NRPLUS MEMBER ARTICLE T he European Union is — maybe — on the verge of its much-discussed “Hamilton moment.”
A sweeping Franco-German proposal for a $2 trillion EU coronavirus-recovery program would see the European Union itself raising funds in the credit markets for the first time, essentially making the European Union a new issuer of sovereign debt. Such mutual debt had long been opposed by Germany and other wealthy EU members that dread the possibility of the federation being made into a transfer union in which the affluent north pays the taxes and the frequently delinquent south deposits the checks.
But with Germany beginning its presidency of the EU Council, Angela Merkel has joined with France’s Emmanuel Macron to insist that these extraordinary times justify measures that once would have been politically impossible. The historical parallel to the aftermath of the American Revolution, when Alexander Hamilton engineered the first joint debt of the U.S. government and brought the loose confederation of sovereign states into a more robust national union, is very much on the minds of those who dream of a “United States of Europe” — and also those who hate the notion of such a thing. The proposal was not met with unqualified jubilation in the European Parliament, a reminder that the EU leadership and the peoples of the member nations are not always on exactly the same page.
The new European debt, and the EU coronavirus-recovery effort generally, will provide an interesting point of comparison with the United States. Will sovereign-debt investors treat debt coming out of Brussels as being as practically risk-free as U.S. Treasury debt? (One might call U.S. debt the “gold standard,” if one wanted to get a lot of angry email from libertarian goldbugs.) What happens to international investment if the European Union enjoys a quick and robust recovery while the United States lags, either in economic or public-health terms or both, as it may? Europe’s prestige vis-à-vis the United States has waxed and waned (the Wall Street Journal has measured it by comparing references to dollars with references to euros in hip-hop songs), and subtle shifts in status and credibility can have important long-term consequences. The future is coming, and it has some choice about where it sets up shop.
If we are indeed seeing the European Union enter a new stage in its development, what might that mean for the United States?
Washington has long been focused on China as the United States’ leading international competitor, and that has been especially true under President Donald Trump. (Indeed, President Trump’s failure to deliver on his promises to bring Beijing to heel may prove as heavy a millstone on his reelection as are his administration’s similar failure to deliver on immigration and its coronavirus malpractice.) There is good reason for that: China is big, China is hostile, and Chinese economic interests are complexly interwoven with U.S. economic interests. But there are many reasons to believe that China is more of a swollen Russia or Turkey than a genuinely credible alternative to the United States. China’s market is very large, but its business culture is largely parochial and sclerotic. China’s biggest firms are old-fashioned state-run industrial concerns (Sinopec, China National Petroleum, State Grid Corporation, Agricultural Bank of China), and even the more interesting and relevant Chinese firms, such as Huawei, mostly are second-rate. It is at best Pepsi to the American Coke, and often something more like Kick. China remains a relatively poor, backward, ill-governed country. It is difficult to imagine a real alternative to Silicon Valley taking root in the shadow of a single-party police state.
A big domestic market is nice to have, but real long-term economic power takes innovation and the development of human capital. And beyond economic power, a genuine world power needs both military might and — most important — cultural power. China’s military remains largely untested, and it has few significant alliances either in the region or globally. (Forgive me if I do not give sufficient credit to the mighty forces of Kazakhstan.) Culturally, China is admired mainly by illiberal nationalists and New York Times columnists during moments of authoritarian reverie.
The European Union is another matter.
The European Union’s total economy is about the same size as that of the United States, though it has a significantly larger population (about 450 million residents to the United States’ 325 million) and therefore a lower GDP per capita. (U.S. economic output per person is about 20 percent higher than Germany’s and 60 percent higher than Italy’s.) By some measures, Europe has a larger middle class than the United States, but its middle class is less affluent.
Europe lags behind the United States economically in part because the conservative, consensus-driven business and institutional cultures of Europe do not encourage the same kind of entrepreneurship that the United States enjoys. (One German leader told Bloomberg, “We are so preoccupied with the economy of the last century, we are so proud of our trade surplus and our automobile industry, but we have fallen behind in the digital economy. This is where value and growth will come from in the future.”) European entrepreneurs also generally lack access to the kind of capital and equity-compensation arrangements that are the lifeblood of U.S. startups. (The next time you hear somebody complaining about the “financialization” of the U.S. economy, think about how dearly entrepreneurs in Berlin wish they could hand out stock options the way they do in San Jose.)
Those are the headwinds.
The tailwinds are millions and millions of remarkably productive workers, enormous and increasingly well-integrated markets, generally (though not exceptionlessly) decent governance, reliable health-care and educational systems, and, perhaps most important, the kind of cultural power that China cannot manufacture, steal, or bully into existence — and that the United States risks forfeiting.
It is in the matter of culture — which is in part a matter of institutional credibility — that the European Union has both great opportunities and risks. For example, the flouting of EU “rule of law” standards in Poland and in Hungary, and the European Commission’s reaction to these infringements on judicial independence and press freedom (a story that does not exactly dominate U.S. headlines), is as much a test of credible joint European action as the coronavirus epidemic is. The EU wants more Copenhagen, less Budapest. (If the EU wants more Copenhagen, it is not entirely clear that Copenhagen wants more EU.) The fight over the European Public Prosecutor’s Office (EPPO), which is a kind of free-range anti-fraud unit empowered to fight “crimes against the Union budget,” raises similar questions about the character and credibility of European practice on the ground. In these matters, the European Union has the opportunity to take a stand for certain liberal-democratic values that will not only distinguish it from China (which is hardly necessary) but also, more to the point, from the nationalist-populist shenanigans currently under way in Washington, which are likely to continue after November (with one complexion or another) irrespective of what happens in the election.
Put another way: There’s currently a job opening for “Leader of the Free World.” Who wants the position? Angela Merkel has carried things about as far as she is likely to.
Because the Trump movement is spiritually aligned with Brexit, the American Right has taken an intensely anti-EU stance and in some cases a broadly anti-European one. That is a mistake. Brexit was probably the right move for the United Kingdom, which never fit easily into the European Union for many reasons (beginning with the fact that it is not in “Europe”) and which could have got most of what it wanted out of the European Union with a trade pact, which it can (and probably will) negotiate on independent terms. But France and Germany (and the Czech Republic and Slovenia and Denmark) are not the United Kingdom. The member states of the European Union have their differences (see the recent dispute between the so-called Frugals and the less thrifty EU members on the recovery agenda), but they broadly find value in the union as a matter of national and regional self-interest. A European Union that stands for liberalism, democracy, trade, open markets, and the rule of law is consonant with U.S. interests; a European Union that stands for protectionism, mercantilism, corporatism, and étatisme is not consonant with U.S. interests. Hamilton moment or not, it is likely that the European Union will see closer integration on some fronts in the coming years. The United States can influence the development of the European Union and benefit from it, or it can jeer from the sidelines.
If the European Union is having a Hamilton moment, the United States should take care that it is not having a Habsburg moment. When Philip the Pious was installed on the Spanish throne in 1598, he believed that he had inherited an empire in its prime. In reality, he and his successors would learn that the conditions for decay in their kingdom had set in well and deeply at least a generation before, and Spain would spend most of the coming century in a state of decadence and decline. By the time Alexander Hamilton worked out his famous financial compromise, Spain was just starting to figure out how far it had fallen, and Napoleon already was waiting in the wings.
As Charles Krauthammer famously put it, decline is a choice. But it is sometimes a choice that you do not realize that you have made until after the fact.
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