JACOB FUNK KIRKEGAARD: Senior Fellow, Peterson Institute for International Economics.

EU leaders in July with their decision to launch a joint post-pandemic economic recovery fund took a significant step forward in fiscal integration in Europe. For the first time, they agreed to issue large amounts of common debt--[euro]390 billion--with the explicit aim of commonly funding new public investments to act in a fiscally counter-cyclical manner and with confined but intentional fiscal transfers between member states.

EU leaders during the Covid-19 pandemic identified a shared regional economic crisis warranting the novel issuance of joint debt to address the dire economic and political effects of the virus. This issuance of new joint debt will not consolidate existing member state sovereign bonds into euro bonds, and as such does not replicate Alexander Hamilton's famous 1790 Compromise, which saw the outstanding debts of the U.S. states consolidated into single federally issued securities.

Yet the political argument used by Hamilton to pursue debt consolidation by appealing to the shared nature of the struggle during the War of Independence, which accounted for the vast majority of American states' debts at the time, nonetheless has been repeated in Europe in recent months. Without the historic depth of the related recession and the shared pan-European (with no moral hazard concerns) scope of the Covid-19 pandemic, the political will to break two major political taboos in European fiscal integration--the blocks on joint long-term debt to fund EU budgetary expenditures and explicit fiscal transfers between member states--would not have been present. Hamilton's political arguments hence won the day again in Brussels in 2020.

It is a historical irony that the 1790 Compromise consolidated the debts from a war against the United Kingdom, while the EU decision would almost certainly not have been possible without Brexit. The end of British government...