During a five-day marathon meeting, European Union (EU) leaders approved a long term budget and a coronavirus economic recovery fund.
Their agreement was called a “Hamiltonian Moment.”
A Hamiltonian Agreement
Twenty-seven EU nations expressed support for a €750 billion coronavirus rescue package that was unique. It included grants that countries did not have to pay back and loans that were an EU obligation. Rather than individual nations, the EU became the financial center of the deal.
In the past, the EU has split between North and South, and East and West. The North/South divide related to the richer northern nations restraining the less affluent South. Meanwhile East/West differences involved democratic nations not wanting to support those that were more autocratic.
We could say that EU leaders were debating fiscal integration. Fiscal integration was final step through which nations that had given each other freer trade and travel could achieve greater unity. The unity would come from shared spending, taxes, and borrowing. It would come from a shared fiscal policy that a central authority could implement and enforce.
Our Bottom Line: A “Hamiltonian Moment”
Alexander Hamilton faced a similar situation. Right after the Revolutionary War ended, the United States functioned as thirteen states with individual currencies and taxing authority. If a state did not want to collect its federal taxes, no one could make them. If they did not want to diminish the Revolutionary War debt, it did not have to.
Hoping to strengthen the central government, Alexander Hamilton and likeminded individuals, convened a convention during a very hot summer in Philadelphia in 1787. We wound up with our Constitution and a powerful central government.
At its beginning, that central government had states with and without massive debt. Hamilton said the fiscal obligations of one was an obligation for all. The financial health of one state affected everyone. Hamilton wisely realized that the strength of the group depended on the central government assuming the state debts. And that meant the states that had paid off their debt would have a second round of obligations.
The EU also needed to decide if they would accept more fiscal integration. Its decision is sending a message to the world’s financial markets. It is telling them that fiscal integration will bring the entire EU more prosperity and stability.
Just as Alexander Hamilton pulled disparate states together fiscally in 1790 so too have the EU’s leaders in 2020.
My sources and more: For background on the EU stimulus plan, Vox. the NY Times, and WSJ (the best but gated) are possibilities. But if you want to read much more, I also recommend John Steele Gordon’s Hamilton’s Blessing for a detailed history of the U.S. debt through 1995. In Chapter 1, he focuses on Hamilton.
Our featured image of the EU is from Political Geography Now.