Hamilton Is Hot in Europe (The Debt Policy, Not the Musical)

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Source: WSJ


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By Daniel Michaels

European Union leaders are talking about jointly issuing hundreds of billions of euros in debt, and to some fans of American history, it looks a lot like what Alexander Hamilton proposed in 1789

BRUSSELS—European leaders are to begin debating a financial proposal that some have called a “Hamiltonian moment” on Friday, evoking a turning point in U.S. history 230 years ago.

So, what is a Hamiltonian moment and why would Europe have one?

European Union leaders are talking about jointly issuing hundreds of billions of euros in debt to spark an economic recovery from the coronavirus crisis, particularly in Italy, which was already struggling economically. The EU has never borrowed so much, and its members have never jointly assumed responsibility for each other’s finances on anywhere near this scale.

To some fans of American history, or Broadway theater, the European proposal is reminiscent of a plan that the new republic’s first treasury secretary, Alexander Hamilton, proposed in 1789.

The U.S. had just adopted the Constitution to replace the Articles of Confederation, under which the country was more of an alliance—a united group of states—rather than a unified country made up of units called states. The states managed their own finances and even used their own currencies.

The EU today is a group of 27 sovereign states united firstly around trade—and not a political union, as the U.S. was from inception. EU taxation power remains with member states and centralized authority is modest. The EU does have a common currency, the euro, but only 19 members use it.

Like Europe’s financial situation today, six years after the Revolutionary War ended, many U.S. states were drowning in debt, which had been raised to fund the fight. The new federal government was barely established and its finances were shaky. Congress had never had an independent revenue source and during the Rebellion resorted to begging states for money and manpower.

“This led many states to act selfishly and shirk their national obligations,” said historian Ron Chernow, whose 2004 biography of Hamilton inspired the eponymous Broadway musical. “For Hamilton, the lack of a federal source of income was a critical weakness of the central government and shaped much of his later thinking about the political structure the country should have.”

As part of a broader deal that eventually included creating a new capital on land carved from Maryland and Virginia, Hamilton proposed that the federal government assume the indebted states’ obligations.

Presented to Congress in his Report on Public Credit, Hamilton’s plan called for the federal government to become national paymaster. The assumption of state debt was the centerpiece of his financial system.

“Although it sounds technical and boring, it was the single greatest contribution he made to the creation of the federal government,” said Mr. Chernow. “Everything else simply pales beside it.”

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