Category: Economical policy

The idea that the central bank can, by cancelling the public debt it holds, erase the problem, is a recurring temptation. Yet such a strategy is ineffective while also carrying serious dangers. On the budgetary front, the cancellation of debt held by the central bank brings no lasting benefit to the Treasury. Indeed, the Banque de France, owned by the State, returns its profits—including those derived from the interest paid by the State on the bonds it issues and the Bank purchases—back to the Treasury in the form of dividends. Cancelling the debt therefore amounts to cancelling both the interest burden and the corresponding dividend flow.

Debt monetization—that is, its purchase by the central bank—can temporarily resolve the painful increase in interest costs that markets could impose in the event of heightened concern over debt levels. However, this solution nonetheless entails fundamental dangers as soon as it becomes repeted and permanent.

Unlimited monetization or outright cancellation of all or part of the debt can profoundly disrupt the functioning of economic actors. In fact, they remove the monetary constraint: the need to repay debt or refinance it under “normal” conditions.

Yet confidence in money corresponds to a reliable and efficient system for settling debts. Money is indeed the instrument that discharges the debts arising from commercial exchanges. A loss of confidence in the proper settlement of debts thus leads to a loss of confidence in the outcome of exchanges, and in money in the very essence of its function. Money is therefore the fundamental bedrock of social cohesion in market economies, as Michel Aglietta has analyzed.

The loss of confidence in money, stemming from the abusive use of debt that ultimately requires monetization or cancellation, is not just a theoretical risk. Many economic episodes—from Weimar Germany to more recent cases in emerging economies like Argentina—illustrate the distrust, even flight from money, when it is no longer anchored in sound management of public finances and monetary policy. This flight may then shift, for example, toward locally created alternative currencies, gold, or today’s crypto-assets. The resulting social, economic, and political crises are dramatic. In France, the euro mitigates this risk, but other member countries could sooner or later refuse to share in such a danger.

An uncontrolled rise in debt is therefore not just a technical or budgetary issue: it opens the way to a fundamental challenge to confidence in money and to the stability of society itself. Easy solutions that rely on discretionary monetization or debt cancellation in disregard of common rules expose society to a systemic danger.

Olivier Klein
Professor of Economics at HEC

Published in Les Échos, August 28, 2025

It was urgent to put a stop to a dangerous drift that has been undermining our economic and social balance for far too long. The time for inaction is over, whatever the political outcomes in Parliament.
The budget must be part of a coherent, long-term strategy—no small feat in France today. It is essential to design a detailed and consistent plan for transforming the State and local authorities, making them leaner, less redundant, and more efficient. The engineering and support for change will also be crucial for the success of this transformation.

Responsibility

It is equally urgent to rethink our welfare state to make it sustainable. This requires greater accountability from everyone in regard to this fundamental common good: encouraging a more rational use of Social Security, avoiding overconsumption of healthcare or benefits, and introducing an individual contribution, however modest, to limit abuses without undermining solidarity. The amount of work in France—both the employment rate and the number of hours worked—must be structurally increased. If we had Germany’s employment rate, we would no longer face a primary public deficit or financing problems for our social protection system.

The current budget proposal touches on these issues. Public spending would continue to increase in 2026, but by 1.8% instead of the initially forecast 3.5% to 4%. This would be progress, but not the kind of cost-cutting seen in companies that need to reduce expenses. Criticisms of this budget proposal as “ultra-liberal” not only miss the urgency of the necessary recovery but are unfounded. Moreover, some of the supposed cuts are in fact hidden tax increases, such as the removal of the 10% tax allowance for retirees or the elimination of certain tax breaks.

Reform

The principle that “everyone must contribute to the effort” seems fair, but it must be applied with discernment. It is crucial to address excesses where they actually occur, not indiscriminately—otherwise the reform risks being unjust and undermining public support.

As for the idea that such efforts can only be accepted if accompanied by greater tax fairness, it must be placed in the French context. Our country is already one of the most redistributive in the OECD. In France, income inequality is reduced from a factor of 18 to 3 after redistribution. The top marginal tax rates are among the highest in Europe, while the lowest taxable incomes are among the least taxed. And 55% of French households do not pay income tax at all, while 10% pay 75% of the total.

More broadly, further increasing compulsory levies—already the highest in the OECD—would only further discourage investment, employment, and entrepreneurial risk-taking. The necessary balance requires fair pragmatism, reconciling social imperatives with economic solidity, without worsening the lack of work incentives or the insufficiency of competitiveness.

This budget proposal could therefore be a necessary—though insufficient—beginning, unless the confidence vote renders it meaningless. France will not escape, in any case, the imperative of a long-term vision that finally recognizes the country cannot live indefinitely on ever-rising debt and insufficient wealth creation. Let us have the courage to implement structural reforms before they are imposed on us. We must stop feeding the French vicious circle: ever-increasing taxes, uncontrolled spending—both already at world-record levels—resulting in a debt trajectory that is unsustainable and extremely perilous.

Olivier Klein is Professor of Economics at HEC.

Les Échos, August 4, 2025

The market is an essential driver of economic dynamism. It enables efficient resource allocation, stimulates innovation, and adjusts supply to demand. However, it is neither perfect nor self-sufficient. Regulation is required to prevent excesses, ensure fairness, and secure long-term stability. Such regulation demands a legal framework, robust institutions, and legitimate authorities to set the rules of the game—but this framework must not harden into a straitjacket.
Over the past several decades, the public sphere has continued to expand, often in poorly controlled ways. In France in particular, one observes a trend toward over-administration and excessive taxation. The State now intervenes in an ever-growing number of areas, inserting itself far too often into relationships between individuals and organizations, while simultaneously weakening intermediary bodies. The result is a proliferation of rules and an ever more complex bureaucracy—alongside a decline in competitiveness and in the attractiveness of work.
Administrative red tape, diminishing effectiveness of public policies, and blurred responsibilities are the visible symptoms of this drift. Public action thus ceases to inspire confidence; instead, it creates disappointment, resentment, and disengagement. Citizens too often feel infantilized, stripped of their ability to act, reduced to a kind of civic passivity. This climate breeds withdrawal and mistrust toward institutions and politics, perceived as distant, ineffective, or even incompetent. The expansive logic of the public sphere further sustains the illusion that the State can provide answers to every problem. That illusion locks us into a vicious cycle: the more the State promises, the more it disappoints; the more its scope expands, the less effective it becomes. This erosion of individual responsibility deepens collective fear, sometimes even in the face of minor problems. As Hannah Arendt so aptly observed, “A State that intrudes everywhere does not only undermine institutions; it also destroys relations of trust between citizens, by placing itself in between them and turning them into strangers to one another.”

Too much State intervention therefore alienates individuals from their own capacity to act. This affects not only democratic vitality but also the capacity of society to innovate and adapt. It encourages inertia, obstructs necessary reforms, and undermines collective trust. The economic and social fabric suffers as a result. An excess of rules, taxes, and levies guarantees neither fairness nor efficiency; instead, it immobilizes society rather than helping it navigate change. This leads to a persistently low employment rate and blocks social mobility. For this reason, rethinking the balance between market and public power has become urgent. The market does need rules—but rules that are clear, stable, not overly numerous, and adapted to contemporary challenges. The State, for its part, must concentrate on its core missions and prioritize effectiveness. As Tocqueville already warned: “The sovereign extends its arms over society as a whole; it covers its surface with a network of small, complicated, minute, and uniform rules through which even the most original minds and the most vigorous souls cannot find their way to rise above the crowd. It does not subjugate wills, but softens, bends, and directs them; it does not tyrannize, but hinders, compromises, enervates, extinguishes, and stupefies, until finally reducing the nation into nothing more than a herd of timid and industrious animals of which the government is the shepherd.”

The challenge, then, is not to choose market or State but to rearticulate them intelligently. France must move beyond the all-too-frequent Manichaean logic according to which whatever is public is necessarily good while whatever is private is automatically suspect—or vice versa. What is needed is the restoration of complementarity between individual initiative and responsibility on the one hand and collective organization on the other. There exists a path of balance that combines economic efficiency with ethical responsibility. Efficiency is not the sole property of markets, just as ethics is not the exclusive domain of the public sphere. Public authorities must constantly seek equilibrium—harmonizing the best of both sides.
This requires a deep reform of public action. Instead of piling on new administrative layers, the State must simplify, decentralize responsibility, and refocus on its strategic functions. Policy should be designed with constant attention to actual outcomes, steering clear of counterproductive effects and ideological dogmatism—whether fashionable or outdated. Only thereby can we prevent both entropy in the public sphere and loss of meaning in society. In doing so, trust in institutions, politics, and ultimately democracy itself can be restored.

Olivier Klein
Professor of Economics, HEC