Prime Minister Margaret Thatcher's government moved today to increase economic pressure on Argentina to withdraw its forces from the Falkland Islands, as the crisis brought the British pound to its lowest level since 1977.
"Now is the time for strength and resolution," Thatcher told a raucous crowd of opposition critics and Conservative supporters in the House of Commons, repeating her determination to restore British sovereignty to the island chain seized by Argentina late last week. "With regard to resignation, no," she said.
Two national public opinion polls taken this week showed that two of every three Britons back Thatcher in this, even if it requires the use of military support. But a sizable minority in both polls also blamed Thatcher for the crisis and thought she should leave office.
A little more than a week ago, the polls were showing an increase in Thatcher's popularity, with inflation falling, economic output finally showing signs of a future increase and unemployment increasing at a slower rate.
Today, the political threat to the government was reflected in the unstable financial market. The Financial Times index for the London stock market lost nearly 30 points during the past two days before a rally near the end of trading, and brokers are worried that if the value of the pound sterling continues to fall below today's $1.75, it may be necessary to raise interest rates. As the pound weakened, the price of gold climbed sharply.
This could endanger the recovery that most analysts finally were forecasting from the sharpest recession here in half a century. "There has been heavy selling the past two days because of some concern that the government will not be able to ride out the crisis," said economist Paul Nield of stockbrokers Phillips and Drew. "The political situation has made people jittery."
"The exchange rate will be the measure of how successful the government is in handling this crisis," Nield said.
In an effort to place additional pressure on Argentina to withdraw its forces from the islands before the arrival of British warships, Thatcher announced a ban on imports of Argentine goods, and her government formally asked the other nine European Common Market countries to join in this and other economic sanctions. Thatcher already had broken diplomatic relations with Buenos Aires, frozen Argentine assets here and cut off export credits and military sales after last week's invasion of the Falklands.
British diplomats said they expected support from their Common Market partners in restricting purchases of Argentine beef, steel, textiles and shoes, stopping arms shipments to Argentina, and tightening the credit squeeze begun by Britain. The Netherlands has suspended military sales to Argentina, and a West German spokesman said submarines being built there for the Argentine Navy would not be delivered.
Other "friendly countries," including the United States and those in the British Commonwealth, have been kept informed of Britain's actions but not formally asked to take sanctions of their own, officials said.
Thatcher's action today will keep more than $200 million worth of Argentine exports--much of it corned beef and other foodstuffs--out of Britain. Under pressure from customers generated by British newspapers, some grocery stores here had already taken all Argentine products off their shelves.
But economic warfare can cut both ways for Britain. Argentina owes British banks nearly $6 billion, which is four times the estimated Argentine assets in Britain. Some British firms have large subsidiaries and other substantial interests in the South American country, where about 17,000 British nationals live.
Asked in Parliament about the possibility that the Reagan administration could mediate the crisis, Thatcher said, "President Reagan, like most of us, would wish a peaceful solution. And we shall be very happy if anybody is able to secure the withdrawal of the Argentinians from the Falklands, the restoration of British sovereignty and of the wishes of the people to live under British sovereignty."
Although politicians inside and outside the government continue to look to the Reagan administration for diplomatic help, officials insisted that the United States has not been asked to mediate.
Some politicians expressed skepticism and resentment about Reagan's "honest broker" offer and call for the crisis to be settled without use of force by either side, saying it ignored the fact that Argentina already has used force to seize the Falklands.
"This evenhanded talk about the use of force is bad phraseology," said David Owen, a former Labor foreign secretary who is now parliamentary spokesman for the Social Democrats. He said in an interview that the Reagan administration "still has to prove it can be an honest broker."
Even within Thatcher's Cabinet, which is being reorganized after the resignation yesterday of Foreign Secretary Lord Carrington, there are fears that--if the crisis drags on or military conflict produces heavy casualties--authority could drain away from Thatcher and the government as it did from President Carter during the Iranian hostage crisis.
Both the opposition Labor and Social Democratic parties also formally endorsed Thatcher's strategy of threatening military force while seeking a settlement through diplomacy, although a minority of left-wing Labor members of Parliament led by Tony Benn opposed any risk of conflict.
While the fleet of British warships leaving naval bases here this week steams toward the South Atlantic, British sources said decisions have not yet been made on orders to be given the task force when it arrives, pending the outcome of diplomatic efforts. But they said government ministers are still pessimistic about achieving an Argentine withdrawal and restoring British control of the Falklands through negotiation.
British actions, some of them unannounced, reinforced the sense of commitment to military preparation. A day after the Canberra cruise ship was requisitioned to carry 2,000 marines, British Petroleum tankers were called to duty.
The negotiating role of the United States "is absolutely crucial," according to Owen, because only Washington can put enough pressure on both the Argentine and British governments to overcome the great difficulty their leaders would now have in agreeing to any compromise or even meaningful talks. The Argentine government refuses to negotiate unless its sovereignty over the Falklands is conceded, while the British government refuses to negotiate until Argentina withdraws.
"The U.S. has to put more pressure on the Argentinians and convince them they can't stay there," Owen argued. "It's only when you can get them to start talking sensibly about a settlement that you can put pressure on Britain to do the same."
To bring this about, Owen said, it is necessary for Britain to demonstrate to both Argentina and the United States that "we are ready to use force if necessary. We should be quite determined to go ahead."
But ex-ambassador in Washington Peter Jay, interviewed on BBC television, warned: "There is no way the U.S. can go against Argentina and its whole hemisphere policy." Instead, he said, people should realize that Britain must act alone.