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The two announcements sent investment bankers to their calculators to take a fresh look at just how much longer it will be before Britain's seemingly bottomless trade deficit—already $2.1 billion for the first nine months of this year —is wiped out by North Sea oil. Some analysts have already concluded that the government's target date of self-sufficiency in oil by 1980 should be moved ahead. The oil is expected to shave more than $1.75 billion off the trade deficit next year, more than $4 billion in 1978 and $9 billion by 1980.
These glowing figures tend to support West German Chancellor Helmut Schmidt's oft-repeated view that the pound sterling, which has dropped 20% in value against the dollar in the past year, is actually undervalued. Says the research director of one of London's biggest merchant banks: "The North Sea will give sterling holders plenty of reason for encouragement if the government can only convince them it won't fritter it away in foolish increases in public spending. Once that message gets across, I wouldn't be surprised to see sterling firm up immediately."
Meanwhile, Callaghan seems to be pinning his hopes on the West Germans. Schmidt recently met with Callaghan; he has agreed that West Germany will give full support for Britain's IMF loan application, much of which will in fact involve German funds. Bonn will also drop its demand for a revalued "green pound," the rate of exchange at which agricultural transactions are conducted within the European Community and that now amounts to a subsidy for British food prices. Thus, as in Italy, the economic clout of the West Germans may well be a decisive political factor in Britain.