February 11, 2012
Trying to coerce a group of sovereign states to follow common rules is ultimately doomed. Leagues and confederacies are like feudal baronies: breaches lead to anarchy, tyranny and war. That was Alexander Hamilton’s case for a strong American federal government. After the adoption of America’s constitution, Hamilton became treasury secretary. The federal government assumed the war debts of the ex-colonies, issued new national bonds backed by direct taxes and minted its own currency. Hamilton’s new financial system helped transform the young republic from a basket-case into an economic powerhouse.
Does Europe, in its chronic financial crisis, need such a “Hamiltonian moment”? The European elite is looking across the Atlantic for ideas. There is little danger, as Hamilton put it in the Federalist papers, of returning to “bloody wars in which one half of the confederacy has displayed its banners against the other half”. But there is a surging resentment in creditor and debtor countries, and the risk of collapse. As a type of confederation, the euro zone struggles to take decisions, and to impose austerity and reforms on recalcitrant members like Greece.
Nicolas Sarkozy, the French president, has spoken vaguely of the need for European federalism. Angela Merkel, the German chancellor, envisages a step-by-step process to “political union” but offers little detail. Some in Germany talk of one day changing the constitution to allow more transfers of power to Brussels. Citing Hamilton, the German council of economic advisers last year proposed that euro-zone national debt exceeding 60% of GDP should be pooled and paid off over time. The European Commission thinks this one-off plan could presage joint Eurobonds.
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