claims that the bullion was sent for safekeeping, it was in fact dispatched to pay for the war. America at that stage would take nothing except hard cash. Hardly any of it came back, though some securities were eventually returned. This was only part of a general stripping, by the USA, of British assets, including the forced sale of valuable investments in North America. It was a kind of means test. Before Britain could become what it has been ever since – the USA’s pensioner – we had to prove that we had nothing left to sell, no precious jewels sewn into our national underwear, no gold under the national mattress.
It was during this period that Britain was stripped almost completely naked by the ‘cash and carry’ system under which we were allowed to buy war supplies, for hard cash only, from the USA before the later introduction of ‘Lend-Lease’.
But ‘Lend-Lease’ was not possible until Britain had shown, to the satisfaction of the US Congress, that it was in all practical ways bankrupt and begging. This had many aspects. Lord Lothian, the (dying) British ambassador in Washington, said openly and bluntly to American reporters in November 1940, ‘Well, boys, Britain’s broke; it’s your money we want.’ It was true, too true, and too blunt, which is why poor Lothian was reprimanded for saying it. Britain was even borrowing gold from the Czech government in exile, and, more desperate still, from the defeated Belgians, just to keep going. British assets in the USA had to be pledged as if to a pawnbroker. In one still bitterly remembered case, for which the company was later compensated by the British government after a court battle, the British-owned American Viscose concern was sold to American buyers at a knock-down price. Winston Churchill was so infuriated by this (and by the USA’s insistence on collecting British gold from South Africa aboard the US Navy cruiser Louisville; see below) that he came close to rage. He wrote, in a cable never sent because it would have wrecked good relations, that these demands
wear the aspect of a sheriff collecting the assets of a helpless debtor. You will not, I am sure, mind my saying that if you are not able to stand by us in all measures apart from war, we cannot guarantee to beat the Nazi tyranny and gain you the time you require for your rearmament.1
He feared in the end that Roosevelt would mind him saying so. That is why he did not send it.
The stripping of Britain was an enormous event. Secret convoys of warships were hurrying across the Atlantic loaded down with Britain’s gold reserves and packed with stacks of negotiable paper securities, ostensibly out of fear these would fall into German hands, though the real purpose was to ease their sale. These arrived in Canada via Halifax and were trans-shipped to the Bank of Canada in Ottawa (the gold) and a secret vault beneath an office building in Montreal (the securities). South African gold (as mentioned above) also made its way directly to North America. A US Navy cruiser, the USS Louisville, with a spotlight trained on her Stars and Stripes to alert U-boats to her neutrality, hurried gold directly from Cape Town to New York. Churchill found this particular event especially humiliating, as it was direct interference by a foreign power in the secret internal workings of our empire. Much, perhaps all, of the bullion dispatched through Canada made its way eventually to Fort Knox, the USA’s famous fortified vaults in Kentucky. One calculation of the value of the gold is (in modern terms) rather more than £26 billion. The pound sterling of 1940 was worth roughly 47 times as much as today’s feeble imitation. Rather movingly, some of the gold sent to the USA had been held so long in London vaults that it was still in the form of doubloons, moidores, pieces of eight, French louis d’or and other beautiful and historically valuable coins, assembled over centuries of British commercial success and naval supremacy. It is unlikely that many of them survived the great upheaval. Perhaps they are still in Fort Knox nearly 80 years later. Nobody really knows what is in there now.
How much of this, the accumulated savings of Britain over many decades, ever came back is not stated in Alfred Draper’s extraordinary work Operation Fish (1979). Draper rightly thought the subject fascinating and plainly had excellent sources. His book remains little known because the episode itself does not fit the conventional belief in a warm, trusting and generous relationship between Britain and the USA. The whole operation remained largely secret when he wrote about it, and much of the detail remains unknown even now.
The book is written in an old-fashioned and optimistic style, very much imbued with the ‘shoulder to shoulder’ atmosphere of the time and the subsequent Anglo-American closeness which endured throughout the Cold War. But the bare fact, that the nation’s monetary heart was removed and physically shipped to the vaults of a rival, shines coldly through the narrative.
Using the 47:1 conversion rate (see above), this was what had happened in the opening months of the war: by November 1940 we had paid for all the war supplies we had received from the USA – selling about £15 billion in American shares requisitioned from private owners in Britain, and paying out about $212 billion in cash. We had reserves of just $94 billion left in investments, which were not readily saleable.
Even if Britain had sold its entire gold reserves and foreign investments, we could not have paid for half of what we had already ordered from the USA. The need to fight a long war meant we would now need at least ten times as much.
By January 1941 (I revert here to contemporary figures, as these are in US dollars rather than sterling – the US dollar at this time was worth approximately five English shillings, that is to say one pound sterling would buy four dollars), almost everything negotiable we possessed had gone.
Henry Morgenthau, Roosevelt’s Treasury secretary, explained the position to the US Senate’s Foreign Relations Committee. Britain had by then been forced to open up its most closely kept financial secrets to prove the depth of its need.
Here are some samples from this statement:
Britain’s January 1941 debt to US manufacturers – $1,400,000,000 (1941 values).
British total assets (including private holdings in dollars, gold and marketable securities) – $2,167,000,000 – of which $1,811,000,000 were actually available for use (1941 values).
Britain’s gold and dollar reserves had already dropped by $2,250,000,000 (1941 values) in the first sixteen months of the war. The war was now costing Britain $48,000,000 a day (1941 values) – the cost of the war was 60 per cent of national income, much of which was being raised by severe taxation.2
Morgenthau told the sceptical senators, who were unconvinced that Britain had really sold all its assets, that of course Britain had resources all over the world. But it could not turn them into dollars, so they were of no use in buying weapons.
‘I am convinced,’ he assured the suspicious old gentlemen, that ‘they have no dollar assets beyond those they have disclosed to me. Lacking a formula by which Great Britain can continue to buy supplies here, I think they will just have to stop fighting, that’s all [my emphasis].’3
Thus the great act of generosity (‘This most generous act’, as Churchill publicly termed it) called Lend-Lease began with something very like a bankruptcy hearing. The two Houses of Congress would not have passed Lend-Lease legislation otherwise (and it was a long struggle to persuade them, as we shall see). And when Lend-Lease began, it was strictly limited to ensure that we could fight the war but not use American aid to recover our lost economic strength.
The chilly manoeuvring continued despite Britain’s peril and Hitler’s continuing advances and success. After the Japanese attack on Pearl Harbor, the USA’s commitment to war was absolute and quarrels with Britain were put to one side, though not forgotten. But in the long period between Dunkirk and the Japanese surprise attack, mutual suspicion and resentment between Britain and the USA continued quite openly. It is interesting to see just what an anti-British document the ‘Atlantic Charter’ of August 1941 (see Chapter 6) was. It was welcomed at the time as the embodiment of supposed Anglo-American friendship. But the unity was superficial.
This was hard cynical foreign relations, not charity or friendship. There is nothing wrong with that. The USA is a country with interests separate to and different from ours. It acts quite rightly in its own national interest. So why should we simper – as we have ceaselessly done since this era – over the USA’s decision to use our self-inflicted plight in 1940 to diminish our power and wealth, and to supplant us in many important areas? It was a neat piece of work, politically, economically and diplomatically. But it certainly was not charity, nor was it based on sentiment.
Nor was it always very tactful. The private papers of the Canadian prime minister, Mackenzie King, for 26 May 1940, are fascinating. They reveal an astonishing attempt by President Roosevelt to obtain control over the British Navy, out of fear that Britain might bargain its fleet away in return for a negotiated peace.4 King had sent his personal envoy, Hugh Llewellyn Keenleyside, to Washington to discuss the approaching Fall of France. That Sunday evening, at Mackenzie King’s country home at Kingsmere outside Ottawa, Keenleyside reported that Roosevelt, and his Secretary of State Cordell Hull, suspected that Britain would not be able to fight on. They feared an offer from Hitler, under which Britain would give up its empire and its fleet, ‘bargaining only for her own salvation’. If Germany got the French fleet as well, it would be ‘superior to this continent’ as a naval power:
The President wanted me to line up the Dominions [Australia, New Zealand and South Africa] to bring concerted pressure to bear on England not to yield to the making of any soft peace even though it might mean destruction of England comparable to that of Poland, Holland and Belgium; the killing of those who had refused to make the peace.5
Roosevelt wanted Britain, before surrendering, ‘to have her fleet make its base at different outlying parts away from England and send the King to Bermuda’.6 That was not all:
America would open her ports for repair to the British fleet and in this way a cordon from Greenland to Africa could be thrown around Germany; though it might take a couple of years, Germany would be defeated in the end.7
Mackenzie King wrote, ‘for a moment it seemed to me that the U.S. was seeking to save itself at the expense of Britain’. He felt this was
an appeal to the selfishness of the Dominions at the expense of the British Isles. Each of them being secure by the arrangement […] I instinctively revolted against such a thought. My reaction was that I would rather die than do aught to save ourselves or any part of this continent at the expense of Britain.8
This provides interesting detail of a fact long known but remarkably rarely dwelt on in British popular history of the era. By contrast, Lynne Olson, in her bestselling (in the USA) study of America’s long, fierce argument over entering the war, Those Angry Days (2013), says, ‘FDR urged Churchill to consider dispatching the British fleet to Canada or the United States in case of German invasion.’9 Churchill dismissed the idea of handing over the symbol and essence of British power to a neutral country. But Mackenzie King’s diaries make it clear that Roosevelt was doing more than just urging.
An account by Keenleyside survives (in, among other places, the Rhodes House library in Oxford). I am indebted to Professor Geoffrey Warner for this detail. Where the note uses abbreviations, I have substituted the complete words.
The ostensible purpose of Keenleyside’s Washington visit was a Canadian request for the USA to supply aircraft for training. Britain could no longer send any planes to Canada for this purpose because of the German attack on France. FDR said he could not provide any of the US Army’s aircraft at the moment because of America’s own needs – but made his usual expansive promises about the future.
Keenleyside noted,
He expressed great concern over recent developments on the Western Front. In conclusion he added that it was his wish that I should say to the PM that if the situation deteriorates much farther he would be very glad if Mr King could find time to come and see him, privately, at Hyde Park or Washington … The object of the proposed meeting would be to discuss ‘certain possible eventualities which could not possibly be mentioned aloud’ for fear of laying the speaker open to the charge of being a ‘defeatist’. He added that if I would mention to the PM the words ‘British Fleet’ Mr King would understand the lines along which the President’s mind was working … I took this to mean that the latter was anxious to have an understanding that the British Fleet would be transferred to this side of the ocean, in the event of an Allied defeat, rather than allow it to fall into German hands. This was not developed by the President and I felt that it would not be appropriate for me to ask for a clearer definition of his views.10
Both sides wanted to clarify the position, and so Keenleyside returned to Washington on 26 May to see Cordell Hull, then Secretary of State, and Roosevelt: ‘FDR referred to communications from Churchill and [the French premier] Reynaud which “had seriously disturbed him … There seems to be little doubt that within a week annihilation or surrender will be the only military alternatives.”’11 When the coastal area of France was entirely in German hands, it probably would not be long before the rest of the country was overrun, and he thought it probable that Germany would offer France ‘rather favourable terms’, on the condition that its army was disarmed and its fleet handed over. He thought that ‘strong elements in France’ might succeed in forcing this on the French government:
The Nazis will then be free to devote all their strength to the devastation of the UK. Facing an air superiority of about 5 to 1 it is unlikely that the UK can withstand such an assault for many weeks.12
On the basis of reports received from Berlin, FDR thought two alternative offers would be made by Germany if Britain sued for peace.
The first would be ‘comparatively reasonable’, but would involve the surrender of the empire and the handing over of the British fleet. The second would be ‘of the most Carthaginian nature and will involve widespread destruction, followed by complete occupation and administration by the Germans’.13
In this connection, reports from hitherto reliable sources in Poland said that German officials there had been circularised concerning their knowledge of English and their willingness to take over administrative posts in the UK. This second alternative might also involve the death of those who had failed to accept the first:
For these reasons, [FDR] is afraid that the temptation to buy a reasonably ‘soft’ peace will be irresistible. Yet such a temptation, he feels, would mean not only the temporary extinction of civilization in Western Europe but its permanent destruction throughout the world.14
FDR and Hull wanted Churchill to be informed that
as long as there is any possibility of successful defence the British Fleet should be kept in action. If the British Isles can withstand the air bombardment it is possible that a blockade of the continent and of the Med can be made so effective that Germany – and Italy – can be defeated. But if it becomes apparent that the last hope of successful resistance is gone the remnants of the British Fleet should be sent out to S Africa, Singapore, Australasia, the Caribbean, and Canada. The vessels that cannot be moved should be destroyed – especially the naval ships that are under construction. The same steps should be taken with regard to the Merchant Marine … When this is being done, or preferably shortly before, the centre of Imperial as distinct from Domestic authority should be transferred from London to some capital overseas – say, Ottawa. At the last moment also the King should be brought to safety, and given temporary refuge in say, Bermuda. [A note reveals that Roosevelt started to say that the king might come to Canada but hesitated, and Hull said this would have adverse political effects in the US as it would be exploited by the US administration’s political opponents to accuse FDR of ‘establishing monarchy on the North American continent’. They further agreed that the king might take temporary refuge in Bermuda.]
The people and Government of the UK will probably be terribly punished for taking these steps but they will be no worse off than previous victims of German aggression and their suffering will have a real objective in that it will make possible the ultimate triumph of civilisation.
By the time this situation develops the US will be ready to offer help. The British fleet will be given access to US ports, assistance will be given in the building up of Simonstown, Singapore, Halifax and other bases. The whole continent of Europe will be blockaded by a naval cordon drawn from Greenland to N Africa, and by naval units based in the Indian Ocean. The US Fleet will hold the Pacific and especially defend Australia and NZ. In two or three years Germany will be forced to accept any terms offered – especially as that country will not be likely to obtain much help from a frightened Russia. The end may, of course, come much sooner as a result of internal revolution. It will be a period of terrible suffering but it does offer hope.15
If, on the other hand, the Nazis got control of the British and French fleets, FDR thought it would mean ‘the end of hope’. In his opinion there was a ‘definite understanding’ with the Japanese in which the latter would have a free hand in the NEI (Netherlands East Indies, now Indonesia), Australia and NZ and the US couldn’t stop it if the Germans got hold of the British fleet. Germany and Italy would take over all other British and French possessions, except those in the Americas. The US itself would probably become ‘totalitarianised’ because of the need to arm and organise ‘on a colossal scale’ to meet the imminent dangers.
FDR and Hull agreed that public opinion would not permit immediate intervention to save Britain and France. In any case, the US only had 3,000 suitable aircraft. Opinion was changing, but too slowly unless the UK could hold out for months on its own.
FDR did not think that he could put this argument to Churchill, but he hoped that King could get the leaders of Australia, New Zealand and South Africa to ‘make common and very strong representations along these lines’. In the meantime, the US would: (1) establish an ‘Ice Patrol’ which would cover the Atlantic coast from Maine to Greenland; (2) take other, more drastic steps in the area if required; (3) facilitate transfer of registry of non-naval vessels needed by Canada; and (4) make available ‘small arms and ammo, harbour chains and nets, certain old naval planes of little utility, and other semi-military items such as binoculars’. It could not, at the moment, supply anti-aircraft equipment.
FDR expressed hope that King would keep him informed as to developments ‘on the same strictly and exclusively personal basis as that upon which the discussions have been initiated’.
Given the hard cynicism going on in the background, the one-way shipments of gold and securities, the stripping of assets, the demand for leases of British bases in return for ancient destroyers, and the pressure to hand over the Royal Navy to US control, it is remarkable that Churchill found it in his heart to be so generous about Lend-Lease, as he repeatedly was. At that moment, it must have been particularly hard to say words he knew were not really true. Later, when truth had been obscured by layer upon layer of sentimental myth, he said it once more, and it has since formed part of that clotted, sickly assembly of sentiments which make up the supposed ‘special relationship’ between the two countries.
Meanwhile the war was proceeding disastrously, though not as disastrously as it had done for France. Western Europe’s greatest military and air power had, as expected by Roosevelt, collapsed. But the French Navy had survived, mostly undamaged, a powerful assembly of mostly modern warships now within the grasp of the Germans. What was to be done? Had Churchill learned a lesson from Roosevelt, or was he seeking to impress him? For his next action, one of the most violent and ruthless he ever ordered, was to be an attack on French warships. This extraordinary incident tends not to feature in the more popular versions of our national history, or it is passed over very quickly, yet it is one of the most important moments of the entire war. Here were two allies who had together guaranteed Poland, who had together declared war on Hitler, who had cooperated bravely to ensure the evacuation of as many soldiers as possible from Dunkirk, who had achieved a closeness unprecedented in their history. But now one of them was firing on the other with 15-inch guns, hurling terror and slaughter at men who had until a few minutes ago been friends and allies. Where the two sides fought on equal terms, the Royal Navy did not do very well. One very powerful French vessel, the modern battleship Strasbourg, escaped undamaged, in a major British naval failure. Her escorting heavy destroyers were embarrassingly superior to the Royal Navy’s equivalent ships, and managed to screen her from attack until her speed enabled her to get into the open sea.
Was this extraordinary, unprecedented attack on a trusted ally and friend justified? The argument still goes on. Nobody that afternoon could have known the future. There was a risk that the French ships would fall into German hands. The wounded pride of the French admiral, Marcel-Bruno Gensoul, seems to have blinded him to the reasonableness of the proposals that were made to him, involving several possible ways of moving the French ships out of German range while leaving them ultimately under the French flag. The commander of the French naval detachment then at Alexandria, confronted with similar demands, was able to agree a peaceful compromise. The actual Franco-German armistice agreed that the French Navy was to be disarmed ‘under German and/or Italian control’. It noted that the German government ‘solemnly declares to the French Government that it does not intend to use the French War Fleet which is in harbours under German control for its purposes in war’.16
But who could be sure of any ‘solemn declaration’ from Hitler’s lawless state or from the equally gangsterish Mussolini? In fact, the Germans would eventually attempt to seize the French fleet at anchor at Toulon in 1942. They failed mainly because the French ships’ companies had prepared to scuttle their vessels in a long-planned operation almost as successful as (and a good deal braver than) the self-destruction of the German High Seas Fleet at Scapa Flow in 1919. But it is impossible to say what might have happened had the Germans simply taken the vessels by surprise within a few days of their surrender. Had Germany truly sought to take the war to the USA, as the propaganda of the time so often said, then something of the kind would have happened. The fact that it did not suggests that there was no such plan. But Churchill quite possibly believed it, and pro-British publicists in the USA were, at that moment, claiming that the British Navy was all that stood between the USA and Hitler. This argument had plainly impressed Roosevelt very much, though his response was not exactly what those British propagandists might have wished for. And what if Hitler used captured French warships in the invasion of Britain that most then thought inevitable?
Whatever the reasoning, on 3 July 1940 (about six weeks after Roosevelt’s secret, defeatist attempts to get control of the Royal Navy), British ships opened fire on their former allies at Mers-el-Kébir on the coast of North Africa, killing almost 1,300 men in a few brief, horrible minutes of merciless, unfair gunfire. The French, being tied up alongside in harbour, were at a hopeless disadvantage. They had probably never believed the British threat to attack them, though it had been clearly and unambiguously delivered to Admiral Gensoul by a British officer fluent in French. If Gensoul would not accept any of four possible choices (sail to British harbours and join forces with Britain; sail their ships to British ports with reduced crews which would then be sent back to France; sail to a French harbour in the West Indies; sink their ships), then British warships would open fire at short range. He did not accept. After hesitating for three quarters of an hour beyond their deadline, the British fleet opened fire on French warships for the first time since the Napoleonic Wars.
Once again, Britain had demonstrated its almost suicidal commitment to an idealist general war, Utopian and even self-damaging in its nature. In such a war, old allegiances and friendships were coldly cast aside, the unthinkably huge financial cost forgotten for now, and the interests, fears and desires of the United States increasingly dominant. The Vichy government in France gleefully employed the incident to combine French patriotism with anti-British propaganda. The British officers and men charged with the task were disgusted by what they had to do and haggard with dismay at what they had done. One of the ships most heavily involved, the battlecruiser HMS Hood, symbol of British sea power, would meet her own terrible end not long afterwards, blown to pieces by a single German shell in a miserable national and naval humiliation. Still, the United States of America had been propitiated, and the grotesque event may in fact have done more to ensure ultimate British survival than many more honourable combats. But nobody cried out joyously ‘the Navy’s here!’ as our warships trained their guns on the French fleet. The chivalrous, old-fashioned war which had begun in September 1939 was over, replaced by a more calculating and much crueller type of combat. It was at this point in the war that it completely ceased to resemble its 1914–18 forerunner and became a genuine world conflict in which Britain was no longer fighting for its own national interest, but for what might be called a new world order. And an even greater paradox is that this new world order would necessarily mean a greatly diminished Britain.
The best explanation of the Mers-el-Kébir carnage is that Churchill, stung and angered by Roosevelt’s grab for the Royal Navy, and half-persuaded that it was justified under the circumstances, wanted to demonstrate that Britain was committed to war at all costs. He had good reason to do so. Neither Franklin Roosevelt, nor the USA as a whole, were fully convinced that it was worth their while to support their one-time colonial rulers in yet another Old World battle.