The European foreign policy of the Chamberlain ministry from 1937 to 1940 was based on British Prime Minister Neville Chamberlain's commitment to "peace for our time" by pursuing a policy of appeasement and containment towards Nazi Germany and by increasing the strength of Britain's armed forces until, in September 1939, he delivered an ultimatum over the invasion of Poland, which was followed by a declaration of war against Germany.

Commitment to peace Like many others in Europe who had witnessed the horrors of the First World War and its aftermath, Chamberlain was committed to peace. The theory was that dictatorships arose if peoples had grievances and that by removing the source of those grievances, a dictatorship would become less aggressive. A popular belief was that the Treaty of Versailles was the underlying cause of Adolf Hitler's grievances. Chamberlain, as even his political detractors admitted, was an honourable man, who had been raised in the old school of European politics. His attempts to deal with Nazi Germany through diplomatic channels and to quell any sign of dissent from within, particularly from Churchill, were called by Chamberlain "the general policy of appeasement" on 30 June 1934.

Rearmament A major structural problem that Chamberlain confronted at the beginning of his premiership and a major factor in development of his foreign policy was the problem of worldwide defence commitments and an insufficient economic and financial basis to sustain those commitments. According to a report by the British Chiefs of Staff in 1937, which had much influence on Chamberlain: Chamberlain expressed his concerns about the possibility of a three-front war with insufficient resources in October 1937 when he told the Cabinet, "If this country were to become involved [in a war with Japan] in the Far East the temptation to the dictator states to take action whether in Eastern Europe or in Spain would be irresistible".Rothwell, Victor, The Origins of the Second World War, Manchester: Manchester University Press, 2010 p. 142.

Moreover, the economic capability to provide for a sufficient military force to meet all worldwide defence commitments did not exist, which meant a greater reliance on diplomacy would be needed to reduce to the number of potential enemies.Kennedy, Paul and Imlay, Talbot, "Appeasement" from The Origins of the Second World War Reconsidered, edited by Gordon Martel Routledge: London, 1999 p. 126 Chamberlain had two options (which were not mutually exclusive): to reduce potential enemies by appeasing their grievances (as long as the grievances were understood to be limited in nature and justified) and to raise Britain's strength by forming alliances with other states. In 1937 and 1938, a greater emphasis was placed upon the former option, and in 1939 and 1940, the latter was prioritised. An important part of his strategy was rearmament, which was intended to ensure that Britain could negotiate from a position of strength, deter a potential enemy from choosing war as an option, and, in the worst-case scenario of war breaking out, ensure that Britain was prepared.Aster, Sidney, "Guilty Man", pp. 62–77, from The Origins of The Second World War, edited by Patrick Finney Edward Arnold: London, 1997, p. 70

Chamberlain put great emphasis upon the Royal Air Force. In October 1936, as Chancellor of the Exchequer, Chamberlain had told the Cabinet, "Air power was the most formidable deterrent to war that could be devised".Dutton, David, Neville Chamberlain, London: Arnold, 2001, p. 171 As both Chancellor of the Exchequer and Prime Minister, Chamberlain greatly expanded the RAF's budget, which rose from £16.78 million in 1933 to £105.702 million in 1939. This surpassed both the British Army's budget in 1937 and the Royal Navy's in 1938.Levy, James, Appeasement & Rearmament, Rowman & Littlefield Inc: Lanham, 2006, p. 69 By the 1930s, a long economic decline, accelerated by the Great Slump, had led to the British economy contracting to such a point that there were not enough factories, machine tools, skilled workers and money to simultaneously build up a larger RAF, a Royal Navy of such size to fight two wars in two oceans at once and a British Army capable of fighting a major European power, which led to Chamberlain favouring the RAF at the expense of both the Royal Navy and, even more so, the British Army.Kennedy, Paul & Imlay, Talbot, "Appeasement", from The Origins of the Second World War Reconsidered, edited by Gordon Martel, Routledge: London, 1999, p. 125

In 1937, Chamberlain introduced the strategy of "limited liability" in which Britain would avoid the supposed mistakes of the First World War by limiting its efforts to war in the sea and the air, rather than a large commitment of ground forces in France.Caputi, Robert, Neville Chamberlain and Appeasement, Associated University Press: Cranbury, 2000, p. 132; Bond, Brian "The Continental Commitment In British Strategy in the 1930s", pp. 197–208, from The Fascist Challenge and the Policy of Appeasement, edited by Wolfgang Mommsen and Lothar Kettenacker, George Allen & Unwin: London, 1983, p. 201 Under this strategy, the British Army suffered massive cuts while the Royal Navy and especially the RAF experienced a massive expansion.

Rearmament entailed major problems for the British economy. The huge increase in military spending in the late 1930s threatened the balance of payments, the reserves of US dollars and gold, inflation, and ultimately lowered the government's credit.Dutton, David, Simon, p. 242 Because of a lack of indigenous sources, much of the steel, instruments, aircraft and machine tools that were needed for rearmament had to be purchased abroad, but increased military production reduced the number of factories devoted to exports, which would lead to a serious balance of payments problem.Kennedy, Paul and Imlay, Talbot, "Appeasement", from The Origins of the Second World War Reconsidered by Gordon Martel, Routledge: London, 1999, p. 126 Moreover, the increased taxes to pay for rearmament hampered economic growth, and heavy borrowing to pay for rearmament damaged perceptions of British credit, leading to strong pressure being put on the pound sterling. By 1939, Chamberlain's government was devoting well over half of its revenues to defence.Overy, Richard and Wheatcroft, Andrew, The Road To War, London: Macmillan 1989, p. 99

Chamberlain's policy of rearmament faced much domestic opposition from the Labour Party, which initially favoured a policy of disarmament and, until late 1938, always voted against increases in the defence budget. Even then, Labour merely switched towards a policy of abstention on defence votes.Weinberg, Gerhard, The Foreign Policy of Hitler's Germany Starting World War II, Chicago: University of Chicago Press, 1980, p. 53; Weinberg, Gerhard, "Reflections on Munich After Sixty Years", pp. 1–12, from The Munich Crisis, 1938, edited by Igor Lukes and Erik Goldstein, Frank Cass: London 1999, pp. 5–6 Labour repeatedly condemned Chamberlain for engaging in an arms race with Germany and some members urged for Britain simply to disarm instead in the expectation that this example would inspire all other powers to do likewise. Throughout the early 1930s, Labour frequently disparaged Chamberlain as a crazed warmonger who preferred high levels of military spending to high levels of social spending.Weinberg, Gerhard "Reflections on Munich After Sixty Years", pp. 1–12, from The Munich Crisis, 1938, edited by Igor Lukes and Erik Goldstein, Frank Cass: London 1999, p. 5

Diplomatic efforts A major problem for Chamberlain was that Britain lacked the industrial infrastructure and the financial strength to win an arms race with Germany, Italy and Japan at once. Chamberlain hoped to detach either Italy from Germany or Germany from Italy. He was indifferent as to which one of them, but Japan was considered to be hopelessly intransigent. Then, Britain could win the arms race with the remaining members of the Axis. In a letter that was written in June 1937, Chamberlain summed up his views: "If only we could get on terms with the Germans I wouldn't care a rap for Musso [Benito Mussolini]".Goldstein, Erik, "Neville Chamberlain, The British Official Mind and the Munich Crisis", pp. 271–292, from The Munich Crisis, edited by Erik Goldstein and Igor Lukes, Frank Cass: London, 1999, p. 281 Chamberlain would later write in his diary in January 1938, "From the first I have been trying to improve relations with the two storm centres Berlin & Rome. It seemed to me that we were drifting into worse & worse positions with both with the prospect of having ultimately to face 2 enemies at once".

Potential allies Chamberlain's initial emphasis on trying to win over potential enemies was partly because of a pessimistic assessment of potential allies. Britain's top military experts consistently advised that the Soviet Union's Red Army was of dubious fighting value.Herndon, James, "British Perceptions of Soviet Military Capability, 1935–39", from The Fascist Challenge and the Policy of Appeasement, edited by Wolfgang Mommsen and Lothar Kettenacker, George Allen & Unwin: London, 1983, p. 309 The Neutrality Acts, passed by the US Congress in the mid-1930s, convinced him that no help could be expected from the United States in the event of a war.Weinberg, Gerhard, The Foreign Policy of Hitler's Germany Starting World War II, Chicago: University of Chicago Press, 1980, p. 54 In October 1937, as part of an effort to engage the United States into international affairs, Chamberlain instructed the British delegation, which was being sent to Washington, D.C., to negotiate a free trade agreement between both countries, that for "political" reasons, reaching an agreement with the Americans at all costs was critical.Schröder, Hans-Jürgen, "The Ambiguities of Appeasement: Great Britain, the United States and Germany 1937-9", pp. 390–399, The Fascist Challenge and the Policy of Appesement, edited by Wolfgang Mommsen and Lothar Kettenacker, London: George Allen, 1983, pp. 394–395 Even before the talks began, he had ordered the British delegation to accept the preconditions that the Americans deemed "essentials".Schröder, Hans-Jürgen, "The Ambiguities of Appeasement: Great Britain, the United States and Germany 1937-9", pp. 390–399, The Fascist Challenge and the Policy of Appeasement, edited by Wolfgang Mommsen and Lothar Kettenacker, London: George Allen, 1983, p. 394 France was downgraded as a potential ally because of the highly-negative assessment in the dispatches of British Ambassador Eric Phipps.

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