Category: Economical policy

Categories
Conjoncture Economical and financial crisis Economical policy

The French Political, Economic, and Social Model Must Undergo Deep Renewal

November 2025

Below is an in-depth paper on the necessary renewal of the politico-economic-social model that defines the system under which we live in Europe, regardless of alternations between right and left. This renewal is all the more necessary in France, where this body of thought has gradually dissolved into an overdeveloped statism and into the currents of wokism.

“A State that intrudes everywhere does not merely weaken institutions; it also destroys relationships of trust between citizens, because it inserts itself between them and makes them strangers to one another.”
(Hannah Arendt, The Crisis of Culture)

A model running out of steam

This model, as it exists in France, has run its course. It has delivered much over several decades. But its intellectual foundations have evolved very little; indeed, they have drifted, while at least four major developments have taken place. These have been overlooked, insufficiently examined, sometimes denied, or worse, followed without understanding their consequences. Let us cite them, in no particular order.
First, the issue of public authority, security, and migration, together with the rise of Islamist ideology—raising fundamental questions about what constitutes a nation. Second, the rise of fierce individualism, with an overvaluation of individual rights and a devaluation of duties. Third, an obsession with equality, leading to a dangerous egalitarianism at the expense of equal opportunity and fairness. Finally, the hypertrophy of the public sphere, whose entropic expansion generates inefficiency, discouragement, loss of trust, and growing anxiety.
We will return to each of these points. The issue of climate transition is not discussed here, as our model—albeit with too many dogmas and insufficient scientific rigor—has, broadly speaking, integrated it into its framework. We must therefore renew our thinking, lest we become obsolete, by exploring territories that have so far been insufficiently examined. Let us attempt, modestly, to lay a few building blocks.

Market and State

The market is indispensable. It fosters economic dynamism, resource allocation, and a matching of supply and demand that, while imperfect, is irreplaceable. However, the market cannot regulate itself sufficiently. To function effectively and sustainably, it requires law, rules, institutional authorities, regulatory bodies, and intermediary organizations capable of intervening when it becomes destabilized.
The public sphere is therefore essential to regulating the market, the economy, and society more broadly. The State (in the broad sense) is necessary to maintain social balance, including by fostering intermediary bodies such as trade unions. The various forces within society can then be channeled in a broadly harmonious equilibrium-albeit one that is inherently shifting and unstable.
This model of regulation has, despite imperfections and non-linearity, enabled the development of broadly shared prosperity in European countries. Its most accomplished forms have emerged in Northern Europe and Germany. With variations, a form of social democracy has spread across Europe and become one of its defining features.
We use the term “social market economy” in a broad sense, beyond political alternations, as the common foundation of European systems. For decades, this model successfully combined markets with institutions and rules, including redistributive mechanisms.
However, Europe now appears to be experiencing relative decline and, in recent years, a significant economic divergence from the American model. The proliferation of norms and regulations, weaker incentives for initiative and risk-taking, and an unbounded pursuit of equality-rather than fairness-help explain this. Even in its reformist strands, aware of these dangers, the model has become insufficient.

Authority, security, immigration

It is essential to incorporate into public policy thinking the issues of authority, security, and the regulation and integration of immigration. Failing to address these issues in a republican manner leaves the field open to populist movements, which can then attract voters who legitimately feel unheard on sensitive aspects of daily life.
These issues are crucial and must not be treated moralistically or with contempt. Likewise, conceiving of a nation as a purely multicultural kaleidoscope-without unity, borders, shared culture, or identity, bound only by abstract universal values-is an ethereal vision that dissolves history, geography, and the nation itself. It ignores the cultural bonds that enable people to recognize themselves in a country and live together.

Ernest Renan had already articulated this clearly: “What unites us is not language, religion, or race, but a shared past and a common will to live together… A nation is a daily plebiscite.” This should guide our reflection.

Overadministration: a brake on action

The declining effectiveness of the public sphere must also be carefully analyzed. Just as markets are not infallible, public decisions can be ineffective, inappropriate, or even undesirable. They can produce unintended consequences that are the opposite of their intended goals.
There is neither omniscience of markets nor of the State. It is therefore essential to recognize that public policy can fail. This must be central to the renewal of the social market economy.
There is no “evil capital” and “benevolent State.” This binary view is simplistic and misleading. Both capital and the State follow their own expansionary logic—one of accumulation and return, the other of control and power. Both tend naturally toward growth, yet both are necessary and complementary, provided neither dominates and destabilizes the delicate balance required for a functioning society.
In France, this calls for a clear-eyed analysis of the long-term expansion of an omnipresent State that increasingly intermediates social relations. This dynamic leads to overadministration: a growing, heavy, and diminishing-return bureaucracy.
Overadministration fosters a sense of powerlessness, discouragement, and retreat into the past. It also encourages rent-seeking or, conversely, rebellion. By attempting to respond to everything, it infantilizes individuals and fuels ever-growing demands on the State-inevitably leading to disappointment, anxiety, and a loss of individual responsibility.
Too much State produces atomization and alienation, undermining both self-confidence and trust between individuals. It weakens individual and collective action and erodes spontaneous solidarity.
Ethics and efficiency
Faced with both the failures and expansionary tendencies of the public sphere, the State must regain clarity of purpose and effectiveness. It must avoid unnecessary expansion and refrain from producing excessive rules and institutions.
The public sphere must ensure the best combination of ethics and efficiency. Neither is the exclusive domain of the market or the State. Their relationship is complex and intertwined. Ethics without efficiency is unsustainable; efficiency without ethics is equally untenable. Public authorities must constantly manage this tension.

Hyper-democracy

We must also examine the endogenous dynamics of democracy—what might be called “hyper-democracy.” Left unchecked, democracy can generate its own excesses and ultimately weaken itself, potentially paving the way for populism.
These excesses include the limitless expansion of individual rights, coupled with the erosion of duties; extreme individualism and fragmentation; and the ideological framing of society in terms of oppressors and oppressed. This framework, enforced through new forms of social and intellectual conformity, can foster division and resentment.
In this context, wokism represents an extreme distortion of democratic principles. It is not an extension of democracy or progressivism, but a radicalization that ultimately undermines them. Opposing it is neither conservative nor reactionary-it is necessary to preserve liberal democracy itself.

False progressivism, real regression

The indulgence or blindness toward these developments is not progressivism. On the contrary, it leads to regression, undermining humanist and universalist values that have historically supported equality, emancipation, and social cohesion.
The combination of excessive State intervention and hyper-democracy produces a destructive dynamic: ever-expanding rights, declining responsibilities, reduced efficiency, and growing mistrust-ultimately leading to unsustainable public debt.
A viable social market economy requires a balance between social protection-particularly for the most vulnerable-and individual responsibility. The welfare state is essential, but it cannot protect against everything without limit without generating entropy and irresponsibility.

The survival of the model

The balance underpinning our model has been broken, endangering the welfare state itself. The question is whether democracy, social democracy, and the public sphere can avoid entropic drift and stabilize at a point that reconciles justice, efficiency, and well-being.
This is ultimately a question of survival for the European socio-economic model. Without reform, it risks becoming incapable of sustaining itself, leading to economic decline and moral and financial disintegration.
The challenge, therefore, is to identify mechanisms that can limit these excesses and restore the vital equilibria necessary for renewal.

Olivier Klein
Professor of economics at HEC

Categories
Economical and financial crisis Economical policy

Private Credit: Rising Risks Call for Appropriate Supervision

May 2026

Private credit has become a major source of corporate financing, but its rapid expansion shifts risks outside bank balance sheets without eliminating them. Opacity, leverage, illiquidity and growing interconnections are creating new vulnerabilities within the financial system that warrant closer oversight.

The rise of private credit has been one of the most significant financial developments of recent years. Long regarded as a niche segment, it has become an important source of funding for companies, particularly mid-sized firms and transactions considered too risky or too specialized for traditional bank lending. This growth reflects a genuine economic rationale: companies seek more flexible, accessible, or complementary sources of financing, while investors search for higher yields. Yet it also raises an increasingly pressing financial stability question. As credit migrates away from bank balance sheets, risks do not disappear; they merely change form, ownership, and transmission channels.

To fully understand the issue, it is useful to distinguish between a bank and a non-bank financial intermediary. A bank creates deposit money, collects deposits, transforms liquid liabilities into longer-term loans, has access to central bank liquidity facilities, and operates under a stringent prudential framework. When a bank grants a loan and retains it rather than securitizing it, the associated credit risk remains on its own balance sheet. If the borrower’s creditworthiness deteriorates or defaults, the resulting cost is reflected in provisions and ultimately in earnings. Unless the bank itself is threatened, depositors do not directly bear the cost of credit losses. Banks also assume interest-rate and liquidity risks. Banking regulation largely stems from this reality: because banks create broad money, operate payment systems, and safeguard a significant share of household and corporate savings through deposits, they are subject to strict prudential requirements. For the same reason, central banks can act as lenders of last resort to prevent a financial or banking crisis from spiralling into a systemic collapse.

Risk Transferred to Investors

Private credit funds operate according to a fundamentally different model. They do not collect deposits, perform a monetary function, or generally have access to central bank refinancing. Most importantly, they do not themselves bear credit, interest-rate, or liquidity risks. Those risks are transferred directly to the investors who commit capital to the fund and who, in exchange for higher expected returns, agree to absorb potential losses. This structure has an internal logic: it enables the financing of riskier segments without directly exposing depositors to those risks. However, it also has a downside. When risk is not internalized by the intermediary itself, balance-sheet discipline becomes more diffuse, oversight more fragmented, and market reactions during periods of stress potentially more abrupt.

Since the global financial crisis, banks have been subject to significantly stricter prudential requirements. This has strengthened their resilience, as was necessary, but it has also contributed to shifting part of corporate financing—particularly the riskiest and least standardized segment—outside the banking sector. At the same time, years of exceptionally low interest rates encouraged insurers, pension funds, family offices, and other institutional investors to seek higher returns in less liquid and riskier assets. Private credit has flourished at the intersection of these two trends: tighter constraints on banks and a growing appetite for yield among investors.

Multiple Vulnerabilities

This new form of credit intermediation nevertheless concentrates several vulnerabilities. The first concerns the quality of borrowers themselves. Companies financed through private credit are often unrated or only lightly covered by public rating agencies, and may exhibit fragile capital structures and elevated leverage. Aggressive deal structures, covenant-light loans, payment-in-kind (PIK) features, and discreet restructurings can delay the visible recognition of losses without reducing the underlying risk. In other words, credit deterioration may take longer to appear in valuations than in the underlying economic reality.

A second vulnerability lies in the sector’s limited transparency. Unlike publicly traded bonds, private loans do not trade on organized and liquid markets. Their valuation relies on models based on imperfect comparables and internal assumptions. This opacity is not merely an information issue for investors. It is also a macroprudential concern, as it delays the recognition of losses, complicates risk comparisons across market participants, and may foster a misleading perception of stability. The growing use of private ratings adds a further layer of ambiguity. While such ratings may broaden the investor base, they may also facilitate forms of regulatory arbitrage if their quality and consistency are not adequately ensured.

A third vulnerability stems from interconnections. Private credit does not operate in isolation from the broader financial system. Banks provide credit lines to funds, finance portfolios, share borrowers, and increasingly form partnerships with major asset managers. Insurers and pension funds invest in private credit to capture illiquidity premia that appear compatible with their long-term liabilities. Private equity groups may simultaneously control lending platforms and insurance companies, multiplying potential channels of contagion. The systemic risk therefore does not arise from an isolated “shadow sector,” but from an increasingly dense web of relationships among banks, non-bank financial institutions, insurers, and investment vehicles.

Liquidity Under Scrutiny

A growing liquidity risk must also be considered. As long as private credit is primarily financed through closed-end funds, the mismatch between investor liabilities and the illiquid nature of the underlying assets remains relatively limited. However, the rise of evergreen vehicles, semi-liquid structures, and products aimed at a broader investor base is altering this balance.

Whenever a degree of liquidity is promised to investors while the underlying loans remain difficult—or potentially impossible—to sell quickly, a mismatch emerges. In periods of stress, such mismatches can trigger forced sales, sharp markdowns, and spillovers into other market segments. This is precisely the type of vulnerability often highlighted in discussions of non-bank financial intermediaries (NBFIs): institutions that do not create money but can nevertheless become powerful amplifiers of instability through liquidity demands and asset sales.

A Useful Market That Requires Better Oversight

The debate should not be caricatured. Private credit is not inherently problematic. It addresses genuine financing needs and can usefully complement bank lending. The problem arises when the growth of this form of intermediation creates the illusion that risk has diminished simply because it has migrated away from bank balance sheets.

Transferred risk is not eliminated risk. When borne by end investors, valued infrequently, financed through leverage, and embedded within complex structures, risk may actually become more difficult to identify and more costly to contain once it materializes.

For this reason, the appropriate response is neither laissez-faire nor the mechanical extension of banking regulation to institutions that perform different functions and possess fundamentally different liability structures.

The first requirement is greater transparency. Authorities should harmonize definitions of private credit, impose more consistent reporting standards, and obtain sufficiently granular information on funds, loans, credit quality, leverage, liquidity terms, and interconnections with banks and insurance companies. As long as this mapping remains incomplete, supervision will remain behind the curve.

The second requirement is a more cross-sectoral approach to supervision. The risks associated with private credit cannot be properly assessed within separate silos of banking, securities-market, and insurance supervision. Regulators need to monitor consolidated exposures, cross-financing channels, leverage, and liquidity risks across the financial system as a whole. Such an approach is essential to identify areas where an apparently localized shock could become systemic.

The third requirement is proportionate regulation of amplification mechanisms. This implies stricter oversight of valuation practices, greater scrutiny of private ratings, limits on excessive leverage at the fund level, and more robust requirements regarding margins, haircuts, and consistency between promised liquidity and the actual liquidity of underlying assets. The objective is not to restrict non-bank financing but to prevent it from becoming a major source of instability through the absence of adequate safeguards.

Many of these measures are already advocated by national and international institutions responsible for safeguarding financial stability.

A Turning Point for Private Credit

Private credit is now at a pivotal stage of its development. Its growth demonstrates the financial system’s capacity to innovate and to meet financing needs that banks no longer fully satisfy on their own. Yet it also reminds us of a familiar lesson: the further risk moves away from the perimeter where it has historically been most closely monitored, the greater the temptation to assume that it has become less significant.

The opposite is often true.

When banks retain the loans they originate, they absorb the associated costs on their own balance sheets. When private credit funds finance similar risks, it is investors who ultimately bear the losses. Such a transfer may be economically justified, but it does not warrant prudential complacency or regulatory leniency.

As private credit becomes increasingly systemic, supervision must evolve and strengthen alongside it.

Private Debt and Risk:

Three Key Takeaways

  • Private credit meets a genuine corporate financing need, but it does not eliminate risk; it transfers it from bank balance sheets to investors.
  • Its rapid expansion increases several sources of systemic vulnerability, including opaque valuations, elevated leverage, illiquid assets, and strong interconnections with banks, insurers, and investment funds.
  • The key challenge is therefore to establish a supervisory framework that is more transparent, cross-sectoral, and proportionate, capable of containing amplification mechanisms without unnecessarily constraining this important source of financing.

Olivier Klein

Professor of economics at HEC

Categories
Conjoncture Economical and financial crisis Economical policy

Central Banks: Warsh and the Debate on the Limits of the Post-Crisis Monetary Regime

Olivier Klein — May 25, 2026

The emergence of Kevin Warsh in the American debate on monetary policy has become an important focal point, both for understanding the internal debates shaping central banks and for anticipating the possible future direction of the Fed. His approach cannot be understood either as a simple return to the monetary orthodoxy of the Volcker years or as a merely cyclical criticism of the Federal Reserve. More fundamentally, it reflects a broader historical questioning of the transformations of the monetary and financial regime that emerged from the great crisis of 2007–2009.

The significance of the debate opened by Warsh lies precisely in the fact that it challenges several implicit foundations of the post-crisis monetary regime: the acceptance of permanently hypertrophied central bank balance sheets, the enduring stabilizing role attributed to central bank liquidity, and the idea that central banks can and should continuously support financial markets in order to preserve macroeconomic stability.

Warsh’s thinking therefore appears as an attempt to reintroduce a form of monetary and financial discipline into a system that has gradually become dependent on central bank intervention and prone to generating lasting moral hazard in the behavior of financial market participants. To understand this position, it must be placed within the historical evolution of monetary policy since the 1980s.

The disinflation initiated by Volcker from 1979 onward opened a long period of structurally declining inflation. This resulted not only from a change in monetary doctrine, but also, more deeply, from major transformations in global capitalism: financial globalization, trade globalization, the rise of emerging economies, and the digital and robotic revolutions. As at the end of the nineteenth century, these transformations simultaneously generated a regime of low inflation and strong financial expansion.

In this context, central banks progressively shifted their operating framework. Monetary regulation through control of the money supply was abandoned in favor of steering the economy through short-term interest rates. During the 1990s and 2000s, the idea gradually took hold that price stability effectively guaranteed overall macro-financial stability. This became known as the era of the “Great Moderation.”

At the same time, however, financial cycles re-emerged. An environment of low inflation and structurally low interest rates — often below the growth rate — encouraged rising indebtedness and asset-price bubbles. The apparent stability of consumer prices in fact concealed increasing financial fragility. The crisis of 2007–2009 revealed precisely the limits of this framework.

Faced with systemic risk, central banks fully assumed their role as lenders of last resort. They lowered policy rates toward zero and introduced unconventional policies such as Quantitative Easing (QE), involving massive purchases of securities in order to compress long-term rates and risk premia. These policies helped avoid a depression comparable to that of the 1930s. But they also profoundly transformed the functioning of the contemporary financial system. Central bank balance sheets reached unprecedented levels. Markets gradually became accustomed to the permanent presence of the central bank. Asset valuations were durably supported by extraordinarily accommodative monetary conditions.

It is precisely this new monetary regime that Kevin Warsh criticizes. His implicit thesis is that central banks have gradually moved beyond their traditional role. In his view, QE was supposed to be an exceptional crisis-management instrument, not a quasi-permanent monetary regime. By maintaining oversized balance sheets and very low interest rates for too long, central banks may themselves have contributed to the financial imbalances they originally sought to contain.

In this respect, Warsh partially echoes analyses developed over several years by the Bank for International Settlements, notably through Claudio Borio, and by economists such as Olivier Klein. In a durable regime of very low interest rates — below the growth rate — debt accumulation progressively becomes excessive, asset valuations disconnect from fundamentals, and markets, as well as the financial positions of many economic agents, become hypersensitive to any increase in interest rates. Warsh’s criticism is therefore aimed less at the emergency rescue operations of 2008 than at the lasting asymmetry of post-crisis monetary policy: central banks intervened massively during shocks, but failed to normalize policy once growth had become satisfactory again.

Behind this criticism lies a more fundamental question: how far can a central bank stabilize the economy without ultimately destabilizing the system itself? Warsh argues that the Fed’s permanent intervention has gradually altered market behavior. When investors anticipate that the central bank will systematically intervene to prevent any sharp correction in asset prices, market discipline weakens. Moral hazard increases. Risk premia become artificially compressed. Debt levels appear sustainable only so long as liquidity remains abundant. This directly connects with the analysis of long financial cycles developed after the global financial crisis. In an environment of structurally low inflation, central banks may be led to keep short- and long-term rates too low for too long, thereby fueling debt accumulation and bubbles. Price stability therefore does not guarantee financial stability; it may at times even encourage its opposite.

Warsh thus advocates a more limited Fed, more narrowly focused on its traditional mandate and less involved in the implicit support of financial markets. It would also, in his view, reduce incentives for fiscal complacency. His desire to significantly shrink the Fed’s balance sheet reflects this orientation. Yet this line of thought also raises several important questions.

The first is that it may underestimate the structural transformation of the contemporary financial system. Since 2008, U.S. markets have been profoundly reorganized around the abundance of liquidity provided by the central bank. Abruptly reducing that liquidity could trigger major tensions in bond markets, bank refinancing, or asset valuations. The new regime may indeed be one in which central bank balance sheets remain structurally larger than before the crisis, even if their normalization has probably not yet reached equilibrium. Banks may continue to hold structurally high deposits in central bank money beyond mandatory reserves. Monetary policy can still remain effective in such a framework.

The second question concerns the international role of the dollar. The Fed has effectively become a global central bank. In periods of crisis, it is dollar liquidity provided by the Fed that stabilizes a large part of the international financial system. A much more restrictive and less interventionist Fed could therefore significantly increase global volatility.

The third question concerns Warsh’s intention to lower short-term rates while allowing long-term rates to rise through the “Quantitative Tightening” he advocates. Is such a configuration feasible? What might its consequences be? His conceptual framework assumes that reducing the central bank’s balance sheet would lower inflation, thereby creating room to cut policy rates. This appears to reflect a monetarist analysis whose empirical foundations have been weak since the late 1980s. Moreover, with the return of post-Covid inflation — and today renewed inflationary pressures linked to energy prices and certain commodities and rare earths — long-term rates are no longer at levels that, in the previous period, could reasonably have been considered abnormally low. Major central banks have already initiated a normalization of their balance-sheet policies while keeping short-term rates well above zero.

It should also be noted that one of Warsh’s arguments for lowering policy rates — namely the disinflationary effects of artificial intelligence through expected productivity gains — can theoretically be countered by the possibility that stronger productivity growth may itself raise the natural rate of interest. One may also question the fact that Warsh appeared considerably more hawkish before the Trump presidency than he does today.

Ultimately, Warsh’s thinking raises a central question: does there still exist today an interest-rate level compatible simultaneously with monetary stability, financial stability, and the sustainability of the public and private debt accumulated over more than fifteen years? This is the paradox of the current system. Ultra-accommodative monetary policies helped avoid successive depressions. But they also contributed to making economies extremely sensitive to monetary normalization. The longer central banks support asset valuations and debt levels, the more difficult it becomes to return to a normal situation without triggering instability. Conversely, failing — even cautiously — to exit this regime may itself pave the way for even more severe crises in the future.

The debate opened by Kevin Warsh therefore goes far beyond his own person. It reveals the deep contradictions of the contemporary monetary regime: how can central banks simultaneously preserve anti-inflation credibility, financial stability, debt sustainability, and the orderly functioning of financial markets? In other words, the issue is no longer simply the appropriate level of interest rates or the optimal size of central bank balance sheets. It has become a question about the very role of central banks within a financialized, globalized, and structurally indebted form of capitalism.

Categories
Economical policy Global economy

Artificial Intelligence: The New Frontier of the Value of Work

The arrival of AI in the world of work cannot be reduced to a simple substitution of humans by machines. It represents a profound shift in the boundary between what can be automated and what cannot. As repetitive, codifiable, and predictable tasks are taken over by algorithmic systems, the value of human work is being redefined. It is shifting toward activities that require greater cognitive intensity but also a higher degree of emotional intelligence, intelligence of sensitivity, as I call it.

Non-manual labor can no longer be confined to execution, however skilled; it must integrate abilities of interpretation, judgment, and anticipation. The value of work increasingly rests on the capacity to understand complex situations—the subtlety and dynamics of human interaction—to navigate uncertainty and to make decisions that cannot be entirely derived from past data.

This is precisely where the “intelligence of sensitivity”—or intuitive intelligence, as Kant called it—becomes decisive. Where AI excels in processing vast amounts of data and detecting correlations, it remains limited in grasping human nuances: intentions, weak signals, the conditions of trust, implicit contexts and dynamics. Yet these dimensions lie at the heart of economic and social interactions.
Negotiating, convincing, cooperating, arbitrating, deciding—all are acts that demand a fine understanding of others, both to comprehend and anticipate them.

Anticipation is not merely projecting trends from data; it also implies perceiving what is not yet fully articulated, capturing emerging shifts, and sensing nascent imbalances. In other words, anticipation mobilizes a form of intelligence that surpasses calculation.

As I emphasized in my book Crises et mutations, intelligence cannot be reduced to analytical capacity alone. It lies in the interplay between reason and sensitivity, between modeling and intuition. Judgment is indispensable for anticipating and making sound decisions in a world whose future is barely probabilizable. It is not merely the mechanical execution of an optimization program under constraints.

This idea resonates powerfully with philosophical thought.
“Without sensibility, no object would be given to us; and without understanding, none would be thought. Thoughts without content are empty; intuitions without concepts are blind. Consequently, it is equally necessary to make one’s thoughts sensitive and one’s intuitions intelligible. Neither faculty can exchange functions: understanding can intuit nothing, and the senses can think nothing. Only through their combination can knowledge arise.” — Immanuel Kant, Critique of Pure Reason

Kant’s insight sheds striking light on contemporary challenges. AI embodies a powerful form of understanding—but without sensibility: it calculates, structures, optimizes. Yet it does not “feel.” Conversely, humans who rely solely on intuition without analytical rigor would risk error and bias. The decisive advantage of humanity lies, therefore, in the union of both faculties.

The future of work will be neither humanity replaced nor humanity unchanged. It will be one of enhanced complementarity between human and machine, with human value concentrated in what eludes automation: creativity, sensitivity, discernment—hence, responsibility and decision-making capacity.

In this new landscape, developing and enhancing these skills become both a social and economic imperative. For it is precisely these capacities—those that highlight the essence of human intelligence—that will ensure the continued place of humankind in the world of work.

Olivier Klein is Professor of Economics at HEC.

Categories
Conjoncture Economical and financial crisis Economical policy

Cryptocurrencies, Bitcoin and the Questioning of Official Currencies

Cryptocurrencies, and Bitcoin in particular, are part of a major contemporary debate on the nature of money and the role of institutions. Cryptocurrencies indeed represent an attempt to found an alternative to traditional currencies. To properly understand what these new assets propose, and what differentiates them from official currencies, we must rethink the essence of money, the role of institutions, and trust. It is therefore useful to undertake a deeper reflection that addresses not only economic questions but also anthropological and political philosophy issues, by analyzing the fundamental differences between the libertarian school and the institutionalist school. 

A cryptocurrency is a digital currency whose transactions are recorded and verified by decentralized technology, often blockchain. Bitcoin, which appeared in 2009 (that is to say, notably, right after the great financial crisis), is the first cryptocurrency to have achieved significant success. Its founding principles are decentralization, the absence of a central authority controlling the creation or regulation of the currency, limited supply, transparency, and transaction immutability. 

The founders of Bitcoin promoted this currency for several reasons. First, it would protect against inflation of the money supply and monetary manipulation: unlike official currencies, which are created by banks and regulated by central banks, Bitcoin relies on a fixed and predetermined protocol, without the intermediary of a financial institution. Second, it offers more individual freedom and autonomy, giving the user anonymity and independence from a national currency and its constraints. It also introduces the notion of algorithmic trust: instead of relying on an institution, one trusts the technology and the distributed consensus of the network. Finally, it can promote financial inclusion in areas where access to banking services is limited. 

Bitcoins and other similar cryptocurrencies essentially stem from the utopia of a world in which money would no longer be national but universal, valid for all countries and people, transferable securely and without costs. This currency would do without intermediaries; its value could not be manipulated by governments or central banks. It would be tied to private decentralized governance. It would guarantee transaction anonymity, and its guardian would be not a central bank but an algorithm, assumed to be infallible — a form of anarcho-capitalist utopia. In the 1970s, Friedrich Hayek and the Austrian school recommended denationalizing money, removing the monopoly of money creation from governments and leaving this task to private industry. In a way, the development of cryptocurrencies could be an attempt to fulfill this desire. 

The differences with official bank money are therefore fundamental. Modern money is always, upon issuance, a debt of the issuer (a bank in this case) to itself. But this private debt must be recognized by society to be universally accepted as a liberating means of payment — that is, a means of payment that frees the holder from the debt created by the exchange. Modern money is issued by banks, no longer in proportion to gold or silver holdings, but based on economic development. Money is created from credit, which simultaneously results in the creation of a deposit for the borrower. This deposit appears as a liability for the bank. It is legally a debt of the bank to the deposit holder. Bank deposits thus serve as money because they are accepted by society as a liberating means of payment (unless there is a collective loss of confidence in the bank’s solvency). Credits therefore make deposits. Today, banks create money ex nihilo — no longer linked to precious metal holdings but according to credit demand and economic needs. Moreover, this system is regulated by an external institutional authority — the central bank — since the automatic regulation of money creation by the convertibility of money into gold or silver has disappeared. 

It was the severe recurring financial crises in the second half of the 19th century that led to the creation of official institutions, central banks, after repeated bank failures. Central banks, by homogenizing the monetary space (e.g., one dollar issued by one American bank always equals one dollar issued by another) and by acting, if necessary, as lender of last resort, created the possibility of stability. The usefulness of institutions and rules thus became clear. 

Bank money — which is therefore a bank debt — regulated by central banks and governments relies on confidence in these institutions. Trusting money therefore means trusting the effectiveness of the debt settlement system. And the money supply, backed by credits to the economy, evolves primarily with the economy’s needs. 

Bitcoin and other cryptocurrencies, by contrast, have a limited, pre-fixed supply, independent of economic needs. Not backed by any official institution but by a protocol, and having no economic counterpart, they are highly volatile and their value is completely self-referential. Bitcoin, for example, is worth only what buyers and sellers agree it is worth, with no external objective reference such as the economy, and with no external regulation. Their legal framework is also uncertain. Their universal adoption therefore remains very limited. 

From an anthropological and political philosophy perspective, it becomes clear that the libertarian school’s ideas about the role of institutions illuminate the choices of “Bitcoiners.” They promote cryptocurrencies as a response to institutions deemed dangerous or oppressive by nature. They thus create a new non-official alternative “institution”: a set of rules coded in a protocol, norms, and a trust system based on technology rather than the state. Libertarians believe institutions are artificial constructs that hinder human self-organization. Institutionalists, however — along with thinkers like René Girard — view institutions as the product of spontaneous societal evolution, representing historical learning aimed at improving social efficiency and peaceful coexistence. 

Institutionalists see institutions as deep and resilient social structures. They encompass formal rules such as laws, contracts, or central banks, and informal norms like customs or shared beliefs. They are the “rules of the game” that structure social interaction, enable effective cooperation, strengthen mutual trust, and reduce transaction costs and conflicts. Without them, markets, economic life, and social peace would be unstable or chaotic. Girard, specifically, sees institutions as regulators of violence, developed through human history to channel societal tensions. Money itself plays a role in organizing exchanges and maintaining social order. 

Thus, Bitcoin — a private money not backed by a public institution and issued without reference to society’s evolving needs — cannot be validated universally as a liberating means of payment. Its self-referential value and high price volatility make everyday use as a payment method very difficult. 

However, institutions themselves are not immutable; they can become ineffective or distorted. If, for example, monetary constraints were suspended for too long — such as through sustained public debt monetization — confidence in the debt settlement system and in money itself could be undermined, potentially leading to economic and societal collapse. Money is, as Michel Aglietta said, “the alpha and omega of society” — the fundamental social bond. 

Cryptocurrencies, including Bitcoin, could thus establish themselves as alternative or even substitute money if debt levels relative to GDP continue rising globally and if fears of “corruption” of official money through sustained monetization take hold. Otherwise, their characteristics make them highly speculative assets whose value depends solely on market participants’ anticipations of each other’s future behavior — speculation “in a void.” They are not money, and we should be cautious about letting them become so. 

Categories
Conjoncture Economical and financial crisis Economical policy

A 20-Point GDP Gap with the United States: Europe Is No Longer Falling Behind — It Is Settling into Decline

For almost twenty years, Europe has been falling behind — not as the result of a temporary cyclical shock, but as the outcome of a cumulative and structural process. The comparison with the United States is now unambiguous: while the U.S. economy regained a sustained growth trajectory after the 2008 financial crisis, Europe appears stuck in a regime of persistently low growth, with lasting economic, social, and geopolitical consequences.

Since the global financial crisis, real U.S. GDP has grown at a markedly faster pace than that of the European Union. As a result, the American economy has expanded roughly twice as fast as Europe’s over the period, creating a gap of more than 20 percentage points in GDP.

Growth is not merely an economic variable. It determines fiscal capacity, investment in research, defense, and infrastructure — and therefore, in the long run, global power itself: the ability to protect living standards and uphold one’s values.

A Growing Productivity Divide

The divergence is also visible in GDP per capita. In the early 2000s, Europe stood close to U.S. levels. By 2024, GDP per capita in purchasing power parity terms reached roughly $75,000 in the United States, compared with around $55,000 in the European Union. This gap no longer stems primarily from differences in hours worked, which have remained broadly stable over the past two decades, but from a widening disparity in productive efficiency.

At the heart of Europe’s challenge lies insufficient productivity growth — more specifically, weak total factor productivity gains. These depend on incentives to innovate and take risks, on competitive market structures, and on the capacity to allow new firms to emerge while less efficient ones exit. In other words, on enabling “creative destruction” in the Schumpeterian sense, as formalized in modern growth theory.

Europe has suffered from a chronic deficit in these areas. Since the late 1990s, productivity growth has been significantly lower than in the United States, often close to zero in the euro area.

Innovation tends to be incremental rather than radical; markets remain fragmented; scale effects are limited; and incentives for risk-taking are insufficient.

The weakness of venture capital — particularly at the scale-up stage — combined with burdensome regulation and penalizing tax structures, leads many European start-ups either to sell prematurely or relocate abroad, fueling a silent outflow of technology and talent.

Structural Handicaps

These weaknesses are compounded by structural constraints: energy dependence, persistently higher energy prices than in the United States, critical dependence on rare earths, and chronic underinvestment in defense and key technologies.

The illusion of European “normative power” — the idea that Europe can shape global standards without sufficient industrial and technological leadership — collides with reality: standards ultimately follow market power.

The remedies are well known. They require acting more collectively and more swiftly. Institutional governance is at stake. They involve deepening the single market, particularly in capital, energy, and digital sectors; massively reducing intra-European regulatory barriers; and pursuing a more ambitious and risk-embracing innovation policy.

They also require faster reallocation of resources toward the most productive firms, greater labor mobility, and a decade-long investment effort spanning climate transition, defense, energy, and critical technologies — alongside a substantial upgrade in education and skills.

Ultimately, the issue is not merely economic; it is political. Without stronger and more durable growth — and therefore without the structural reforms that make it possible — neither Europe’s social model nor its ability to shape the global order can be preserved.