My dear P.M.,
I lunched with Lord Lloyd  in Cairo the day after his return from London to Egypt. In the course of a long conversation after lunch he opened the subject of an Australasian representative being attached to the High Commissioner's Office in Cairo. He said that he had more than once made representations to the Foreign Secretary in this regard. He felt that he was attempting to carry out the most difficult task in Egypt for which he was, of course, directly responsible to H.M.G. in London. At the same time he recognised the considerable interest that India, Australia and New Zealand had in the fate of the Canal, and he said that it would very much relieve his mind to have an Australian at his elbow who could advise him as to the Australian feeling and point of View, as well as to be able to communicate direct with the Australian Government as to the position in Egypt.
His point of view about the proposed Anglo-Egyptian Treaty I got from Hankey  and, in part, from Tyrrell.  Lloyd, for obvious reasons, would not comment on it, but he told me to ask Hankey, who knew both sides of the question.
Lloyd has been strongly against the Treaty from the start and maintains that it will far from end our troubles and apprehensions about the Canal. He says that the Egyptians are incapable of straight dealing, that their administration is rotten with intrigue and bribery, and that if we give them the freedom that they will get under the proposed treaty-then things will go from bad to worse.
He has throughout been for absolute and strict firmness in his dealings with them. If he had his way he would give them no concessions and would let things work up to breaking point. He is considered in consequence by the F.O. to be highhanded and a fire- eater, and he has introduced methods that may be justified in running the Bombay Presidency into a field in which they cannot be justified. Lloyd has nothing good to say about the F.O. attitude which he says is spineless and defeatist-and Hankey says he (Lloyd) told them so when he was here a month or so ago.
Tyrrell's comments on Lloyd to me were to the effect that he was ignorant of European politics and of the League of Nations, and that he evidently could not visualise the impossible position that his attitude and policy would precipitate.
The view of H.M.G. is that we should go as far as is humanly possible to put our account straight with Egypt so as (amongst other things) to put ourselves right with the world. H.M.G. now realise that the continued existence of the four reserved points is incompatible with the supposed Egyptian independence.
Tyrrell says that, under existing circumstances, we have no locus standi in Egypt at all and that if we had to defend our position before the League we would be hard put to do so satisfactorily. He says that the chance to put ourselves right by means of this very good treaty is heaven-sent.
H.M.G.'s view is that the Egyptians themselves proposed this treaty in almost its present form and that, if the Egyptian Government now turns it down, then we can show the world that we did our best to remedy the existing anomalous position.
In greater detail, Lloyd's view is that the Egyptians have grossly abused the Constitution and have maladministered the country. They rigged their elections, the running of the irrigation, lighthouses, etc., has been corrupt, and in countless ways they have not played up either in the letter or the spirit to the Anglo-Egyptian agreement of 1922. Lloyd thinks we should let things get a bit worse and then face them with a record of their evidence of bad faith to us and maladministration of the country, and then terminate the agreement and wipe out the Constitution. He thinks there would be a week's strike and probably other troubles, but that if we acted firmly we would get away with it, and he is confident that he could have another Government formed in a week.
This, of course, was all too much for the F.O. to swallow. There was even a definite suggestion that if this was Lloyd's view, then he was not the person to represent H.M.G. in Cairo in the carrying out of H.M.G.'s policy of a Treaty and generally more conciliatory measures. Sack him or promote him. But this was overruled because of the argument that as Lloyd had been associated in the past with a firm British policy in Egypt, his resignation would mean to the Egyptians that we were losing ground and were weakening.  Added to this was Lloyd's statement that he would loyally carry out H.M.G.'s policy. So he remains, but I can imagine he won't be very sorry if the Treaty doesn't come off. 
Lloyd's fear, in fine, is that the proposed Treaty will not ensure the security to us of the Canal. He thinks that they will begin getting round and through the Treaty the moment it is signed. The Treaty, he says, leaves them free to maladminister and so, amongst other things, undermine the position of foreign capital in Egypt.
I don't think he specifically condemns any particular clauses of the Treaty-his attitude is that they are untrustworthy people and that no agreement or treaty with them is worth anything. This attitude, of course, can only mean that he contemplates a rigid control on the whole country by us, as the only means of maintaining the sanctity of the Canal-and this will be difficult to get away with in the present state of world opinion.
I asked Tyrrell how it came about that Sarwat , took the initiative in proposing such a Treaty in black and white. He replied that whilst Sarwat realised that complete independence was the ideal for Egypt, it was impracticable as he realised that they could not defend themselves, and, further, that they preferred being under the definite protection of Great Britain to the menace of having something less pleasant thrust on them by Italy. Also, a minor point, there is to be a conference in the near future on the subject of the Capitulations, at which the Egyptians wish to gain their points -and they want to have us on their side vis-a-vis the French and the Italians.
There is little of importance to say about China other than that the F.O. see no reason to think that chaos will not continue as far ahead as can be seen. The F.O. are now as reluctant to diminish the strength of the Shanghai Defence Force as they were disinclined to have it sent to China in the first place. The clamour to defend our interests in China has been rather dampened lately by the disclosure of the bill to date-over three millions.
The only effective circumstance that could influence the course of events in China would be the wholehearted co-operation of Great Britain, Japan and America, and this apparently is impossible owing to the divergence of their respective interests. Japan marches with us at times and against us at other times as we are divided by a yawning gulf on a basic matter of major policy-we want a strong united China and Japan does not.
The F.O. say that the position is less disturbing from the British point of view now than it was six months ago. The Southerners (Kuo-Min-Tang) are at present apparently hopelessly divided against themselves and the Japanese are in trouble in Manchuria.
Chang-Tso-lin remains the single individual with some real authority and with undivided control over a large area-Peking and the North. 
The F.O. say that Franco-Italian relations remain bad, the only alteration being that at times they are worse than at other times.
The initiative usually comes from the Italians. The only friend that Italy has is Great Britain and, consequently, the only person who has any influence on Mussolini is Chamberlain , who has consistently (vide Sargent , the head of the Central Department of the F.O.) used his moderating influence on Mussolini. Italy, as you know, came out of the war with a grievance that she was mulcted of her proper share of the spoils. Mussolini has aired and used this grievance to whip up his country to see that Italy is not elbowed out of her dues either in the present peace or the next war. Italy, in the shape of Mussolini, listens, like a man with an inferiority complex, to every breath of criticism from however lowly a source (such as obscure newspapers in the surrounding countries), and reacts to it with booming threats and menacing gestures. But the F. O. do not think he can afford to take on any adventures abroad, at least until he has completed the domestic reorganisation of Italy which he is so successfully and so energetically entering into. H.M.G. is ever at his elbow, and the British Ambassador in Rome  is in a peculiarly privileged position and is the only member of the Diplomatic Corps in Rome who has any influence with (or really receives any courtesy from) Mussolini. Sargent thinks it is wrong to say that we have linked ourselves with Mussolini's policy in any way-on the contrary, he maintains that the records show that we have consistently and successfully been a moderating factor in his foreign policy, and that if Mussolini ever took it into his ambitious head to make ready for a foreign adventure, we are in the unique position of being the only people who could in any way deter him.
In short, far from being linked to an aggressive Italian foreign policy, we are associated with a curbing of his policy. The French know this and are appreciative of it and frequently turn to us to ease situations for them vis-avis Italy.
Yours sincerely, R. G. CASEY