RICHARD C. KOO: Chief Economist, Nomura Research Institute, and author, The Other Half of Macroeconomics and the Fate of Globalization (2018).

Many elected leaders of eurozone countries and their voters have been shocked to find that they have no fiscal or monetary policy levers with which to fight the Covid-19 recession, the fastest and deadliest economic collapse in living memory.

Member states willingly gave up sovereignty over monetary and exchange rate policy to the European Central Bank when they joined the euro. But they also lost sovereignty over fiscal policy--not only because of the Fiscal Compact, but also because of the ease with which capital can flow between the eurozone's eighteen different government bond markets, all of which use the same currency. Under this arrangement, any member government deviating from the norm established by the best fiscal performer is punished by capital outflows and higher interest rates.

In contrast, countries outside the eurozone have been able to fight the public health crisis and the recession by increasing their borrowing, especially from investors who must hold high-quality bonds denominated in the domestic currency. Some, like the United Kingdom, have even been given the opportunity to borrow from their own central banks on an emergency basis. They can also boost the economy by allowing their exchange rate to weaken.

As more European voters began to realize that their helplessness stemmed from their membership in the eurozone, support for the European project quickly began to dissolve. Fortunately, German Chancellor Angela Merkel and French President Emmanuel Macron were politically astute enough to recognize this existential threat to the project and led the negotiations on a [euro]750 billion package to help the helpless.

Whether this package constitutes a Hamiltonian moment or not depends on how...