What would Hamilton do?

There’s still a lot of attention focused on the problems in Europe with Greece, Spain, Italy and the euro. Some say the problems there are reminiscent of similar issues in the early years of our country, which were solved by our first Treasury secretary, Alexander Hamilton. What did Hamilton do? N.C. State University economist Mike Walden responds.

“Well, I think it’s easy to forget that our country was and still is a federal union of individual sovereign states — so not unlike, in some ways, what the European Union is. And when our country was beginning in the late 1700s, one of the problems was the states had a lot of debts. The ability to each of those individual states to pay of those debts varied. Some states could do it, some states were wealthy, some states were poor. And that was a major hindrance to the new leadership of the country to try to forge these individual states into one union.

“And so our first Treasury secretary thought that one way to go about this financially was for the federal government, the new federal government — the national government — to actually assume (take over) the debts of all the individual states, which in fact our new federal government did. But in exchange the federal government required that the individual states run balanced budgets.

“And many economists and others say that this was a great success. It helped put our new country on firm financial footing. Some are making the same kind of advice for the European Union. They say that one answer to the problem with the euro is for the European Central Bank, which is sort of like the central government — at least monetary government — of the European Union to assume all the debts of all the individual countries. So Greece’s debt, Italy’s debt, Spain’s debts, et cetera, all the … individual countries’ debts will be assumed by the European Central Bank.

“In exchange though, the European Central Bank and the European Union would impose tighter fiscal discipline on those individual countries. Now this would probably help financially the European Union, but it would also mean that those individual countries would be giving up a lot of sovereignty, and those large countries like Germany would be shouldering a large amount of the debt. And we’d have to wait and see if that’s the route Europe wants to go.”