Category: Economical policy

Categories
Economical and financial crisis Economical policy

Rebalancing Market and Public Sphere: An Indispensable and Urgent Task

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

Categories
Economical policy

Non-Bank Financial Institutions: A Systemic Risk to Watch

Since the global financial crisis, non-bank financial institutions (NBFIs)—including pension funds, insurance companies, hedge funds, and private debt funds—have seen their influence grow substantially. Today, they account for about 50% of global financing and around 30% of corporate financing. This increase reflects a structural rebalancing of the financial system. Following the implementation of Basel III, banks now face stricter prudential requirements, limiting their ability to meet all funding needs. As a result, less regulated NBFIs (notably funds) have stepped in, particularly in riskier or longer-term segments. While their rise is economically rational, this development introduces new risks, and the overall stability of the financial system now also depends on the resilience of these institutions.

Risk-Taking and Vulnerabilities

In a prolonged low interest rate environment, NBFIs have sought higher returns, often by:
• Taking on lower-quality credit exposures
• Extending maturities
• Utilizing leverage through derivatives and repo transactions
• Facing liquidity mismatches between illiquid assets and short-term liabilities

The market turmoil of March 2020 exposed the vulnerability of certain NBFI structures: those facing massive withdrawals were forced into rapid asset sales, threatening to trigger downward spirals and significant losses. In response, central banks increased their use of quantitative easing and, in some cases, acted as “market makers of last resort” to prevent systemic liquidity crises and possible contagion throughout the financial system.

Regulatory Responses and Remaining Gaps

To address these weaknesses, several measures have been introduced:
• Open-ended funds now have liquidity management tools (gates, swing pricing)
• Margin requirements and collateral standards for derivatives have been strengthened
• Exposure, funding, and liquidity risk reporting has improved
However, these advances are partial. The regulatory framework for NBFIs remains fragmented and uneven across jurisdictions, and supervision is often inconsistent internationally.
Pathways for Improvement
Further improvements should focus on:
• Better leverage oversight
• Minimum haircuts for securities financing transactions
• Enhanced transparency around liquidity mismatches
• Stronger cross-border cooperation to prevent regulatory arbitrage

The goal is not to subject NBFIs to bank-like regulation, but to establish a consistent, risk-proportionate, and business-model-differentiated framework. Monitoring the interconnections—both among NBFIs and between NBFIs and banks—is crucial.

Access to Central Bank Liquidity

There is also a case for discussing conditional access to central bank liquidity facilities for NBFIs. Such a safety net could be useful in times of severe stress—provided it is accompanied by strict regulatory conditions around transparency, liquidity ratios, leverage limits, and high-quality collateral, as well as robust supervision. This would mean supporting the most prudent actors without encouraging excessive risk-taking.

Conclusion

The resilience of today’s financial system depends as much on the strength of the non-bank sector as on that of banks. Smart regulation should aim to prevent abuses without stifling financial innovation.

Categories
Economical policy Global economy

Wokism, Undifferentiation, and the Inverted Logic of the Scapegoat

By Olivier Klein – July 18, 2025

René Girard’s thought provides a penetrating lens through which to view the ideological excesses of wokism and the deep dangers they entail. Wokism—understood not as simple ethical vigilance but as an ideological system aimed at erasing all perceived differences—can be seen as an advanced episode in the mimetic dynamic. What this movement claims to fight—exclusionary violence—it reactivates, in reversed form. And in doing so, it maintains a sacrificial logic that has marked the history of humanity.

Mimetic theory is based on a fundamental discovery: human desire is never autonomous or free from others. It does not preexist the socialization process of the individual. We are not born with our desires or with fixed preference curves, as some individualist anthropologies or economic schools propose. We desire what others desire, precisely because they desire it. The other is envied and imitated because we believe they are complete, lacking nothing—unlike ourselves, who feel an inner void. This drives us to desire what the other desires: to define ourselves, to be, by mimicking their desires in the hope of filling our own emptiness.

This structurally mimetic nature of desire breeds rivalries, since we desire what others desire. This can unleash violence that is itself contagious. It can spread throughout the entire group and, in its extreme phase, lead to the group’s self-destruction.

This rivalry over possession intensifies when differences between group members fade, as the mimetic logic then spirals more easily and dangerously. Everyone develops a desire to possess what others covet—others doing the same. When two individuals resemble each other too closely, each becomes both a model and a rival to the other—especially dangerous because the other is nearly identical. This is Girard’s archetype (frequently found in myths) of the mimetic double, inherently charged with violent potential. Undifferentiation accelerates the mimetic process and its violent outcome.

Differences—sexual, symbolic, cultural—are thus not obstacles to peace. They do not hinder the prevention of violence. Quite the contrary: differences are conditions for preventing it. This is the heart of the paradox: the forced equalization of human conditions, far from abolishing conflict, exacerbates it.

How can the “mimetic crisis” that spreads among all members of a community avoid leading to the group’s self-destruction? A catastrophic outcome can be avoided if the crisis is resolved by designating a scapegoat. The scapegoat channels the violence of all-against-all into a unified violence of all-against-one. The scapegoat is chosen through a mimetic, quasi-random process and becomes the focus of a sudden consensus about their guilt—even though it has no real basis. The expiatory victim absorbs and takes away the contagious violence that had erupted within the group and become focused on them. In primitive societies, once the group is re-united, the victim is often sanctified as the figure who saved the community. Myth arises from this process, concealing the real mechanism while still allowing it to be deciphered for those who look closely enough.

Human groups, societies, establish strategies to avoid the repetition of the destructive logic of the mimetic crisis. In Violence and the Sacred, Girard shows that archaic societies managed to contain this violence by instituting differences, rituals, and taboos that constrain mimetic desire and limit its catastrophic escalation. This stands in opposition to the modern idea of “liberated” desire, assumed to emancipate individuals by freeing them from social constraints. It opposes the will to deconstruct taboos. But this so-called free, autonomous, unbounded desire is an illusion: it denies the mimetic structure of our desires, and therefore their destructive potential. On the contrary, it is civilization—with its mediations, rules, and norms—that can contain this endemic violence.

Differences—sexual, hierarchical, ritual, symbolic—are not archaic remnants. According to Girard, they are cultural tools for peace. In modern societies, this role is taken up by the law, the State (which has monopolized violence), and social norms. Differences remain, particularly economic or status-based. But rather than being sources of oppression, in today’s world these differences are fortunately mobile, evolving, not fixed—and thus become engines of economic dynamism and growth. At the same time, they subtly help restrain mimetic violence. Furthermore, rituals and moral taboos, though weakened in modern society, still play a useful complementary role in containing violence.

Herein lies the clear paradox of wokism. By aiming to erase all differences—perceived as discriminatory—wokism seeks to deconstruct the existing order in order to rebuild society on the basis of absolute egalitarianism. But this constructivism, rooted in the pursuit of undifferentiation, does not pacify—it intensifies mimeticism. It stirs up envy, jealousy, and ultimately hatred. Everyone competes to defend—or even embody—the purest victim, and to sanctify it. This is the contemporary logic of victimhood competition, analyzed by René Girard in I See Satan Fall Like Lightning: “The victim has become the absolute foundation of moral judgment.”

But if everyone is a victim in this artificially constructed world of undifferentiation, the barriers that once contained violence are destroyed. New scapegoats must then be found to absorb the violence this generates. The oppressor—vaguely defined but necessary to the ideological framework—becomes the new scapegoat. The man, the white person, the Westerner, or even the former and long-standing expiatory victim—now, through a historical reversal, recast as the quintessential oppressor—are singled out. The symbolic dominant is targeted for condemnation. The logic of sacrifice returns, but inverted.

From this perspective, wokism becomes a form of mimetic compassionism unaware of its own dynamics. It designates victims en masse, sanctifies them, and traps them in that status by assigning them to a fixed identity. It builds inverted hierarchies where guilt crushes responsibility, where identity replaces action, where absolute determinism denies the capacity to evolve or change status. Having dismantled the civilizational barriers to mimetic violence, the need for a scapegoat returns. But now the aim is not to sacrifice the victim to save the community; it is to sacrifice the supposed dominant—designated by new inquisitors—to redeem a presumed collective guilt. The barriers collapse, and the sacrificial logic endures. In Things Hidden Since the Foundation of the World, Girard wrote that “the modern world is increasingly mimetic.” Wokism illustrates this. Beneath a posture of moral purity, it reproduces what it denounces: judgment, exclusion, violence, sacrifice. The victim is not abolished—only replaced. And the more this is done in the name of Good, the more dangerous the mechanism becomes. Evil—the principle of the scapegoat—thus takes on the appearance of virtue.

Should we then return to old hierarchies? No more than Girard, I believe we should. We must recognize the dynamics of mimetic desire, help disarm scandal, and break the cycle of vengeance. This requires rehabilitating symbolic mediations, legitimate structuring differences, and institutions that prevent the generalization of rivalry—without ever legitimizing injustice. This is what distinguishes equality of opportunity from egalitarianism.

Without differences, there are only rivals. And a society of rivals, without mediation and without cultural boundaries, is a society ready to ignite—and at risk of exploding. Integral egalitarianism, leading to generalized undifferentiation, becomes a breeding ground for distrust, amplified mimetic envy, and ultimately destructive violence.

Olivier Klein
Professor of economics at HEC

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Note [1]: From a Girardian perspective, consider the rivalrous battle and striking mimetic behavior in the U.S. between proponents of wokism and religious ultra-conservatism. Both hurl anathemas at each other and claim victimhood at the hands of the other. Mimetic violence leads both sides to ban each other’s books and rewrite educational programs by erasing what contradicts their worldview—often with anti-scientific approaches. Both camps become polarized in a mimetic refusal of dialogue or exchange.

Categories
Economical and financial crisis Economical policy

And now, what policy for the ECB?

By mid-2025, core inflation in the euro area appears to be stabilizing around 2.5%, while wages are increasing at a pace close to 3%. Headline inflation, for its part, has returned to approximately 2%. This outcome is not attributable to a single factor but rather to the convergence of several dynamics: a determined monetary policy that firmly anchored inflation expectations, a gradual recovery of supply after the disruptions caused by COVID, and a significant easing in energy prices.

However, this improvement should not obscure long-term factors such as demographics, the energy transition, or the growing fragmentation of the global economy, all of which may fuel persistently higher inflation.

Growth prospects for the eurozone remain modest: between 1% and 1.4% according to estimates, with some countries performing slightly better than expected. Thus, the current ECB interest rates—after multiple cuts—do not appear restrictive. They are currently within a neutral range, or even slightly accommodative.

Uncertainties continue to weigh heavily on the European economy. Among them, commodity prices—including rare earths—remain highly sensitive to unpredictable geopolitical developments. The impact of the German fiscal stimulus on prices is also hard to foresee. It will depend on the intensity of its implementation and its effect on supply. The future level of customs tariffs is particularly uncertain; they may slow growth by disrupting global value chains, but also fuel price increases through higher import costs. Economic models struggle to produce converging results. In such an environment, the ECB is right to follow a “data-driven” approach, strictly based on incoming data without any predetermined policy path.

Moreover, a return to very low interest rates, absent a strong cyclical justification, would be a mistake. Persistently near-zero rates without exceptional reasons create imbalances such as speculative bubbles in financial or real estate assets, incentives for inefficient capital allocation, and unsustainable increases in both public and private debt. The additional negative effects of an environment with excessively low rates for too long are well known: liquidity traps, artificial survival of inefficient so-called zombie firms, slowing productivity gains, and increased precautionary savings.

Today, the key issue is Europe’s insufficient growth potential—yet the remedies lie outside the central bank’s scope. This weakness stems from a lack of structural reforms, excessive regulation, a competition policy that needs to revise its definition of the relevant market in the era of global giants, and non-tariff barriers that still hinder business expansion within the single market itself. If inflation is under control, monetary policy can support activity and stimulate it when actual growth falls below potential growth—but it cannot substitute for the structural reforms that are required.

Monetary policy should also not be used as a tool to allow states to further delay the consolidation of their public finances. It is also illusory to believe that robust and sustainable growth can be achieved in a context of excessive and unstable public debt. In this respect, governments bear full and entire responsibility.

The ECB should maintain the necessary room for maneuver in case more forceful action becomes necessary. However, the recent rise of the euro—which is disinflationary and may in itself slow growth—could prompt it to act more quickly.

Olivier Klein
Professor of Economics at HEC and CEO of Lazard Frères Banque

Categories
Conjoncture Economical policy

The Dynamics of Economic and Political Fragmentation

The dissolution of the Soviet Union in 1991 marked the end of a bipolar world and the emergence of an international order centered around the United States, the sole remaining superpower. This period saw the rise of a regulatory model based on market economy principles, free trade, democracy, and the promotion of human rights. Alongside it grew the idea of a global spread of democracy and a human rights-based diplomacy, even extending to the concept of a “right of intervention.” This period—sometimes described as the “end of history”—provided a certain form of stability.

Globalization, through the increasing integration of countries into the world economy and international trade networks, as well as through the diffusion of technology and capital, led to a dramatic reduction in global poverty. The share of the global population living below the subsistence minimum dropped from 40% in 1980 to about 10% in recent years. This occurred even though certain populations in Western countries—particularly those tied to industries exposed to competition from lower-wage economies—were negatively affected.

At the same time, this dynamic enabled the emergence and assertion of new powers. China, in particular, progressively moved up the value chain, capturing significant global market shares in a wide range of sectors. Through its Belt and Road Initiative, it has also expanded its spheres of influence—securing, among other things, its access to energy resources and rare earths—eventually becoming a hyperpower in its own right.

Along the way, this transformation led to a growing challenge to the previous order. That challenge has also been taken up by the so-called “Global South,” a diverse set of countries united by their criticism of what they see as American—or more broadly Western—“double standards.” This Global South has questioned the legitimacy of the Western-led order and called for a greater role in global governance.

At the heart of today’s geopolitical fragmentation lies the systemic rivalry between China and the United States. China seeks to reclaim a dominant position on the global stage after a long period of geopolitical retreat—a goal made explicit by Xi Jinping in 2021, when he stated that China should become the world’s leading power by 2049. The United States, conversely, is determined to preserve its current status. Russia, for its part—driven by a historical complex of encirclement and lack of recognition—is striving to reassert its influence on the international stage.

Geopolitical and economic fragmentation is now evident. Between 2010 and the onset of the war in Ukraine, the number of international military conflicts increased nearly fourfold. The number of countries under financial sanctions nearly tripled. Protectionist measures affecting both international trade and cross-border direct investment multiplied sixfold. These developments reflect a logic of withdrawal and rising mistrust among states, undermining the benefits of regulated trade and capital flows. This fragmentation poses a serious threat to international peace and security.

Mistrust between the two hyperpowers has become substantial, deeply affecting global regulatory frameworks. Multilateral coordination and communication mechanisms—essential for managing and resolving conflicts in their early stages—are increasingly impaired, giving way to bilateral relations and a resurgence of confrontational dynamics. The central question today is whether contemporary societies can rebuild sufficient trust among stakeholders and develop effective forms of coordination to avoid a “every-man-for-himself” world and the resurgence of primitive violence, always justified by the anticipated aggression of the other.

Olivier Klein
Professor of Economics, HEC

Categories
Conjoncture Economical policy

Non-Bank Financial Institutions: A Systemic Risk to Watch

Since the global financial crisis, non-bank financial institutions (NBFIs)—including pension funds, insurance companies, hedge funds, private debt funds, and others—have significantly increased in importance. They now account for nearly 50% of global financing and approximately 30% of corporate financing. This rise reflects a structural rebalancing of the financial system. Since Basel III, banks have faced tighter prudential requirements, which limit their ability to meet all financing needs. NBFIs have stepped in, particularly in the riskier or longer-term segments. Their growth therefore corresponds to a real economic rationale. However, this evolution is not without risks, and the stability of the global financial system now also depends on their resilience.

In an environment of persistently low interest rates, NBFIs have been inclined to seek higher returns, pushing them to take on more risk: exposure to lower-quality credit, longer maturities, use of leverage through derivatives and repos, and liquidity mismatches between illiquid assets and short-term liabilities. The March 2020 crisis highlighted the vulnerability of some of these entities: those faced with massive redemptions were forced to rapidly liquidate assets, threatening to trigger a downward spiral and substantial losses. During this crisis, central banks significantly expanded their quantitative easing policies to prevent systemic liquidity crises and had to act, in some cases, as “market-makers of last resort” to avoid possible contagion across the entire financial system.

To address these vulnerabilities, several tools have been deployed. Some open-ended funds now include liquidity management mechanisms (gates, swing pricing). Margin requirements (initial margins, margin calls, collateral) have been strengthened for derivatives, and reporting on exposures, funding, and liquidity risks has improved. Yet these advances remain partial. The prudential framework remains heterogeneous, sometimes incomplete, and supervision is fragmented, especially at the international level.

Several improvement avenues have been identified. There is a need for better oversight of leverage, the imposition of minimum haircuts in securities financing transactions, and greater transparency regarding liquidity mismatches. Closer cross-border cooperation is also essential to prevent regulatory arbitrage between jurisdictions. The goal is not to impose a banking-style regulatory regime on NBFIs, but rather to establish a coherent framework, proportionate to the risks and differentiated by business model. The interconnections between NBFIs and between NBFIs and banks must also be closely monitored.

Finally, the idea of conditional access to central bank liquidity facilities deserves discussion. This could serve as a useful safety net in times of severe stress—but only if strict requirements are imposed in terms of regulation—transparency, liquidity ratios, leverage limits, high-quality collateral requirements—as well as supervision. The aim would be to support the most prudent actors without creating a broad incentive for risk-taking.

Thus, the resilience of the contemporary financial system depends as much on the strength of the banking sector as it does on the non-bank sphere. Smart regulation must prevent potential excesses without stifling innovation.


Olivier Klein
Professor of Economics at HEC
CEO of Lazard Frères Banque