The world has never had more data, more models, or more economists. It has rarely felt more out of control. Uncertainty, not risk, has become the defining condition of our era. Central bankers invoke it. Political leaders use it to defer decisions and justify extraordinary decisions. Academics are struggling to adapt their theories to a brave new world of unexpected outcomes and erratic policy choices. The IMF’s World Uncertainty Index – which tracks how often the word appears in economic and political reporting across 143 countries – has been running at historically elevated levels for the better part of a decade, with fresh spikes after every major shock.
We seem to be living through a permanent emergency, and uncertainty is the buzzword, but what can we do about it? The answer is less complicated than the question suggests: societies that invest in strong, inclusive institutions weather uncertainty better than those that don’t.
The temptation, when uncertainty is this pervasive, is fatalism; if nothing can be predicted, nothing can be done except short-term fixes and profiteering. The US stock market is a case in point. Increasingly disconnected from the real economy , it is being driven by a wave of high-stakes bets on artificial intelligence: OpenAI, Anthropic, and now SpaceX are among the most anticipated IPOs of the decade, with valuations that price in a benign future of near-limitless technological returns. Markets actors are doubling down on optimistic predictions rather than preparing for disruption. Geopolitical risk, financial fragility, and the very uncertainty that defines this era are being systematically under-priced.
Distinguishing uncertainty from risk
But not everything qualifies as uncertainty. There is a difference between uncertainty and risk, and confusing the two leads to the wrong responses. Risk refers to situations where we do not know the outcome but can measure the odds. Insurance companies exist for a reason: even if we cannot predict which house will burn down, we can calculate how many will in a given year, price the premium accordingly, and pool the exposure.
Uncertainty, in the sense Frank Knight formalised in 1921, is more fundamental – situations where the odds themselves cannot be calculated. Pandemics, wars, supply-chain seizures, climate shocks: these are not risks to be priced. They are shocks that expose the limits of our knowledge.
During my fieldwork at DG ECFIN – the European Commission’s Directorate-General for Economic and Financial Affairs – I observed this tension firsthand.
Standard macroeconomic models are built on assumptions of rational decision-making and on past data. But we are increasingly observing non-linear effects and asymmetric externalities that undermine foresight and risk assessment. Tensions in the Strait of Hormuz may disrupt agricultural production across three continents through fertiliser shortages. A gas price shock in Europe accelerated inflation in countries that imported almost nothing from Russia. Small inputs trigger disproportionate, cascading consequences that no single model captures.
If we cannot predict the next crisis, what can we do?
Throwing money at a crisis works until it doesn’t. Germany’s dependence on Russian gas was a failure of strategic foresight, yet it absorbed the shock largely by deploying a €200 billion defensive shield to buy up the world’s LNG. Money bought time; not every country had the same firepower. In any case, emergency spending after a crisis costs far more than institutions built before one. The more instructive question is not who could afford to respond, but who had the institutional setup not to need to.
Denmark’s energy strategy began in 1973. The oil shock forced a country entirely dependent on imported fossil fuels to confront its vulnerability. Rather than treating it as a temporary disruption, Danish governments made a fifty-year institutional bet: successive national energy plans embedded wind development into industrial policy, planning law and R&D, with cross-party consensus that survived changes of government. What utilities once feared, hundreds of decentralised wind turbines disrupting their grids, became the system itself.
Today, Denmark generates around 50 percent of its electricity from wind, with renewables reaching 67 percent of the electricity supply overall. When the 2022 energy crisis hit, Denmark was better off.
These plans were developed through wide public discussions, with energy security, self-sufficiency and efficiency as principal objectives – encompassing institutions that brought government, business, labour, and civil society into durable agreements outlasting any single election cycle. Resilience, the Danish case shows, is less a product of resources than of political will and the capacity to act on known risks before they become crises.
Spain offers a complementary lesson for labour market policies during a crisis. At the peak of the Covid-19 pandemic, the government used the shock to introduce more universal unemployment protection, in concertation with social partners, breaking from a legacy that had left precarious workers exposed for decades. What made this possible was not wealth but institutional capacity and political will.
At EU level, the Recovery and Resilience Facility – a €577 billion instrument once considered politically impossible – showed that supranational institutions can evolve under pressure.
With suitable economic incentives, EU countries have begun tackling structural challenges while responding to new ones improving their institutional resilience fostering the twin transition. It might have been imperfect, as evaluators of the RRF flagged delays and control complexity – but the effect was however real; another recession was avoided.
The question is whether Europe consolidates this experience now, or waits for the next shock to force its hand. That lesson is harder to absorb than it looks, because institutional legitimacy is easier to spend than to (re-)build.
Institutions serve three essential purposes under uncertainty
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They stabilise expectations, so citizens and investors retain confidence when pressure mounts.
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They distribute shocks fairly, preventing crises from becoming social breakdown.
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They enable adaptation, allowing states to learn and change course when old assumptions fail.
But they only work when citizens and politicians believe in them.
The current US administration is committing a grand error by undermining the legitimacy of its own institutions and independent authorities.
The IMF’s April 2026 outlook flags this explicitly: political pressure on independent central banks and other policy bodies can erode hard-won public confidence, raise inflation expectations, and ultimately lower economic growth.
Europe’s populist wave in the aftermath of the Great Recession is partly a story of institutions that stopped serving enough people, and consequently stopped being believed.
Uncertainty is not a temporary condition to be overcome. It is the permanent background noise of a rapidly changing, deeply interdependent world.
Denmark shows that a fifty-year institutional bet on foresight beats a one-off financial rescue. Spain shows that political will, not wealth, converts a crisis into sustainable reform. The European response to Covid-19 helped us avoid another recession and fostered structural reforms across member states.
This is why building inclusive institutions – institutions that distribute opportunities more broadly, protect people against arbitrary shocks, give citizens and firms predictable rules, and allow different social groups to participate in shaping public choices – is not a technocratic luxury. It is a form of collective insurance against an uncertain future, helping societies absorb what no one can fully predict.
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