Economists—notably Nobel laureate Thomas Sargent—and the news media have drawn comparisons between the troubled eurozone today and the United States assuming states’ debts in the 1790s.But really, writes former advisor to the Fed Chairman at the onset of the European crisis and current Global Head of International Economics at Citi Nathan Sheets, there’s one crucial distinction. Europe lacks Alexander Hamilton.
Admittedly, because states’ debts had been accumulated largely as a direct result of the Revolution, politicians and citizens might have been more willing to bite the bullet and except the debt burden than those in Europe, where high peripheral public debt is a result of mismanagement and over-spending.
And not only is there less drive to share the burden, there’s no entity with sufficient power to coordinate a solution.
Even so, Sheets argues, a dynamic and pragmatic character like Hamilton might get EU politicians to bite the bullet and stomach some hard decisions. Sheets writes:
Alexander Hamilton performed a crucial role as a theoretician, tactician, and lobbyist during this period. At present, there does not seem to be a similarly talented and fierce advocate for a coordinated solution on the European scene.
In a nutshell, this is what Hamilton would do:
- Remind Germany and other stubborn countries that they have incentives to compromise.
- Encourage and empower the European Central Bank to bear a bigger burden.
- Create eurobonds.
- Lobby aggressively.
Although, as we have noted, there is no single figure on the European scene today who is likely to play the role that Alexander Hamilton did for the United States in the late 1700s, this type of ambitious reform agenda provides a vision of the policies that implemented over time might help to reinvigorate the European project. It is becoming increasingly clear to us that European integration must either move forward with greater momentum and greater enthusiasm than it has in recent years or risk losing traction altogether, with the latter outcome carrying exceptionally grave risks for the European and global economies, in our view.