12/09/2011 12:01 pm ET Updated Feb 08, 2012

Where Is Hamilton When Europe Needs Him?

European leaders are summiting yet again in their ongoing search for an end to their seemingly endless sovereign debt crisis. For more than two years now, they have been trying to cobble together a continental consensus among the 17 countries in the euro zone and the 10 other member states of their "European Union" on the right way forward financially for Europe.

Their fundamental problem is that, for all their summiting, for all their meticulous planning, and for all their considerable progress together for more than half a century, there is still no one country called "Europe." Europe remains an aspiration; it is not yet a nation.
So Europe neither thinks nor acts as a nation. The prudent north is hesitant to subsidize the profligate south. Those in the euro zone resent those who are not, and vice versa. Each and every one of the 27 member states of the EU is reluctant to surrender any more of its national sovereignty to unelected technocrats in Brussels.

It is long since clear that a monetary union without some form of a fiscal union will not work over the long term for Europe. To continue to progress, the Europeans need stronger institutions with sufficient structure to enforce their agreements and with sufficient democratic legitimacy to convince electorates throughout Europe to support such enforcement. But how to get from here to there?

This is where a Hamilton would come in handy in current European summitry.

To be sure, we Americans face our own daunting share of economic and political disarray in the long and anguished aftermath of the global financial crisis. Still, the challenges we face in the United States are not nearly so severe as those facing Europe. For this we can thank Hamilton. Long ago, Alexander Hamilton helped Americans see that, financially, our states must truly be united.

In 1790, soon after the birth of our republic, Hamilton, the first secretary of the treasury, closeted himself away in his study day after day crafting a 40-thousand word "Report on the Public Credit" that became the cornerstone for all of American national finance. By far the most controversial of the recommendations in his report was that the brand new federal government created just the year before by our Constitution should assume the $25 million in debts incurred by the individual states in winning America's war of independence.

Necessarily, this would oblige those among the 13 original states with little or no remaining war debt to pay for those states whose debts were still substantial. Except for South Carolina, most of the remaining state debts were concentrated in the north. Virginia and the other southern and mid-Atlantic states had largely paid off their debts, and saw little reason to subsidize the supposedly shiftless denizens of New York, New Jersey, and Massachusetts. (Sound familiar, Brussels?)

Alarmed by Hamilton's assumption proposal, and equally by his accompanying proposal to have the federal government fund an ongoing national debt, Virginia Governor Henry Lee asked his fellow Virginian James Madison, the principal architect of the new Constitution, if he was so devoted to the document that he would adhere to it "even though it should produce ruin to his native country" -- meaning Virginia.

Hamilton thought his "native country" was the new United States of America. His proposal for federal assumption of state debts was but one part of his overall plan to strengthen the federal government so as to sustain and unite the new republic. Hamilton sought to make the central government established by the Constitution the primary focus of credit (and of creditors). He saw this as one way of forging a commercial foundation for the United States as one nation.

All Americans had benefited equally from the revolution, reasoned Hamilton, so they should all share in the responsibility for paying for it. But many in the Congress were not at all persuaded. Senator William Maclay of Pennsylvania was not alone in thinking that the treasury secretary's "villainous behavior" in proposing the assumption of state debts would "damn the character of Hamilton as a minister forever."

Instead, Hamilton earned his enduring renown as our finest treasury secretary by fashioning what historians call the "Compromise of 1790" with two Virginians who harbored profound reservations about his assumption plan, Madison and Thomas Jefferson. Hamilton agreed to a plan to move the national capital from his home, New York City, to a new city to be built on the Potomac River -- on the border of Virginia. In exchange, Madison and Jefferson agreed to convince several southern Congressman to switch and vote in favor of Hamilton's assumption plan.

Thus was secured for more than two centuries the essential financial stability of the United States -- something our European friends are still struggling to achieve. All of Europe benefits equally from a "European Union" that has transcended centuries of bloody conflict to help prevent World War III. All of Europe should share in the responsibility for paying for it.

But can the Europeans see Europe as their native country? Can they, like Hamilton, find the right compromise to create financial stability? And can they find, and heed, the practical Hamiltonian visionaries from within Europe who will be needed to make the right compromise and, most important, uphold it?