Forget Hamilton. This Is Europe’s Calonne Moment.

On May 18, French President Emmanuel Macron and German Chancellor Angela Merkel announced a proposal for a €500 billion ($543 billion) European Union coronavirus recovery fund, in which the European Commission would borrow in capital markets to support grants and EU-level spending, rather than loans to national governments. That plan was echoed and expanded nine days later, when European Commission President Ursula von der Leyen issued a proposal to borrow €750 billion ($823 billion), €500 billion of which would be distributed as grants, funded by future EU taxes. The participation of Germany was a surprise, and marked a shift in policy driven by Olaf Scholz, a senior member of the Social Democratic Party (SPD), at the Finance Ministry. Since taking up the post in March 2018, Scholz and his team have slowly been bending the German role in EU economic policy away from the long reign of conservatism and austerity under the Christian Democratic Union’s Wolfgang Schäuble, and this surprise is a barometer of their success. The new fund has been widely characterized as a “Hamiltonian moment,” after Alexander Hamilton’s successful effort in 1790 to have the newly formed U.S. federal government assume all of the outstanding debts of the individual states, thereby creating a single fiscal union. In an interview with Die Ziet, Scholz himself invoked Hamilton and reaffirmed the SPD’s long-standing goal of establishing a United States of Europe.

A counterargument emerged immediately. A fiscal union involves not just common borrowing but common taxation. Scholz hopes for taxes on financial transactions and carbon emissions, but the fund has no taxation elements as yet. The commission’s plan will be followed by proposals for new EU-level levies and duties to be applied between 2028 and 2058. Nor has either proposal been accepted by all EU member states: Germany and France are still trying to persuade the recalcitrant Netherlands, Austria, Denmark, and Sweden, so it is unclear what the final product will look like. Germany and France want the proceeds to be distributed as grants, while the so-called “frugal four” insist on loans. Further, the fund is temporary, and unlike Hamilton’s Funding Act, it does not include the mutualization of debt. Under full mutualization, Germans could find themselves on the hook to repay debt issued by or for Greeks and Italians, whereas under the current proposal, they are only required to contribute to repayment in amounts equivalent to their share of the EU budget. (Article 125 of the Treaty on the Functioning of the European Union forbids debt mutualization.) The fund might simply be an extension of the now politically toxic European Stability Mechanism—the 2012 relief effort that supplied loans in exchange for fiscal austerity. Both the Merkel-Macron plan and the commission plan are focused on grants rather than loans, but grants could still come with domestic policy conditions, and Southern European countries have already been burned by ostensible bailout provisions before.

The fund could also be an end run around the recent decision by the German Constitutional Court on European Central Bank (ECB) bond-buying, allowing the bank to direct support to the most affected countries. If the German court ruling holds and is actually taken seriously, the ECB’s current quantitative easing program will become untenable. The bonds of this common relief fund will take over, allowing the ECB to continue doing the heavy lifting of European economic policy.

The debate over how to interpret this new fund could be improved with a wider repertoire of examples drawn from 18th-century economic history. The Hamilton comparison is familiar to our historical imaginations and is validated by a subsequent record of success. But Hamilton is not the only available historical analogy to Europe’s current constitutional moment—and success is not the only available outcome.

Seven years before Hamilton’s moment, Charles-Alexandre de Calonne became controller-general of finances under King Louis XVI. By then, Old Regime France had been stumbling through a perpetual debt crisis for nearly a century. Despite the ostensible absolutism of the king, French governance was a ramshackle bureaucratic nightmare full of overlapping and contradictory jurisdictions. The administration of justice and tax collection were held as private offices, provincial elites had wide discretion and their own privileged sources of revenue, and there was no such thing as common, universal public law. In 1720, France’s first experiment with a central bank and unified economic policy ended in disaster, when the Scottish gambler, convicted murderer, and banking theorist John Law precipitated the world’s first international financial crisis and the world’s first paper money hyperinflation. From then on, each controller-general did their best to muddle through without daring to attempt any major reforms. Nobody had the slightest idea how much revenue the crown controlled or how much debt it owed or to whom until the publication of a scandalous report on the state finances in 1781.

By 1787, the French crown was on the brink of default, overburdened by the debts accumulated during its intervention in the American Revolutionary War. In that moment of crisis, Calonne realized that the messy thicket of public-private bureaucracy was incapable of agreeing to any meaningful reforms, let alone reforms that would raise taxes. Previous attempts at tax reform had consistently been blocked by regional courts. Calonne convened an emergency council called the Assembly of Notables and proposed a wide-ranging package of reforms designed to unify borrowing and spending, create a single tax structure, and set up a central bank.

The Calonne moment was a last-ditch attempt at reforms that would save and preserve the fundamental constitutional structure of Old Regime France. It failed. Calonne was implicated in a financial scandal connected to a boom and bust on the Paris stock exchange, which cost him his position and cost his reforms their legitimacy. News of the scandal was driven by a series of salacious pamphlets published by Calonne’s political enemies, who also happened to be financial speculators. Historians remain divided over whether Calonne really was as corrupt as the pamphlets claimed or just naive enough to think he could win a public dispute against a coordinated campaign of defamation. But even without the scandal, the assembly could not and would not agree on universal direct taxation, and provincial courts loudly proclaimed that they would refuse to accept the legality of any new taxes.

The failure of Calonne’s reforms left no option but to attempt to rewrite the constitutional basis of the French fiscal system. In 1789, the Estates-General was convened to do just that, and ended up doing considerably more. One of the first things this meeting did was nationalize the royal debt, making it the permanent responsibility of the nation as a whole and forbidding any mention of default in its proceedings. Many of the holders of the royal debt were exactly the same financiers and holders of venal offices who had comprised the Assembly of Notables and later arrived in Paris as delegates to the Estates-General. They found that solving questions of taxation and spending entailed first solving questions of representation and legitimacy, sovereignty and power, and principles of property and law. Once the possibility of radical social transformation existed, there were no inherent limits governing who could direct that transformation or how far. The result was the French Revolution.

None of the delegates who met in Paris in May 1789 had any idea that by August they would have utterly abolished the legal institutions of the Old Regime, let alone that four years and two constitutions later, France would be a republic with universal male suffrage and legal equality, at war with the rest of Europe and fashioning public virtue under a Reign of Terror. Nor could they have predicted the economic fallout. In a 1794 report on the Old Regime’s debt crisis, the delegate Pierre-Joseph Cambon concluded that the old government had been outsmarted by the markets, with their greater technical knowledge and opaque strategies. Much of Cambon’s career during the French Revolution was dedicated to breaking the political power of these early “bond vigilantes,” and by 1794 everything had changed, especially the political power of the old elites. In 1796, the post-Terror government defaulted on the remainder of the Old Regime’s debt, but by then the decision was almost moot. The bond vigilantes of 1787 had fled into exile and had their property confiscated or had been guillotined in the Place de la Révolution, and the nominal value of the debt had been eroded by the hyperinflation of the revolution’s paper money. There is more than one way to resolve a fiscal crisis.

There are many differences between the EU in 2020 and France in 1787, just as there are between the EU and the United States in 1790—although political corruption like Calonne’s appears to spring eternal and, like Hamilton, sometimes people are still shot by vice presidents. But in New York in 1790, Paris in 1787, and Brussels today, an urgent fiscal crisis is the manifestation of an underlying set of constitutional dilemmas about representation, sovereignty, and legitimacy. Invoking the Hamilton parallel alone risks tricking ourselves into thinking that if we know what happens in the immediate crisis, we know how the bigger questions will be resolved.

The Calonne moment is a reminder that radical changes that in the future will seem in retrospect to have been inevitable are exactly those that are currently unimaginable. The Hamilton analogy suggests a peculiarly American idea of constitution-writing: one that ends a revolution and establishes a unified federal structure. That experience has not been the norm in most times and places. The Calonne moment is more common: the delegitimization of the old world does not imply a consensus on the new, so attempts to reshape a constitutional order more often begin revolutions than end them.

We can hope for the Scholz-Hamilton future, with a European fiscal union funded through taxes on capital and carbon, redistributing funds to the poorest people and places, all driven by a commitment to internationalist solidarity. That is a future consistent with Adam Tooze’s recent call for a new constitutional purpose for the European monetary and financial system, anchored on a new social role for the ECB. But it is difficult to look at the political landscape of contemporary Europe and think that will be the result without a prior radical redistribution of power.

It is possible that we will look back on the past decade of EU governance, with its inequality and austerity and resentment, the way we look back on the Articles of Confederation. But an interregnum is given meaning by what follows, either as necessary prologue or tragic missed opportunity. If the fund fails, or is diluted beyond recognition, it may not be possible to continue muddling through this crisis on the ECB’s power alone. Even worse, the fund could turn out to be yet another mechanism for enforcing austerity on the southern periphery—as in Calonne’s case, an ostensibly necessary technical reform that conceals (or appears to conceal) a narrow sectional interest would accelerate the EU’s ongoing crisis of legitimacy.

The message of the recovery fund may well be toward a “more perfect Union,” as Scholz suggests. But it may also be “Après nous, le déluge.”