'Economic Division' in Europe... 18th Century American 'Hamilton' Emerging as the Solver

Expectations for European Fiscal Integration Mentioned by Former US Treasury Secretary
German Finance Minister: "The Hamilton Moment Has Arrived"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Alexander Hamilton, one of the 'Founding Fathers of the United States' and the first Secretary of the Treasury, is gaining attention in Europe, which is facing an economic division crisis following the COVID-19 pandemic. German Chancellor Angela Merkel and French President Emmanuel Macron have unexpectedly brought an 18th-century figure, a hero from across the Atlantic in America, into the European context.

◆ US shifted debt to the federal government... Will the EU follow suit? = The background starts with the agreement between the two leaders on April 19 to create a 500 billion euro (approximately 680.3 trillion KRW) COVID-19 recovery fund. By accepting it in the form of grants rather than loans, there is an assessment that a temporary 'fiscal community' at the European Union (EU) level could emerge. Olaf Scholz, Germany's Finance Minister, mentioned after the announcement by the two leaders, "Europe has reached its Hamilton moment." Subsequently, on April 27, Ursula von der Leyen, President of the European Commission, announced the formation of a 750 billion euro fund, including 500 billion euros in grants.

Hamilton transferred the debts of state governments, which had accumulated large debts during the American Revolutionary War, to the federal government level so that all would share responsibility. After the war, the US states, which had operated their finances independently, struggled with debt. Hamilton persuaded southern states like Virginia, which were relatively financially stable, by emphasizing their shared fate in the war. In return, the US federal government designated Washington DC, closer to the South, as the capital instead of New York, which had been the temporary capital. This marked the beginning of the United States managing monetary and fiscal policies at the federal rather than state level.

Applying the US situation at that time to present-day Europe, the EU would be the federal government, and the EU member states would be the state governments. Especially if the EU lends money to member states, the borrowing countries must repay it. However, if grants are provided and the funds are covered by the taxes paid by EU member states, wealthy countries that pay membership fees to the EU would indirectly support the insufficient finances of poorer countries by collecting taxes from their own citizens.

Currently, Europe's monetary policy is decided by the European Central Bank (ECB) through the euro currency, while fiscal policies are proposed by each national government. This is why countries like Germany, France, and Italy have introduced economic stimulus measures amid the COVID-19 situation. After Germany and France proposed grant support plans, the term 'United States of Europe' appeared prematurely in the EU. This reflected expectations that EU-level grant payments could lead to fiscal integration similar to that of the United States.

◆ Conflicts within the EU persist... Some say "Forget Hamilton" = However, some argue that the current European situation differs from Hamilton's case. Hamilton proposed transferring state debts to the federal government while simultaneously planning to repay the debt through import tariffs. He presented measures to strengthen the federal government's financial status. Also, the EU's temporary grant payments differ significantly from the fully integrated fiscal system of the United States.

Above all, reaching agreements among member states is realistically difficult. Northern European countries with relatively sound fiscal health, such as the Netherlands, Denmark, and Austria, strongly oppose the plan. Hamilton gained attention in Europe during the 2012 Eurozone (19 countries using the euro) debt crisis when EU member states considered issuing joint bonds. However, strong opposition from some countries ultimately led to a failure to reach an agreement. With the EU's position already shaken by Brexit and other factors, there is analysis that if cracks widen in this discussion, the very existence of the EU could be at stake.

Professor Trevor Jackson of George Washington University recently published an article titled 'Forget Hamilton. This is Europe's Calonne moment' in Foreign Policy (FP). He pointed out that Charles Alexandre de Calonne, former French Finance Minister, attempted radical government debt solutions in Paris in 1787 to resolve fiscal deficits, which provoked noble opposition and eventually led to the French Revolution. He noted that while the EU recovery fund could become a "more complete union," as Minister Scholz mentioned, it might also be a case of "tomorrow is another day," implying a cautious approach to the situation rather than immediate resolution.

The Wall Street Journal (WSJ) recently editorialized that "the EU must achieve closer fiscal and political integration to survive the crisis," but emphasized that "someone must communicate this to voters and persuade them to support it." There are also opinions that Europe needs a figure like James Madison, who emphasized state independence in opposition to Hamilton.

EU member state leaders are scheduled to share their views on the recovery fund for the first time through a video conference on the 19th of this month. However, detailed discussions are likely to take place actively at a special summit meeting to be held face-to-face at the end of next month. An EU official told a foreign media outlet, "There is a strong voice to reach an agreement before the summer recess in August."

This content was produced with the assistance of AI translation services.