What the Eurozone Can Learn from Alexander Hamilton

Some time ago, I read parts of a Robert Wright’s book, One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe (2008). Based on personal experiences, my federalist take on the future of the EU, and what I have learned from this book, I wrote a reply in a Facebook discussion on whether or not the Eurozone is an optimum currency area (OCA). I post it here, too.

The fluctuation in currency value in the Öresund region, where I live, is not optimal for growth. People and businesses can’t invest on the other side of this small channel of water because of unruly currency fluctuation. For people living in Denmark and working in Sweden, the value of their work alters so much and so often that long-term plans are impossible. Swedish companies that can’t afford to pay wages in the Danish krona or otherwise compensate for the uncertainty lose their most qualified staff. So I don’t see how Sweden is a better OCA for us than the EU.

We have been told so many times that he euro is a failure, but yet it does better than the Swedish krona. National currencies are great for smoothing over problems caused by national governments. People can have the value of their property and purchasing power taken away without protest, and there’s inducement to buy less from abroad. So, instead of people competing with wages and know-how on a free labour market, individuals are forced into collective competition. My salary is not based on my performance but on the performance by my government.

There is a historic parallel to the debate Europe that offers a drastic solution. When the United States had just become independent from Britain its member states suffered from heavy debt. People predicted it would threatened to destroy the union. As in the EU today, there was a sharp division between those who said that the individual states should be sovereign and those who favoured federalism. Thomas Jefferson came to represent the former, as he considered himself foremost a Virginian national. Alexander Hamilton represented the latter, as he considered himself an American and wanted a federation stretching the whole continent. Hamilton won the debate and the states’ debt was taken over by a federal authority.

The Eurozone is far from perfect, but the main obstacle to success is the burden of nationalism and the idea that we Europeans are forever held back by our national identities. The US managed to change 50-plus currencies into the dollar and created joint government bonds. In my opinion, Europe ought to do a similar journey.