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11 July 2016

Iron Will in Diplomacy – Thatcher and Hungary 1979–1984


 

INTRODUCTION

 

The theme of the conference is Thatcherite “principles of governance” – glossed as moral conviction, an iron will. Certainly she possessed both qualities – I can testify to that having spent some four years in her office. John O’Sullivan knew her better still. She was a rather motherly person, seen close up by staff. She was always worrying that we were not getting enough to eat, when the thing that we really lacked was sleep. She worked every minute of the waking day.

I am going to attempt to give life to these themes by talking of her policy towards Hungary – of course in part because of its particular interest to you, but also because it actually fits the themes particularly well, as we shall see I hope.

I will concentrate on 1979–84 – ending there because that is the year of her visit, which some of you will remember, and also the latest period for which the archives are open. Archives matter a great deal to the Margaret Thatcher Foundation because we are publishing her private papers and official files in full online – and many other besides in fact, even including some Hungarian. This is a unique initiative as far as we can see. It would not have been possible before the internet, and even now it is so daunting in scale that others are not doing it.

The archives matter to this story for another reason. Although plenty of people have written about MT’s ideas, her practice is much less well-understood. But your ability to do business helps to determine how effective you are. Without it, Iron Will or not, you will achieve very little and it is the combination of the two in MT that made her such a formidable figure. And much about the practice is obscure at the time, because business necessarily is largely done in private. Now we have the archives we can judge.

 
 

1979–1982

 

Margaret Thatcher came to office knowing little to nothing of Hungary. When a Number 10 official responsible for foreign policy ended his tour of duty with her, she asked him what job he wanted next. Ambassador to Hungary he said. “Hungary? Why Hungary? How boring”, she replied. Of course that tells one very little about Hungary itself, and it is certainly a view she came to revise. Rather it is a reflection mostly of the fact that what passed for analysis crossing her desk belonged to the dismal craft of Kremlinology. Knowing little, Kremlinologists made up for the fact by writing about it at great length. Prime Ministerial time and patience were finite quantities.

The essence of her view was this: the Kádár regime was better than many in Eastern Europe, but sadly that is to say very little. It had achieved a small freedom of manoeuvre in economic policy, none meaningfully in foreign policy. She had no illusions whatever. She knew full well the bloody beginnings of Kádár’s regime too. She would do business with him, shake his hand, try to develop a relationship, but she would not pull punches either.

However, she believed an important axiom of Western policy at the time, that we should practice “differentiation” in our approach to the Eastern bloc, rewarding states that demonstrated even the smallest movement away from the Soviet line. We talked up such deviations, knowing them to be insubstantial but seeing propaganda value and perhaps, over time, more than that – perhaps we could talk a serious split into being. In practice differentiation meant extending Western credit on more generous terms to those states, which played a large part in Hungary’s ability to sustain living standards higher than most of the Soviet bloc.

The Polish crisis of 1980–81, culminating in martial law in December 1981, threw all this into the air. Western policy was tested and the records show a fascinating story. The Reagan Administration introduced sanctions against the Polish and then Soviet governments, creating a wide divide in the Western alliance. Reagan himself was scornful of other Western leaders, privately calling them “Chicken littles” at a meeting of the NSC on 22 December 1981. He surely did not mean MT, but still there was tension. As is well known MT deeply opposed US sanctions designed to block the building of the Siberian Gas Pipeline, sanctions that were retrospective and extraterritorial. She fought hard for the interests of British firms – in fact particularly a Scottish engineering company. But there is a second, far less well known aspect to the crisis, and a more important one, a threat to overturn the policy of differentiation itself, which brought her first big involvement in Hungarian diplomacy.

Much of the purpose of the pipeline sanctions was to choke off Soviet access to hard currency. As Poland collapsed, the Soviets became desperate for cash to sustain their satellite state there, and began withdrawing deposits from Hungarian banks on such a scale that the Bank of England sent warning to Number 10 on 19 March 1982 that they were at risk of failure. Very soon the Hungarian central bank was on the line to its Western friends.

And so we get a familiar story. The central bankers put together a rescue package. I will not trouble you with the details. The usual kind of thing – a relatively small amount of official money designed to keep commercial banks with much more at stake from exiting en masse. Hungary was in the very last stages of its decades-long application to join the IMF and the package was designed and presented as a lifeline till that was achieved.

This is where the politics comes in. Those in the US Administration who had favoured the pipeline sanctions wanted to know why we should rescue Hungary or any of the Eastern Europe states now or likely to be in financial difficulties. Weinberger and Perle at the Pentagon pointed out that it was US policy creating financial pressure on the Soviets in the first place and that was causing them to withdraw funds. Why ease that pressure? Let the Soviets look after their own – if they could or wanted to. If not, the lessons would be clear. Although others disagreed, notably the State Department, the Pentagon had a loaded gun to hand (many!): all it would take to kill the fragile central bank rescue was a speech by Weinberger or Perle casting doubt on Hungary’s IMF application. The Bank of England and the Bundesbank feared exactly that.

There was logic in the Weinberger position. But MT’s response is instructive as to our theme today. She understood the argument but was deeply opposed to the idea of crushing Eastern European credit, for the most practical of reasons: she feared the impact of default. Yes, we could do it, start a banking crisis, but could we end it so easily? Who had lent the money – Western banks of course, especially European. She did everything she could to persuade the US not to kill the central bank rescue – a major intervention in Hungary’s favour unknown to all but a handful in the country at the time.

And her sense of systemic risk lurking was not mistaken. Mexico defaulted only months later in August 1982, kicking off the long acute phase of the Latin American debt crisis. Had Eastern Europe failed more or less at the same time, 2008 might have come a good deal sooner.

Weinberger held off. The speech was not made. Hungary made it into the IMF with the help of four tranches of lending concerted by the Bank of International Settlements in Basle.

In the files of the Bank of England deep below the streets of London – you can hear underground trains pulling into the nearby station as you read – there is a revealing glimpse of Kádár. Hungary’s central bankers made good use of Western friendships and he too was capable of some subtlety and skill in his dealings with them. He fully understood what this argument was all about, the inwardness of it. Meeting the bankers at the Hungarian Parliament he openly acknowledged the weakness of Hungary’s position and shrewdly pointed to the political issue underlying the West’s dilemma, as our Deputy Governor reported home:

 

He ended by tackling the thesis that the Soviet Union could be attacked through the pressure on Eastern Europe countries. He said it might be possible to liquidate the Soviet satellites (“and perhaps Western Europe”) but the USSR would remain.

 

1982–1984

 

We have seen then a little of the deeply secret side of the Polish crisis. MT acted as a bridge between the US and Europe – a role she frequently denied aspiring to, but which when it suited her she had no hesitation in playing. One even finds her telling the European Council over dinner (28 March 1982): “The US must be brought along to an appreciation of the European view on these issues. [The] Community is much more deeply involved than the US.” Iron Lady she certainly was, but she resisted steps against the Soviets and their bloc that threatened to hurt the West – and Britain – as much if not more. And her reputation for toughness on the Soviets made her all the more effective in bringing home this point to the US Administration.

That takes us to her Hungarian visit – my second illustration of Thatcherism in practice. After the Falklands War, she became a much more significant figure internationally. The war had given her prestige at a wholly different level, especially in the US – the Iron Lady had proved her mettle as one British MP put it. Characteristically, she saw the opportunity and was ambitious for the bigger international role. More and more she became her own Foreign Minister, to the discomfort of successive incumbents of course – as it turned out a destructive thing for her personally, because one of those slighted ministers, Sir Geoffrey Howe, later helped to bring her down.

And here briefly is how she sought to use that new power. She launched a determined effort to ease East–West tension, particularly by opening contacts at the highest level to the East. It was so improbable from her that she had to make speeches expounding her initiative several times before the press would grasp what she was saying. She finally got the message across in a speech in Washington where she told an audience stuffed full of Reaganites: “We have to deal with the Soviet Union. But we must deal with it not as we would like it to be, but as it is. We live on the same planet and we have to go on sharing it. We stand ready therefore, if and when the circumstances are right, to talk to the Soviet leadership.”

This was the period of ailing Soviet leaders – Andropov had succeeded Brezhnev. It was not merely that he was a KGB man who viewed the West with deepest suspicion. It hardly improved things that he spent much of his time in hospital: indeed she read the KAL shootdown in September 1983 as suggesting the Soviet military was ominously lacking political direction. And she was receiving secret information from a British double agent in the KGB, Oleg Gordievsky, that the Soviets were genuinely in fear of a Western first strike – news that she found very surprising but ultimately credible and which she personally helped to persuade President Reagan to believe too.

It is important to understand that she was not seeking a revival of détente. In fact her earliest and in many ways deepest and most enduring political bond with Ronald Reagan arose from their mutual rejection of détente as they both came to prominence in the mid-1970s, at a time when such views put them way out of the mainstream. They had two essential problems with it.

First they saw it as the West negotiating from weakness, its position slipping all the time.

And they detected an insidious assumption of moral equivalence between the two sides. Some called this “convergence” and elevated it into a theory: East and West were inexorably becoming the same thing. But perhaps more powerful and damaging was the impression left by Kissinger’s particular brand of Great Power diplomacy – that it was all a game, a cynical battle for advantage in the division of spoils between the superpowers. It did not help that there was a kind of narcissistic aftertaste too, as he all too often paused for applause. For Thatcher and for Reagan there really was something to choose between the two sides, they were most definitely not relativists beneath the skin. We are back to moral conviction and Iron Will, aren’t we? It is captured in Reagan’s first letter to her, in April 1975, written the day Saigon fell, “the shadows are lengthening” as he put it.

By 1983 there was room to move on. Her view was that the West was beginning to be in a position of strength, following the successful deployment of Cruise and Pershing missiles, as Western economies recovered and strong anti-Soviet policies won electoral approval too, not least in Britain.

So suddenly a visit to Hungary was an idea whose time had come. There had been a standing invitation for British Prime Ministers, extended ritually almost every time a Hungarian minister met a British counterpart, met with a polite put-off. (As far as we knew no British PM had ever actually visited.) Now we signalled that it could really happen.

Unfortunately at the very same time the Italians and the West Germans did the same – you cannot get a Western leader for years and then three of them come along at once. Here the Hungarian files give us an interesting fragment of the story. They show that Kádár copied his correspondence on the Thatcher visit to the East German leader Willi Stoph. Kádár seems not to have asked the Soviets for permission, but he lined up support from an Eastern ally when criticism came, as inevitably it did, from the Czechs as it turned out. For that reason it is probably no accident that Thatcher got invited ahead of Kohl.

She worked better too in terms of star power. The British files show that MT took very close interest in the planning of her overseas visits, especially to Communist countries where she knew the regime would do everything it could to trap her into endorsing their legitimacy. Her clothes particularly were planned with great care. The visit was fixed for February. There would be snow. A fur hat figured. She had a shrewd sense of what worked pictorially. It is almost as if she felt the Eastern bloc owed her some good press coverage for all the discomfort visits East caused her, particularly the indignity of being spied on everywhere she went.

 

1984: THE VISIT

 

Among the briefing documents the British Foreign Office sent Number 10 for the visit was a note for the press which opened with the words. “The Hungarian Revolution took place over 27 years ago”, a none-too subtle hint that it was all ancient history now, barely worth the effort of recollection. She emphatically rejected the suggestion, scribbling: “such a statement might create the impression that we were seeking to downplay the significance of the event”. Her way of opening new connections with the East was not to downplay the differences at all, however tempting diplomatically. If anything she planned to draw the distinction more firmly. She rejected the language of détente even as she sought rapprochement. The point was to do business across the divide, not to pretend it did not exist or talk it away.

The fact of her visit undoubtedly mattered more than anything said or done during the two days. It was memorable all the same – a wreath laying at Heroes’ Square, and at the British Military Cemetery at Solymár in snow; a visit to one of Budapest’s covered markets, an ideal TV setting for the West’s only woman leader, where she bought honey, garlic and paprika – an indigestible but somehow appropriate mix. They tried to give her the goods but she refused, paying in cash from an envelope supplied by the Ambassador.

Then she was due to see Kádár. At the last minute Hungarian officials hurried in to tell that sadly he would not be able to meet, such a shame – she had come such a long way, a pity, some other time perhaps ... This would not do, of course, a Prime Ministerial explosion followed and the Hungarians were forcefully persuaded to revise the point. It was suddenly discovered that the meeting could after all go ahead. Kádár politely asked permission to smoke. There were thanks on his side for her helpful line during the 1982 financial crisis. But they swiftly left safe territory behind. She asked him whether the military were in charge now in the Soviet Union. He gave from personal knowledge a survey of Soviet leaders back to Khrushchev.

At the close of the meeting MT thanked her host then, seemingly as an afterthought, perhaps impromptu, she made a striking request to Kádár, a mark that from her point of view the conversation had made some kind of connection. If the international situation became very dangerous, could she send him a message? The implications of such a request might reasonably have given Kádár pause, but equally he had little choice but to agree. He noted this exchange in his report to the Hungarian Cabinet a few days later.

Writing her memoirs MT recalled another topic from her talks with Kádár, which the notetakers omitted. At some point, surely at her instance, they discussed the death of Imre Nagy, Kádár’s Banquo, the comrade and friend he had betrayed then executed two years later. For his ghost to be summoned in this way, during face-to-face conversation between the British Prime Minister and the man who killed him, was not at all what the FCO had in mind when it advised Number 10 to treat the Revolution as something that happened a long time ago.

MT’s trip to Budapest amounted to a successful road-test of her post-détente approach, and showed that it could work for both sides too, as effective diplomacy must. Hungarian ministers seemed to have been delighted with the visit. They took some criticism from the Czechs, but had prepared for that, as already noted. If Kádár resented the discussion of Nagy, he gave no sign: although Nagy genuinely haunted him, he was wily and tough enough to handle conversations like this. (He simply denied responsibility for the execution, untruthfully blaming the Soviets.) On the British side, there was equal satisfaction. The press corps had travelled in strength to Budapest, there was extensive TV coverage, the effect good enough to tempt even MT’s cautious Yorkshire Press Secretary, Bernard Ingham, to talk of her returning home “in some triumph”. The photos of MT in her fur hat are reminiscent of a later and more famous visit, the one she made to Moscow, on the eve of the 1987 General Election. These two days in Budapest demonstrated that the Communist bloc knew how to put on a show, when it wanted to, and that the British public would register the fact, likely with approval. The lesson was not lost.

One should close with 1956. Britain had its own crisis that year, of course – Suez, which became a potent emblem of decline. Many believed the West’s divisions over the Anglo-French intervention in Egypt had given the Soviets a freer hand to crush the Hungarian Revolution, the two events interacting with particular malignancy. Curiously, unexpectedly, it fell to MT to move Britain beyond that trauma, the 1982 Falklands War dramatically overturning post-Suez assumptions in Britain and overseas, an ancient wound healing at last. She would not have had the opportunity to visit Budapest as Prime Minister if she had failed in the attempt.

The wound inflicted on Hungary in 1956 was surely deeper than that to Britain, and to a visitor in 1984 the prospect of healing more remote. Who would have guessed that only five years later Nagy would be reburied in triumph following a ceremonial funeral in Heroes’ Square, while Kádár, now powerless, wandered his home asking “Is today the day? Is the funeral really today?” But MT’s visit bore fruit sooner than that, in a new British emphasis on Eastern Europe, which she pressed powerfully on Britain’s Western allies. There were further trips East, deeper interest, engagement, and understanding at all levels. Her famous speech at Bruges in September 1988, now remembered as the founding event of British Euroscepticism, contained an important passage in which she reproached people who talked about “Europe” and “the European identity” as a kind of careless shorthand for the European Community (as it then was), reminding them that the words held a deeper meaning. This was not a sudden, late insight on her part, or some shallow tactic to obstruct European integration. She took to heart the fact that there was a public in the East as well as in the West, people like those in the Budapest market hall, harder to reach but all the more deserving of attention. As we have seen, she had always done everything she could to ensure that Britain and its allies did not fall into talking and thinking of the East/West divide as a thing one had to learn to live with and accept, a permanent if regrettable feature:

 

The European Community is one manifestation of that European identity. It is not the only one.
We must never forget that east of the Iron Curtain peoples who once enjoyed a full share of European culture, freedom and identity have been cut off from their roots.
We shall always look on Warsaw, Prague and Budapest as great European cities.

 

I do not think it is an accident that Budapest was last on this list – her visit left her with a real affection for the city and its people.

(All documents mentioned in the text can be downloaded from the following website: http://www.margaretthacher.org/archive/1984hungary.asp)




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