Blog Post

Nobel Prize Lecture and the European Return of Hamilton

The “Fiscal Compact” signed by 25 Member States on March the 2nd has been welcomed by many as the proof that Europeans are obsessed with fiscal discipline. Since the beginning of the year, more and more articles drawing comparisons between the US after the War for Independence back in the 1780s and the current situation […]

By: Date: March 13, 2012 Topic: European Macroeconomics & Governance

The “Fiscal Compact” signed by 25 Member States on March the 2nd has been welcomed by many as the proof that Europeans are obsessed with fiscal discipline. Since the beginning of the year, more and more articles drawing comparisons between the US after the War for Independence back in the 1780s and the current situation in Europe have been published.

Randall Henning and Martin Kessler do it for a Bruegel essay. In their conclusions they call for a unified “bank regulation and (…) a common fiscal pool for restructuring the banking system” in the Eurozone. Harold James, from Princeton University and the European University Institute, also covers this comparison in his project-syndicate post arguing that collective debt-sharing mechanisms along with a “greater degree of political accountability and control at European level” is only long-run viable solution for Europe.

The pioneer in this sense, however, has been the 2011 Nobel Price winner, Thomas John Sargent.  He discussed the topic in his Nobel Price lecture, the transcript of which has been recently released. In his opinion, the US were even more obsessed with fiscal discipline than Europe when they became a federation. Fiscal decisions came before the establishment of a central monetary authority and they rightly did so. The majority of the debt was due to the inability of the central government to raise revenues in order to pay back its creditors. Social security spending was not as developed as today. Even with a small overall budget (2%-3% of GDP), the federal government of US in 1790 was able to allocate 40% of its revenues to servicing its debt.

Alexander Hamilton, the Secretary of Treasury appointed by the Congress in 1989, was able to make creditors believe in the federal government’s capacity to honour its debt by creating a fiscal union. From that moment onwards a series of events, some of them highly painful as the 1840’s crisis, led the US to modify the original federal set-up put in place by Hamilton and adopt their actual system. Now it is time for Europe to find her way out of the crisis. Could a European return of Hamilton be the solution to the whole problem? Or is the crisis a multidimensional phenomenon requiring a more complex strategy to be solved as suggested by Jean Pisani-Ferry’s Bruegel Policy Contribution?


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More by this author
 

Opinion

Why China should fear the EU's carbon border tax

Expect Beijing to soon start lobbying against the proposal.

By: Alicia García-Herrero Topic: Energy & Climate, Global Economics & Governance Date: July 26, 2021
Read article More on this topic
 

Blog Post

A world divided: global vaccine trade and production

COVID-19 has reinforced traditional vaccine production patterns, but the global vaccine trade has changed considerably.

By: Lionel Guetta-Jeanrenaud, Niclas Poitiers and Reinhilde Veugelers Topic: Global Economics & Governance Date: July 20, 2021
Read article
 

Blog Post

Will European Union recovery spending be enough to fill digital investment gaps?

The recovery facility will boost digital transformation, but questions remain whether it will be sufficient to achieve Europe’s digital ambitions.

By: Zsolt Darvas, J. Scott Marcus and Alkiviadis Tzaras Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: July 20, 2021
Read article More on this topic
 

Opinion

Increasing the global supply of essential medical supplies: Time for Europe to step up its global leadership

Europe has already made a significant financial contribution to beating the pandemic, now it has the oppurtunity and moral responsibility to do more.

By: Anne Bucher and Guntram B. Wolff Topic: Global Economics & Governance Date: July 19, 2021
Read article More by this author
 

Blog Post

The European Union’s carbon border mechanism and the WTO

To avoid any backlash, the European Union should work with other World Trade Organisation members to define basic principles of carbon border adjustment mechanisms.

By: André Sapir Topic: Energy & Climate, Global Economics & Governance Date: July 19, 2021
Read about event More on this topic
 

Upcoming Event

Sep
1
15:00

The future of EU-Africa relations

Bruegel Annual Meetings, Day 1 - A discussion of the state of play and outlook of EU-Africa relations.

Speakers: Masood Ahmed, Amadou Hott, André Sapir, Vera Songwe and Jutta Urpilainen Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

Sep
1
11:00

Resolving today’s global health crisis, and avoiding future pandemics

Bruegel Annual Meetings, Day 1- How do we exit the COVID-19 pandemic and ensure the world of tomorrow is less vulnerable to future pandemics?

Speakers: Jeremy Farrar, Amanda Glassman, Sri Mulyani Indrawati, Tharman Shanmugaratnam and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

Sep
1
12:30

The EU recovery fund - state of play and outlook

Bruegel Annual Meetings, Day 1- In this session we will discuss the EU recovery fund, its state of play and outlook.

Speakers: Nadia Calviño, Karolina Ekholm and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic
 

Upcoming Event

Sep
2
10:00

Conversation on the recovery programmes

Bruegel Annual Meetings, Day 2- In this session, we discuss the recovery programmes.

Speakers: Maria Demertzis and Tadeusz Kościński Topic: European Macroeconomics & Governance Location: Palais des Academies, Rue Ducale 1
Read about event
 

Upcoming Event

Sep
2
13:00

European banks: under global competitive pressure?

Bruegel Annual Meetings, Day 2 - European banks have lost stature and remain generally low-profitability, low-valuation in comparison to their global peers. Is that a problem? If so, what can EU policymakers do to address it?

Speakers: José Antonio Álvarez Álvarez, Mairead McGuinness and Nicolas Véron Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Palais des Academies, Rue Ducale 1
Read about event More on this topic
 

Upcoming Event

Sep
2
16:00

Navigating a more polarised world: policy implications

Bruegel Annual Meetings, Day 2 - Are we entering a new age in the relationship between international economics and global politics? Is Europe well-equipped for this new world?

Speakers: Hélène Rey, Jean Pisani-Ferry, Adam Tooze and Sabine Weyand Topic: Global Economics & Governance Location: Palais des Academies, Rue Ducale 1
Read about event More on this topic
 

Upcoming Event

Sep
2
15:45

Blending physical and virtual: shaping the new workplace

Bruegel Annual Meetings, Day 2 - This panel will cover the changes the COVID-19 pandemic made to our workplaces, and what to expect in the near future.

Speakers: Nicholas Bloom, Michael Froman, Mario Mariniello, Sara Matthieu and Luca Visentini Topic: European Macroeconomics & Governance Location: Academy Palace
Load more posts