An Interesting Similarity: The Sovereign Debt Crisis and The Articles of Confederation.

December 11, 2011


Has anyone noticed that the sovereign debt crisis is  strangely reminiscent of the problems facing the American colonies when they were governed by the Articles of Confederation and before there was an American Constitution. I’m just saying there is something eerily familair.

The problems and challenges facing the Confederation of American States were analogous to those facing the independent European countries.  Between 1776 when the American colonies declared independendence and 1788 when the American Constitution was ratified, the American States (formerly “the colonies”) were independent sovereign nations. In 1776 they began drafting Articles of Confederation that were in effect a kind of treaty between independent countries. The Articles were an attempt to develop a process that would enable the States to cooperate on key domestic and international issues, including financial issues such as financing the war, and then later paying off the war debt.

As is well known,  the Confederation was weak and did not have the muscle to force the States to comply with its decisions, though the States themselves were each represented on the Confederation. For example, the States did not adequately support the war effort and after the war there was risk that the States and Confederation would not pay off the war debt. it was the weaknesses of the Confederation that led the colonies to the Convention in 1787 that drew up the American Constitution and created a National form of government.

There is something eerily similar in watching the European countries try to work through the sovereign debt crisis. Each nation is sovereign and wants to retain that sovereignty. But the economic crisis of the debt crisis cannot be solved without significant cooperation and agreement among the countries on how they manage their internal fiscal responsibility. The recent attempt by EU leaders  to create a common fiscal union across the eurozone with strict and enforceable rules embedded in EU treatises reminds me of the American States trying to come to common ground with the Confederation. Without the power to enforce economic practices, one wonders whether the EU will face the problems that plaqued the American States before they created a national government that had the power override the states and force compliance on key economic matters.