From July 1937 onward, he was chairman of the British Council in which he oversaw an increase in lectureships and made cultural tours of neutral capitals to maintain sympathy for Britain's cause during the early months of the Second World War. As head of the British Council, Lloyd ran his own private intelligence network that employed as one his spies the journalist Ian Colvin, who served as the Berlin correspondent of
The News Chronicle. Unusually, Lloyd enjoyed a privileged access to the secret reports of MI6, the British intelligence service. In November 1937, Foreign Secretary
Anthony Eden instructed Lloyd that the British Council was to concentrate especially on improving Britain's image in Portugal, Greece, Turkey, Yugoslavia, Romania and Poland. Regarding the Middle East, especially Egypt, as a crucial area of control for Britain, Lloyd regarded the approaches to the Near East as equally crucial, which led him to become obsessed with the Balkans, which called the "eastern approaches", independently of Eden's instructions. In April 1938, he suggested in a memo sent to Prime Minister Neville Chamberlain and Foreign Secretary Lord Halifax that Britain needed to become more economically involved in the Balkans, which were rapidly falling into the German economic sphere of influence. In response, Britain granted Turkey a credit of £16 million that month, but Lloyd's idea of an "economic offensive" in the Balkans was not taken up at the time.
Czechoslovakia Lloyd was not in sympathy with the Chamberlain government's policies towards Czechoslovakia in August–September 1938, and his advice that he gave to his old friend, Lord Halifax, who served as Foreign Secretary after Eden had resigned in February 1938 in protest against the Chamberlain's government's policies towards
Fascist Italy, was not followed.
United States In the tense atmosphere of 1938, Lloyd tried hard to increase British propaganda in the United States to an attempt to involve the America in the Sudetenland dispute and favored an approach of trying to appeal to the American elite, rather than the American people in general. In June 1938, he argued that the British Council should arrange for British professors to serve as visiting lecturers at American universities to strengthen Anglo-American relations. The same month, the
US Congress passed the
Foreign Agents Registration Act, which required all propaganda by foreign governments in the
United States to be registered with the
State Department and to be labelled as propaganda. US Representative
Martin Dies Jr., the chairman of the
House Committee for the Investigation of Un-American Activities (HUAC), announced his committee would be investigating British attempts to get the United States involved in European conflicts. He alleged that the only reason that the United States had declared war on Germany in 1917 was because of improper British propaganda, and he vowed his country would not be "tricked" again into declaring war on Germany. In particular, American journalists were cultivated with the principle theme being that both countries were champions of freedom and democracy and should work together more closely for that reason. As those meetings took place in Britain with individuals who were ostensibly expressing their own personal views, and the American correspondents in their writings and broadcasts merely recorded their own experiences of Britain, that completely bypassed the Foreign Agents Registration Act.
Balkans Accepting that Czechoslovakia was a lost cause after the
Munich Agreement, in the autumn of 1938, Lloyd focused on convincing the government that greater British involvement was needed with the remaining two members of the
Little Entente: Yugoslavia and Romania. Lloyd was especially involved with the latter, where his two principal collaborators were
Grigore Gafencu and Virgil Tilea, both of whom he knew from his work with the British Council. Lloyd who rather liked Carol, sent a series of vigorously written telegrams from Bucharest urging for Britain to commit itself to spending £500,000 on buying Romanian oil, purchase 600,000 tons of Romanian wheat and assist Romania with building a naval base where the Danube River flowed into the Black Sea. Chamberlain agreed with the idea, but he committed to buying only 200,000 tons of Romanian wheat after objections from the Treasury. Lloyd noted that Germany had no oil of its own and that there were only two places in Europe where oil could be obtained in massive quantities, the Soviet Union and Romania, and that since the latter was by far the weaker, he believed that Romania would be Hitler's next target. In response, Halifax argued that the Germans saw Romania as being in their sphere of influence, and too great of British involvement in that kingdom would have been seen by Hitler as "encirclement". When Carol visited London between 15 and 18 November 1938, Lloyd was present to argue on his behalf. In January 1939, Lloyd advised Gafencu, who just been appointed Romanian Foreign Minister, to appoint someone of "considerable energy and position" to be the Romanian minister in London, which led to Tilea receiving the appointment. After King Carol, the Balkan leader to whom Lloyd was closest was
Prince Paul, the Regent of Yugoslavia for the boy King
Peter II. During his visit to Greece, both King George and Mextaxas had told him that Germany had more to offer Greece economically than Britain, which led Lloyd to decide on a dramatic gesture to prove otherwise. Lloyd's advocacy of buying the entire Greek tobacco crop for 1939 led to bureaucratic struggle, as objections were raised that it was unfair to force British smokers to use Greek tobacco, regarded as inferior, when they were used to American and Canadian tobacco, regarded as superior. Lloyd argued to Halifax that based upon his sources in Romania, Germany had indeed threatened an invasion, which the Romanians were denying for fear of enraging Hitler. After the
Italians annexed Albania on 4 April 1939, there was a general consensus within the Chamberlain cabinet that Britain should guarantee Greece, but it was felt that the Romanians should commit to strengthening their alliance with Poland before Britain offered a guarantee of Romania. A recurring theme of Lloyd's letters to Halifax during the
Phoney War was that the Treasury was not providing enough money for the British Council's work in the Balkans. Lloyd, who was in close contact with Churchill who was appointed
First Lord of the Admiralty on 3 September 1939, called together with Churchill for a "Balkan league", which would form a line to block any German expansion into the Balkans. It is possible that Lloyd and Tilea had been working together on the same day that Tilea had asked for Lloyd to go to the Balkans. Lloyd had told Lord Halifax of his desire to go the Balkans saying "the urgency of which at the present moment obviously cannot be exaggerated".
Balkan tour By October 1939, it was agreed that Lloyd would visit Romania but all of the Balkan states to work for a "Balkan pact". Sir
Reginald Hoare, the British minister in Bucharest, was opposed to the plan to send Lloyd to the Balkans, but
George William Rendel, the minister in Sofia, and Sir
Michael Palairet, the minister in Athens, were supportive. In the interval, Lloyd had visited Spain to ask the Spanish dictator, General
Francisco Franco, if he was willing to guarantee the proposed "Balkan pact", an aspect of his visit to Madrid about which he neglected to tell the Foreign Office. On 14 November 1939, Lloyd's Balkan tour began with a visit to Bucharest. Gafencu suggested a "machinery for common action", but negotiations broken down when King Carol learned that the British guarantee of Romania applied only against Germany, not the Soviet Union, as he wanted. After finishing his Balkan tour, Lloyd went to Syria to see
Maxime Weygand, whose
Armée de la Syrie had been intended by the French General Staff before the war to go to
Thessaloniki. In response to objections from Sir
Percy Loraine, the British ambassador in Rome, that he was not certain how long Italy would remain neutral, Lloyd argued that Britain should just ignore the possibility of Italy entering the war but start troops to Thessaloniki at once. At the same time, Lloyd advised Halifax that Britain should start shipping weapons to Yugoslavia at once to indicate that Britain was serious about defending the Balkans. In an assessment of Lloyd's work in the Balkans, Atherton wrote: "His position was an ambivalent one: neither a diplomat nor a politician, but a peer with a semi-official position and influential political contacts. It was also increasingly irregular, but despite his opposition to the Munich agreement and, after September 1938, to further appeasement of Germany, Chamberlain never sought his removal". ==In cabinet==