ROLAND VAUBEL: Professor Emeritus of Economics, University of Mannheim, and Member, Academic Advisory Council, German Federal Ministry of Economics.

In Germany, the government is split over this issue. While Finance Minister Olaf Scholz, a Social Democrat, has called the agreement on the EU Recovery Facility a "Hamiltonian moment," Chancellor Angela Merkel's Christian Democrats are insisting that this analogy is misplaced because the European Union is not, like Alexander Hamilton, consolidating old debt of the member states and because the Recovery Facility is a one-time exercise limited to the coronavirus incident.

In my view, as I shall explain, the facility is a powerful and disastrous precedent generating incentives for excessive debt financing due to collective responsibility.

No doubt, the scheme will be challenged in the courts for lack of a legal basis. According to the Treaties (notably Article 310 of the Treaty on the Functioning of the European Union) and the Budget Statute, the EU budget has to be balanced. The transfers and loans of the Recovery Facility are to be granted within the official budget but to be financed by contributions raised off-budget by issuing common debt.

In my view, this construction is an illegal way of circumventing the balanced budget requirement. However, I do not expect that the EU Court of Justice will object to it. Like the Marshall court in the United States during Hamilton's time, the EU Court of Justice acts as a motor of integration including political...