NEWS ANALYSIS : Cabinet Chaos Opens Deep Wounds for Thatcher : Britain: ‘She will be a less powerful prime minister for months,’ predicts one expert.

LONDON â€”  Prime Minister Margaret Thatcher “has never been worried about people loving her,â€� one of her closest aides boasted to a small audience of foreigners earlier this week. She has strong views and says what she thinks. At the risk of sounding corny, the aide elaborated, you could characterize her philosophy as: “To thine own self be true.â€�

That depiction seemed particularly ironic less than 48 hours later, after a duplicitous bit of personnel management by Thatcher blew up in the surprise resignation of her longtime chancellor of the exchequer, Nigel Lawson.

The resignation triggered a wholesale shake-up of top Cabinet posts, brought turmoil to the financial markets, and inspired some of the harshest criticism of Thatcher in the decade she has been in power.

The Bank of England intervened heavily Friday morning to stop a slump in the value of the pound triggered by uncertainty over the country’s future economic policy. Prices also fell sharply on the London Stock Exchange, despite Thatcher’s assurance that government policies will continue “precisely as they were, so we shall have complete continuity.�

The British press was filled Friday with talk of political “crisis,� even though few here see the prime minister in any immediate danger of losing her job. Still, according to many analysts, the affair has opened deep wounds which at the very least will diminish her political maneuvering room.

“She will be a less powerful prime minister for months, or possibly right up to the next election,� said Anthony King, professor of government at Essex University and a respected political commentator.

On Friday, the Independent titled its lead editorial, “The Prime Minister Who Betrayed Her Own Government.� It concluded that while she may remain in office, “her great days are over.�

Even the tabloid Sun, Britain’s largest-circulation newspaper and ardently pro-Thatcher, conceded that her position was “inevitably . . . shaken� by the affair.

Lawson resigned Thursday after Thatcher refused his demand that she fire Alan Walters, her personal economic adviser, over public comments critical of the chancellor’s policies. Within a couple of hours, Walters also resigned and Thatcher had a new finance minister, John Major.

Although Lawson may have reacted partly to hurt pride, the affair goes much deeper than that. Walters had been speaking out for at least 18 months, since long before Thatcher hired him as a $50,000-a-year, part-time adviser last May. His position was thus seen as a clear slight to Lawson, who is the Cabinet officer supposedly in charge of government economic policy.

In fact, Thatcher has had policy differences with Lawson for months, and Walters’ presence at No. 10 Downing Street was a constant reminder of the tension.

“Here we have a chancellor whose position has been rendered intolerable by an agent of the leader,� Thatcher biographer Hugo Young wrote in the Guardian. “Her taunting of Lawson, by failing instantly to repudiate Walters, drove the last big man out� of her Cabinet.

The conservative Daily Telegraph, in an otherwise sympathetic editorial, chided the prime minister: “Leadership, in which she excels, must not degenerate into dominance, intolerance, and a simple refusal to work with those she has appointed to serve her. Even before the Lawson decision, there was mounting evidence in the country of a certain restlessness with her style.�

The Financial Times recalled that just three months ago Thatcher shunted aside her longtime foreign secretary, Geoffrey Howe. It said that with Lawson’s departure, she has managed to alienate two important contributors to the revolutionary changes known as “Thatcherism.�

“From being a government of people committed to a set of coherent, radical and timely ideas, it has now become a government committed to the prime minister herself,� the newspaper said. “As she has become more pre-eminent, her government has become much more vulnerable.�

What baffled many was the way this most determined of prime ministers was apparently so indecisive when it came to a policy conflict between two members of her governing team. Similarly, two years ago, she allowed a Cabinet dispute over how best to save Westland, an ailing government helicopter manufacturer, to fester to the point of rupture. Two of her ministers, Michael Heseltine and Leon Brittan, resigned in that fracas.

Actually, wrote biographer Young, the Westland affair and Lawson’s resignation underline a common Thatcher leadership tactic that has now received “its devastating comeuppance.�

Young calls it “covert distancing�--endorsing a policy in such a way that there always remains a suspicion that she opposes it. “The gift (that her tactic) bestowed, of excusing her for policy failures, was sometimes thought to reveal her political brilliance,� he wrote.

It works with people as well as policies, said Essex University’s King, who said in an interview that Thatcher has a habit of “referring to other members of her own government as ‘them’ and ‘they’ as if she didn’t have anything to do with it.�

In the aftermath of Lawson’s embarrassing resignation, King predicted, Thatcher will be forced to revert “to something more like the British norm of collective leadership.�

The Independent’s highly regarded political columnist Peter Jenkins noted that the immediate policy issue underlying Lawson’s departure was a dispute over full British membership in the European Monetary System. This is a step that Thatcher is loathe to take because it might amount to ceding partial control over her country’s economic policy to the European Community.

“Europe has been the issue underlying most of Mrs. Thatcher’s biggest errors,� Jenkins wrote. “Europe was at the root of the Westland affair, which in 1986 provoked the resignation from the Cabinet of Michael Heseltine and, by her own admission, could have brought her down.

“It was Europe which drove her to excesses which helped to lose her the elections to the European Parliament last June. Europe was the issue on which she sacked . . . (Howe) from the Foreign Office last summer, badly upsetting her party in the process.�

The question of Britain’s future role in a more united Europe “is the big, seismic issue of the 1990s,� agreed John Barnes, a lecturer in government at the London School of Economics, “and it’s one the Tories are ill-equipped to handle at the moment.�

Barnes, who is an acknowledged expert on the Conservatives, said in an interview that “if Mrs. Thatcher withdrew (from office) at this point, there’d be a huge sigh of relief� among many in the party. However, he said, he sees little chance of her stepping down voluntarily. Meanwhile, “the only way there would be a coup against her in the Conservative party is if all the possible successors agreed on one of them,� he said.

That is an unlikely possibility, King agreed. “Who is going to take risks with his political career to make someone else prime minister?� he asked.

But with the revitalized, opposition Labor Party already looking more like a credible alternative than at any time in the last decade, and Thatcher’s government slipping in the polls, Lawson’s startling departure clearly adds to the prime minister’s troubles.

As the Guardian said Friday: “Politically, this is one hell of a mess.�

WHO’S WHO IN CABINET CRISIS

Margaret Thatcher, in midst of the worst political crisis in her decade in power, shuffles her Cabinet.

Nigel Lawson--His resignation Thursday as chancellor of the exchequer astonishes Parliament.

Alan Walters--Thatcher’s personal economic adviser, who feuded with Lawson, also quits.

John Major--A former Lawson assistant, he replaces his former boss in the exchequer post.

Douglas Hurd--He moves from the Home Office to head the Foreign Office.

David Waddington--Parliament’s chief business manager, he replaces Hurd as Home Secretary.