Provider of in-depth & balanced analysis on hot issues around the world

Argentina’s Javier Milei is racking up some solid wins, with the fiscal basket case seeing its first monthly budget surplus in 12 years. Apparently, it took Milei just nine and a half weeks to balance a budget that was projected at 5% of GDP under the previous government. In US terms, he turned a 1.2 trillion-dollar annual deficit into a 400 billion surplus. In 9 and a half weeks. How did he do it? Easy: he cut a host of central government agency budgets by 50% while slashing crony contracts and activist handouts. For perspective, if you cut the entirety of Washington's budget by 50%, you'd save a fast 3 trillion dollars and start paying off the national debt. It turns out it can be done, and the world doesn't collapse into chaos.    Milei Making Fast Progress Deficits aren’t the only win Milei's logged. He’s slashed crony regulation, got rid of currency controls, and recently slashed rent prices by removing controls — that actually led to a doubling of apartments for rent in Buenos Aires, slashing rent costs. Unfortunately, it's not all smooth sailing: a bill to privatize corrupt state-owned companies — to effectively de-Soviet the Argentine economy — was blocked by the socialist opposition who serve the government unions who would lose their jobs. Meanwhile, a major Milei reform to make it a lot easier to hire people but would hurt unions was struck down by the high court, which said it must go through Congress. Having said that, for the average Argentinian, these are deckchairs on the Titanic compared to the elephant in the economy: Argentina's hyperinflation. Just last week, the monthly inflation figure came in at 20.6% — on the month. That was a lot better than the outgoing government, but it still left year-on-year inflation at 254%. Why so high? Partly because Milei had to free up the exchange rate to smooth the path to dollarization — for Argentina adopting the US dollar instead of the local confetti. But mostly because the rivers of money printed by the previous socialists continue to run through the battered ruins they left of Argentina's economy. After all, Milei's only been in office for two months.  Argentina’s Dollarization Milei's reforms will continue to be trench warfare. But his inflation progress is going to be key to retaining support. He just notched a big win with the deficit, but it only stops the bleeding — the patient is still on life support. To fully kill Argentina's hyperinflation, Milei would need to make real progress on the dollarization — or, dare we dream, a gold standard. On dollarization, that would involve announcing a months-long window for peso assets to be revalued in dollars. He's been preparing the groundwork so far — the currency controls and deficits are a big help. And he's surely motivated to do it since dollarization in other countries like did it like Ecuador has 90% public support. But it is a complicated process, and if done badly, he'll be dead in the water. The stakes are high. And not just for Argentina: If Milei succeeds, he'll be a model for radically shrinking government in other countries in Latin America, in the rest of the world, and even for our spineless goblins in Washington. Originally published at profstonge.com.

In recent months, stories from both the legacy media and the independent media have continued to pile up on how undocumented foreign nationals—also known as "migrants" and "illegal aliens"—are able to take advantage of a vast network of taxpayer funded benefits in daycare, medical care, housing, and more. For example, both the New York Post and Denver Post report that these foreign nationals have "overwhelmed" the Denver Health hospital system in Denver, and that the situation is "unsustainable." Meanwhile, public schools report classrooms are filling up quickly with the children of these foreign nationals. Denver is hardly alone. The New York Post notes that both the City of New York and the state government have expanded local welfare programs, including pre-paid credit cards, to further ensure that migrants continue to receive cash and resources from American taxpayers. This is in addition to the approximately 66,000 foreign nationals who are housed in hotels and shelters, care of both New York and federal taxpayers. USAToday reports that colleges "across the country" are receiving millions in taxpayer money to offer housing to migrants at no charge. Chicago's mayor is bragging he's giving away $17 million in taxpayer-funded giveaways to "asylum seekers" who are presently living off the sweat of the taxpayers in government shelters. This, of course, is just a downpayment on many more planned giveaways. Just how much in taxpayers' resources is going to foreign nationals? It's difficult to estimate for a number of reasons. The spending is done through numerous different government agencies at various levels of government. Moreover, much of the money if filtered through non-profits (i.e., "NGOs") that are labeled "charities" but are simply adjuncts of the regime. Once we add up $1 billion here and $77 million there, after a while we're talking about real money, and one thing becomes abundantly clear: the regime and its partners are subsidizing the influx of foreign nationals who are promised a variety of both cash and in-kind benefits. It must also be noted that, contrary to certain myths, the largesse is not reserved for only the so-called "illegal aliens." Legal immigrants can take advantage of the generous and well-funded American welfare state even more readily than can the undocumented migrants. What is the effect of subsidizing a particular product or activity? It is usually the same everywhere we look: you get more of what you subsidize. This is true of student loans, it's true of ethanol, and it's true of migrants. Economic theory tells us that the government cannot possibly know the "correct" number of migrants, nor should the regime be free to centrally plan some arbitrary number. On the other hand, it is extremely unlikely that the number of migrants—even with lax border enforcement—would be as high as it is without the regime's incessant subsidization of migrants, both legal and illegal. How Many Foreign Nationals Live in the United States? According to the Congressional Research Service, it is estimated there were approximately 45-46 million foreign-born residents of the United States in 2022. Of those, about 53 percent, or 24 million, are naturalized citizens. In addition to this there are 12.9 million legal permanent residents (LPRs) and approximately 11 million more are so-called "illegal" immigrants. All combined, we find that 23 million non-citizen US residents—i.e., "foreign nationals"—are living in the United States. That's about 51 percent of the overall foreign-born population. As we will see, many of them receive financial support and resources from US taxpayers. (This measure does not count the approximately 3.2 million nonimmigrant workers, students, exchange visitors, diplomats, and their relatives who have sought only temporary residence in the United States. These nonimmigrant groups are not eligible for public benefits.) Are Foreign Nationals Eligible for Welfare? Among immigrant foreign nationals, most are eligible for some form of taxpayer-funded "public" benefits. For example, undocumented foreign nationals may legally access "treatment under Medicaid for emergency medical conditions," a variety of in-kind services such a soup kitchens and temporary housing, and "programs for housing or community development assistance or financial assistance administered by the Secretary of Housing and Urban Development..." That's just the direct federally-funded services. State and local government may elect to provide additional services at local taxpayers' expense. The welfare programs available to legal foreign nationals are far more broad. Legal foreign nationals (LPRs) can access most federal welfare programs after an initial five-year period. This includes non-emergency Medicaid, CHIP, TANF (i.e., cash assistance), food stamps, and SSI. Access to these programs have been further broadened by state governments. As noted by the National Immigration Law Center: Over half of the states have used state funds to provide TANF, Medicaid, and/or CHIP to immigrants who are subject to the five-year bar on federally funded services, or to a broader group of immigrants. A growing number of states and counties provide health coverage to children, young adults, or pregnant persons regardless of their immigration status. Several states offer or will offer health coverage to older adults regardless of their immigration status. And five states (California, Colorado, Minnesota, Oregon, Washington) and the District of Columbia offer or will offer public or private health coverage with state subsidies to all otherwise eligible immigrants regardless of their immigration status. It is not necessary to be employed to maintain legal permanent resident status, even if one is of working age. After all, LPRs are not the same at temporary nonimmigrant workers like H1B visa holders: "Green card holders [LPRs] can also collect unemployment compensation the same way citizens do ...nor can a legal permanent resident be deported for being unemployed." Legal immigrants do not jeopardize their legal status by applying for additional taxpayer funded benefits such as food stamps: "SNAP enrollment will NOT affect your ability to remain in the United States, get a green card/permanent resident status, keep your green card/permanent resident status, or become a U.S. citizen." In short, nearly the full gamut of taxpayer-funded welfare programs are open to legal foreign nationals after the initial five-year bar. Moreover, many migrants aren't even held to that, including "[r]efugees, people granted asylum or withholding of deportation/removal, Cuban/Haitian entrants, certain Amerasian immigrants" and other specific groups are exempted from the waiting period. All these foreign nationals, regardless of status, are free to send their children to government childcare centers known as "public schools." How Much Do Foreign Nationals Use American Social Benefits? A variety of organizations have attempted to quantify the extent to which both naturalized immigrants and current foreign nationals use welfare programs. This study from the National Academies concludes that the data show[s] that the immigrant households use several programs, most notably food assistance and Medicaid, at higher rates than do households led by the native-born. ...This higher use of welfare programs by immigrants is attributable to their lower average incomes and larger families. In the NA study, immigrant households with children utilized welfare programs at higher rates in nearly every US state. In California, 61.5 percent of households utilized welfare while 40.7 percent of immigrant households did. In Texas, the same measures are at 66.3 and 44.2 percent, respectively. Similar proportions are found in Florida and New York. This report unfortunately does not differentiate between naturalized immigrants and foreign nationals. However, given that naturalized immigrants tend to earn 50 to 70 percent more than non-citizen immigrants, it is safe to conclude that foreign nationals utilize welfare programs more than naturalized immigrants, and therefore more than the native population. An increasingly important addition to legal immigration in recent decades has been the population of immigrants legally designated as refugees. In total, this all costs the taxpayers nearly two billion dollars per year, or $80,000 per refugee per year in the form of federal and state programs including food stamps, child care, and public housing. The Center for Immigration Studies has published studies similar to the NA study. These CIS studies show similar results. In 2012, 51 percent of households headed by an immigrant (legal or illegal) reported that they used at least one welfare program during the year, compared to 30 percent of native households. Welfare in this study includes Medicaid and cash, food, and housing programs. Immigrant households have much higher use of food programs (40 percent vs. 22 percent for natives) and Medicaid (42 percent vs. 23 percent). Note that these conclusions reflect immigrant households rather than immigrant individuals. This is an important distinction because many immigrant households contain citizen children who became citizens at birth due to being born in the United States. Thus, the household may contain both citizens and foreign nationals—some of whom may be illegal foreign nationals. These households, however, enjoy access to welfare programs by virtue of the underage members' citizenship. Thus, immigrant households can access taxpayer funded healthcare, food stamps, housing programs (and more) through the native-born children. Similar trends persist when non-citizen households are measured separately from all immigrant households combined. Some researchers insist that welfare benefits for foreign nationals ought to be measured only on an individual, per capita basis. For example, in this report from the CATO institute, the researchers conclude that for 2020, native-born residents, on average, cost welfare programs $8,335 per capita while immigrants cost welfare programs $6,063. These proportions can vary by program. For example, the per capita Medicaid cost for immigrants is $1,859, while the cost for native-born residents is $2,081. The use of food stamps is similar ($190 per capita for immigrants versus $214 per capita for natives), Immigrants usage of SSI is slightly higher ($188 per capita) than it is for natives ($169 per capita). How much taxpayer funding are we talking about overall? The CATO report estimates that the total cost of welfare going to non-native US residents in 2020 was $290.4 billion, That's a sum equal to the combined budgets of the Departments of Education and Homeland Security. Yet, only about half of non-natives are non-citizen foreign nationals. To find the sum used by non-citizen immigrants, we can't just divide the sum in half because foreign nationals tend to use welfare more than naturalized immigrants. So, given the $290.4 billion total for immigrant welfare spending, we can estimate that at least $150 billion of that is consumed by foreign nationals—a sum about equal to the combined budgets of the Departments of Education, State, and Housing and Urban Development. (This spending total excludes state and local spending on government schools for the children of foreign nationals.) An older CATO study (from 2013) does break out non-citizens from immigrants overall. Here, the researchers conclude that low-income immigrants use food stamps more than naturalized immigrants, and only slightly less than native-born residents. When it comes to taxpayer funded healthcare: one in five non-citizen immigrants collect this benefit while slightly more than 1 in 4 natives collects this particular form of taxpayer largesse. The Migration Policy Center reports that in 2021, 32 percent of immigrants (both citizen and non-citizen) used government health insurance. That's comparable to 38 percent of natives. Yet, even by this conservative measure of immigrant welfare usage, the best we can say is that immigrants use welfare at a rate slightly lower than that of natives. One could argue that, at the low end, immigrants receive (per capita) about 70 to 75 cents for every welfare dollar that goes to natives. That's not exactly "good news" given that overall federal spending on social benefits amounts to about half of the annual $6.3 trillion budget and is clearly out of control. The fact that natives get most of this is hardly an exoneration of immigrants. It's more of an indictment of native-born Americans, millions of whom exploit their most productive fellow citizens every month to keep the government benefits flowing. In any case, we find tax money flows freely to foreign nationals, and immigration to the United States is heavily subsidized. We should not be surprised when a lot of immigrants show up to get their share.

Azerbaijan was expelled from the Council of Europe’s Parliamentary Assembly over its handling of the Nagorno-Karabakh conflict and its many democratic shortcomings. Geopolitical concerns and the urgency of natural gas cooperation are likely to prompt reengagement and repair strained relations. In a significant turn of events on 24 January, the Council of Europe’s Parliamentary Assembly (PACE) voted by 76 to 10 to expel the Azerbaijani delegation from the organisation. Anticipating the results of the vote, the Azerbaijani delegation preemptively withdrew from PACE in an attempt to save face. While the PACE report in the aftermath of the vote highlighted longstanding concerns regarding democratic processes, including issues with conducting free and fair elections, ensuring freedom of speech, and addressing human rights abuses, central to the expulsion were developments in the Nagorno-Karabakh region that angered some PACE members. Particularly, the PACE report criticized Azerbaijan’s lightning offensive in September 2023 that saw the country gain control of Khankendi (known as Stepanakert in Armenian), the capital of the region, leading to the mass exodus of all 100,000 Armenian residents to Armenia. Azerbaijan characterised this move as an “anti-terror operation,” a designation that has stirred controversy. In the lead-up to 7 February presidential elections, President Ilham Heydar oghlu Aliyev further escalated tensions with the Council of Europe by issuing threats to withdraw Azerbaijan from various European institutions, including the Council of Europe and the European Court of Human Rights. The elections, which resulted in Aliyev’s landslide victory, deepened the rift between Azerbaijan and Europe. Observers from the Organization for Security and Co-operation in Europe (OSCE) claimed that the elections “lacked genuine pluralism and critical voices were continuously stifled.” Garnering a staggering 92.4 percent of the votes, Aliyev’s victory was seemingly uncontested, with his opponents widely perceived as token candidates rather than serious contenders. The main opposition parties opted to boycott the elections altogether, citing an unfair political climate. Prior to the election, the Azerbaijani government intensified its crackdown on independent media outlets, exemplified by the detention of top editors from Abzasmedia, an independent news outlet, on trumped up charges. While recent events may suggest a significant downturn in Azerbaijan’s relations with Europe, they do not necessarily signify a permanent rupture in bilateral ties. For the past two decades, Azerbaijan’s relations with the EU have been characterised by tough bilateral negotiations rather than a one-sided affair dominated by EU’s agenda. Azerbaijan seeks close cooperation with the EU but on its own terms, aiming for a more balanced relationship that respects its sovereignty and interests. This stance has been facilitated by Azerbaijan’s increasing leverage on energy and geopolitical affairs, which has enabled it to push back against the EU’s unilateral policymaking. Thanks to Europe’s reliance on Azerbaijani natural gas and Azerbaijan’s secular and stable leadership, European policymakers have historically viewed it as a strategic ally in the volatile South Caucasus region. Throughout the 2000s, despite its authoritarian governance, Azerbaijan’s secular regime was considered an asset in Western geopolitical strategies, particularly in the US-led global war on terror and in managing tensions with Iran. In recent years, the relationship between the EU and Azerbaijan has taken on a somewhat conflicting character. On the one hand, there has been a noticeable trend of smooth and deepening cooperation in matters relating to energy. Azerbaijan’s strategic position as a significant energy supplier has fostered closer ties with the EU in the realm of energy security and resource diplomacy, a dynamic that has been propelled by Russia’s invasion of Ukraine in 2022. However, this cooperation stands in stark contrast to the simmering tensions and periodic conflicts over issues pertaining to democracy and human rights. Indeed, the EU’s efforts to promote democratic values and human rights have often clashed with Azerbaijan’s domestic policies, leading to friction and discord. As one scholar noted, “Azerbaijan has been a forerunner in resisting the EU’s agenda,” demonstrating a resilience that has tested the EU’s transformative power to its limits. In the wake of Russia’s invasion of Ukraine which has seen Russian exports to Europe cease entirely, and European gas prices surge to astronomical levels, the EU signed an MOU with Azerbaijan in July 2022 to double Azerbaijan’s gas exports over the next 5 years. During her visit to Azerbaijan for the occasion, European Commission President Ursula von der Leyen called Azerbaijan “a key partner in our efforts to move away from Russian fossil fuels,” elevating the strategic leverage of Azerbaijan vis-à-vis Europe. However, the EU’s gas situation began to stabilise by 2023 as liquefied natural gas (LNG) imports from the United States and Qatar surged, complemented by the expansion of renewable energy sources and nuclear power. This diversification strategy, coupled with efforts to enhance energy efficiency, contributed to a notable drop in gas prices to pre-war levels by February 2024. Last December, the Azerbaijani government announced that it was on track to double its gas exports to Europe by 2027. However, significant challenges persist, particularly regarding the actual commitment from European buyers to purchase the additional gas promised by Azerbaijan. As of now, the consortium overseeing gas exports from Azerbaijan has secured commitments for only 1.2 billion cubic meters per year, a far cry from the 10 billion cubic meters needed to achieve the stated goal of doubling exports. Azerbaijan’s reliance on leveraging gas exports as a means to gain influence over Europe is not a sustainable long-term strategy. In a region where Russia and Iran assert aggressive expansionist policies, Azerbaijan requires Western partners to effectively counterbalance them. With the impending conclusion of the Russian peacekeeping mission in 2025, and Azerbaijan’s desire to see them depart, aligning with Russia at the expense of Europe would not serve Azerbaijan’s best interests. Thus, there are indications that President Aliyev’s harsh anti-European rhetoric may have been more of a temporary populist manoeuvre rather than a fundamental shift in Azerbaijan’s approach to the EU. Azerbaijan not only relies on energy cooperation with the EU but also seeks to avoid being associated with Russia and Belarus within the European community of nations. Furthermore, Azerbaijan’s comparison of itself with its smaller neighbours, Georgia and Armenia, both of which have made significant strides towards European integration, underscores the reputational risks of distancing itself from European institutions. Recognising the need for damage control, the Azerbaijani government will be inclined towards reengaging with the EU and the European Commission. President Aliyev’s statements indicate a desire for Azerbaijan to re-join the PACE. Significant democratic progress is unlikely in Aliyev’s Azerbaijan. However, the regime might entertain releasing some of the recently jailed journalists as a cosmetic change in a bid to return to PACE.

Each week we encounter mouthwatering policies implemented by the newly elected libertarian president of Argentina Javier Milei. He has the libertarian community in awe. His arrival to politics with an openly antisystem discourse shook not only the local scene in Argentina but also the rest of the world. But how? The respective libertarian parties in each country barely get enough votes to even appear on the main grid on election night! There are numerous reasons as to why this may be. We libertarians know ourselves well and no one with a minimum of self-criticism is surprised that our current situation in party politics is such. While political culture differs by country, our internal ideological discussions as libertarians are the same. While there’s no formula for liberty, one may find Milei’s Rothbardian pattern interesting. In a world sunk in destructionist trends, many voices of reason emerge. Are any of them following these same steps? Let’s now look at some factors that led Javier Milei to the presidency. Understanding of the Market Economics has been the main problem in Argentina for almost its entire history. Crisis after crisis has kept the country stagnant, and the application of different recipes, even with new parties in power, didn’t seem to produce any results. That is why the public interest has gradually turned to economists for answers. Javier Milei understood that need. He published successful books, articles, and even had his own comedic theatrical play on economic affairs. His repeated appearances on television since 2015 were because he knew how to have channels make money. Whenever he popped up at a talk show, there was a peak in ratings. Everybody wanted him! Despite his eccentric appearance, yelling, and proliferated insults, he exuded a magnetism that filled the viewer with curiosity. Although other valuable libertarian economists were gaining prominence, no one equaled him. Without understanding everything he said, the public still perceived he wasn’t talking nonsense—his speech and arguments were logical and made sense. For instance, on his explanation on the illegitimacy of taxes, he immortalized the phrase, “Are you in favor of stealing?” And he proceeded to explain how taxes were forcibly extracted, just like in a robbery. He’d even conclude by referring to Lysander Spooner’s analogy: “At least the robber has more honor than the politician; he shows his face and risks his life!” Education As Murray Rothbard says in the last chapter of For a New Liberty, A prime and necessary condition for libertarian victory . . . is education: the persuasion and conversion of large numbers of people to the cause. Libertarians must, therefore, engage in hard thinking and scholarship, put forth theoretical and systematic books, articles, and journals, and engage in conferences and seminars. On the other hand, a mere elaboration of the theory will get nowhere if no one has ever heard of the books and articles; hence the need for publicity, slogans, student activism, lectures, radio, and TV spots, etc. Milei’s simplicity in explaining the libertarian philosophy and economic principles from an Austrian perspective made people learn. Watching the night talk show with Milei’s presence wasn’t just another moment of mind-numbing TV garbage: it became an eye-opening experience. Moreover, he used to always carry a book with him. Whether it was one of his own or Economics in One Lesson or The Fatal Conceit. At times he’s been seen with Chaos Theory or Defending the Undefendable. In each of his appearances one could write down several authors or book titles, which he’d also often share in social media. The mention of names such as Ludwig von Mises, Murray Rothbard, or Friedrich Hayek on prime time was not in vain. Genuine Followers Young people composed his main harvest of followers. Accustomed to growing up seeing the same people in power, and a not-so-different opposition, they found in Milei’s speech a flame of hope which illuminated a possible future with features similar to wealthy countries. Followers began to mention Milei in conversations with their peers, behaving like someone newly converted to a religion and wanting everyone to know. Countless users began to create content on libertarianism, from quotes, infographics, and videos spreading the ideas, which soon became very popular. That is how the demonization of the ideas of liberty and capitalism was lifted. Social Media These mentioned followers became key, especially during the elections. Their exceptional communication and research skills served to unmask, expose, and humiliate politicians and supporters 24/7. The tireless work was impressive. It took the form of memes, slogans, or trending topics. X’s importance as a free-speech platform was extraordinary, unlike during Milei’s 2021 campaign for Congress where his main supporters were banned on Twitter and came back each time with a new account. The political class had fallen behind. It had no chance in the virtual world, which had been taken over years ago by libertarians while they neglected the people. Despite Milei’s opposition using public funds to plaster the streets with their faces and paying for highly invasive and disturbing ads against him on social media, his organic and decentralized activists communicated his message unceasingly, resisted endless attacks, and discredited operations. Paradigm Shift The then-current government, whose banners were “the people” and the working class, in practice dedicated itself to multiplying poverty. They themselves lived like kings in total dissonance with the needs of the common people. Their main followers are composed of themselves and people who benefit from the state’s parasitism machinery: union leaders, government employees, corporate media, “artists” and “intellectuals.” The working people, increasingly distanced from those who claim to represent them, resonated with Milei’s ideas. Why? Because they carry civilization and progress upon their shoulders. The political class was losing credibility, and with it the elections, for not seeing this change replicating all over the world. Today the political class at a global level is using different motives to drive the structure of systematic stealing. Race, immigration, climate change, digital currency—you name it. These ideas have been implanted by the elites through prominent figures and the media, financed by public funds. The more radical their attempts, the more they demonstrate their desperation. We have the opportunity for what seems to be a new beginning in the world with a subtle comeback of the ideas upon which civilization rests. If Mises called the twentieth century the century of socialism, may we be able to call the twenty-first century the century of libertarianism.

Only days after Cambodia’s recently elected national assembly endorsed Hun Manet as the country’s new prime minister, the young leader revealed his vision for the next 25 years of economic growth and prosperity. Cambodia is aspiring to become a high-income country by 2050. To make this happen, Manet released his Pentagonal Strategy, centring on the five objectives of sustained economic growth, more and better employment, human capital development, diversification of the economy and increased competitiveness. For those who have been advocating sweeping reforms to Cambodia’s economy, the new strategic objectives comprise all the right catchwords. But it remains uncertain whether the ambitious new strategy will help Cambodia reach its targets. Despite GDP forecasts for 2023 not living up to expectations, the Cambodian government forecasts 6.6 per cent GDP growth in 2024. The Asian Development Bank and International Monetary Fund downgraded their 2023 economic growth projections to 5.3 per cent, down from 5.8 per cent in April 2023, while the World Bank projects 5.4 per cent growth, down from 5.5 per cent in May 2023. The minor adjustments were made in response to global geopolitical tensions and a worldwide economic slowdown, as well as the country’s structural issues, which include limited productivity and competitiveness, a lack of economic diversification and dependence on a small number of external markets. The government’s optimistic growth projection for 2024 is based on the anticipated revival of key sectors including garment manufacturing. Cambodia’s garment sector showed continuing decline throughout 2023 but is expected to surge by around 8 per cent in 2024. For Manet’s pentagonal ambitions to become a reality, Cambodia must diversify its product range, upgrade its production capacity and productivity and process resources at home instead of exporting them. The garment sector is not conducive to such transformations. The sector is already on life support — a tax break is in place for garment factories until the end of 2025 — but a continued reliance on garment manufacturing also exacerbates Cambodia’s economic vulnerability. Primarily a cut, make and trim industry employing low-skilled labour, garment manufacturing relies on the import of raw materials sourced from other Asian countries, predominantly China. It exports to the major economies where Cambodian products enjoy increasingly precarious preferential treatment under the European Union’s Everything But Arms scheme. To move Cambodia beyond being a cheap labour hub, the Pentagonal Strategy outlines a comprehensive makeover of three sectors identified as the engines of future economic growth — agriculture, micro, small and medium-sized enterprises (MSMEs) and tourism. With nearly 70 per cent of Cambodian households depending directly on agriculture, an overhaul of this sector is long overdue. The new strategic objectives bolster agribusiness to better serve Cambodia’s export markets. The turn to ‘smart farming’ advances local processing of Cambodian crops and high-value products instead of high-volume cash crops. Loans have also been made available for agribusiness and are being directed to ‘economic poles’ spread across the country. The transformation of over 500,000 MSMEs in Cambodia is a core agenda under the new strategic plan. MSMEs closely entwined with agribusiness and digitisation will have access to a new loan scheme established in partnership with the private sector and Wing Bank. Efforts will also be made to integrate the informal sector into the formal economy under the National Strategy for Informal Development 2023–2028, encouraging informal businesses to register and receive benefits such as penalty waivers, tax incentives and skills training. Tourism, heavily impacted by the COVID-19 pandemic, is forecasted to bolster GDP as international arrivals, particularly from China, begin to surge. Foreign tourists are returning to Cambodia, with 4.4 million arriving in the first 10 months of 2023. But the rising numbers have not generated the desired income, as most of the arrivals are low-spending visitors from neighbouring countries. Crowds from China are not as anticipated despite major efforts including the new Siem Reap airport operating direct flights to and from a variety of Chinese destinations, the reintroduction of Chinese package tours and the launch of the China Ready program. Efforts to diversify the tourism sector are ongoing, with India and Indonesia identified as likely markets for outbound tourism. The Ministry of Tourism is also implementing a new tourism strategy and action plan with a focus on cultural heritage, coastal and eco-tourism. As the new government pushes economic reforms with vigour, old habits die hard. International attention was recently drawn to a new investigation by Amnesty International into the 2022 evictions of 10,000 families making a living on the premises of the Angkor Archaeological Park. The Angkor Archaeological Park, Cambodia’s biggest tourist attraction and a UNESCO World Heritage site, is pivotal to the new tourism action plan. While the Cambodian government claims these families were squatters causing overdevelopment at the complex, the report revealed that the evicted families were relocated to a remote site lacking infrastructure, jeopardising their livelihoods. Similarly, the voluntary registration of informal businesses under the new development strategy was temporarily suspended due to pushback from small business owners concerned about the regulatory burden imposed by the measure. The economic reforms outlined in the Pentagonal Strategy are long overdue and will have beneficial impacts on Cambodia’s socioeconomic development. But as Cambodia’s new leadership pursues growth, it should consider that even well-intentioned interventions can have detrimental bearings on people’s livelihoods and may be reminiscent of past injustices suffered at the hands of authorities. This article is part of an EAF special feature series on 2023 in review and the year ahead.

Dear colleagues, Dear guests, This Summit, for which I thank the leadership of the United Arab Emirates, is a key moment in our efforts to contain global temperature rise to within 1.5°C. We have reached the first Global Stocktake, and while there are reasons to be optimistic, the goal remains far off. COP28 must be a turning point. We are called upon to set a clear direction and enact concrete actions – reasonable but concrete - such as tripling the world’s renewable energy generation capacity by 2030 and doubling the global rate of annual energy efficiency improvements, as also outlined by the Presidency. Italy is doing its part in the decarbonization process, and it does it in a pragmatic way, that means with a technology-neutral approach, free from unnecessary radicalism. My idea is that if we want to be effective, if we want environmental sustainability that does not compromise the economic and social sphere, what we must pursue is an ecological transition, and not an ideological one. We are gradually replacing coal-fired power generation with renewables, we have adopted a new Energy and Climate Plan, and we are investing resources and attention on biofuels, so much so that we are among the founders of the Global Biofuels Alliance. In the European context, we have charted a path to carbon neutrality by 2050 and to reduce emissions by at least 55 percent by 2030. But we are also committed to ensuring, through the EU "Fit for 55" program, a multi-sectoral approach that strengthens labor markets and mitigates the impact on our citizens. And this is an essential point, because if we think that the green transition can result in unbearable costs, particularly for the most vulnerable, we condemn it to failure. Italy intends to direct an extremely significant share of the Italian Climate Fund – whose overall endowment is 4 billion euro – to the African continent. Not, however, through a charitable approach, because Africa does not need charity. It needs to be put in the condition to compete on an equal footing, in order to grow and prosper thanks to the multitude of resources that the continent possesses. A cooperation between equals, rejecting paternalistic and predatory approaches. Energy is one of the cornerstones of the Mattei Plan for Africa, the cooperation and development plan on which Italy is working with great determination to build mutually beneficial partnerships and support the energy security of African and Mediterranean Nations. And we are also, in this way, working towards becoming a strategic hub for clean energy, by developing the necessary infrastructure and generation capacity, in our homeland and in the Mediterranean. After the Rome Conference on Development and Migration, two new financial instruments were established to address the root causes of migration, combat human traffickers, and guarantee the right not to emigrate. We will continue to support the Green Climate Fund also in the next cycle, and as I’ve already announced yesterday, we will contribute with 100 million euro to the new loss and damage fund, strongly pursued by the Emirates’ Presidency. And all these priorities will also be at the heart of Italy's G7 Presidency, in 2024. I want to thank, in conclusion, the Emirati Chair and Sultan Al Jaber and express my congratulations for a COP28 of absolute success. We are all aware, colleagues, that many of the efforts we are making today will likely produce visible results when many of us no longer have roles of responsibility. But doing it anyway – not for ourselves but for those who will come after us – defines the value of our leadership. As Warren Buffet wrote, "There is someone sitting in the shade today because someone else planted a tree long ago." Thank you.

Beijing seeks normalisation of ties with Europe; however, for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences On 7-8 December, European Commission President von der Leyen and European Council President Charles Michel will be in Beijing for the 24th European Union (EU)-China summit, but the first in-person one in four years, taking place at a critical juncture in EU-China ties. At the previous EU-China virtual summit in April 2022, the Ukraine conflict was the primary talking point for the Europeans and other issues such as climate and economics were relegated to the back burner. This time, the focus is likely to be economics. A relatively constructive meeting between United States (US) President Joe Biden and Chinese President Xi Jinping on 15 November, which led to the resumption of US-China high-level military dialogue and Xi’s assurances on Taiwan, has contributed to paving the way for the EU to focus on ironing out economic irritants. Deficits, dependencies and de-risking With daily EU-China trade amounting to 2.2 billion euros, the EU is concerned about its widening goods trade deficit with China—400 billion euros in 2022—referred to by EU Ambassador to China, Jorge Toledo, as the “highest in the history of mankind”. In the context of China’s restrictive environment for foreign companies, the EU is keen for a level playing field and greater reciprocity in trade. Another major area of contention is Chinese overcapacity through subsidies in key industrial export sectors such as electric vehicles (EVs) that are undermining European automotive industries. The European Commission has already launched a probe for the EVs sector and is now considering other major sectors including wind energy and medical devices. In addition, Europe is heavily dependent on critical raw materials such as lithium and gallium from China, which are intrinsic to its green transition. While over 90 percent of the EU’s supply of raw materials comes from China, the EU aims to address this dependency through its Critical Raw Materials Act. Factors such as Chinese aggression in the South China Sea, human rights violations in Xinjiang, and pandemic-era supply chain disruptions have deteriorated European perceptions of China. The downswing in EU-China ties was further accentuated by Beijing’s posture in the Russia-Ukraine conflict and the failure of European leaders to coax China to positively use its influence with the EU’s most immediate security threat, Moscow. Thus, a major trust deficit has accompanied the trade deficit. On 6 November, only a month before the summit, von der Leyen in her speech warned against “China’s changing global posture” with its “strong push to make China less dependent on the world and the world more dependent on China”. While acknowledging China as Europe’s most important trading partner, she emphasised the “explicit element of rivalry” in the relationship. Another dialogue of the deaf? The EU and its member states are recalibrating their China policies, with countries such as Germany even releasing China-specific documents outlining their approach. The EU’s “de-risking” strategy aims to reduce dependencies in critical sectors, and through an expansion of its policy toolbox, the Union is implementing a range of measures including greater scrutiny of inbound-outbound foreign investments, anti-coercion instruments, and export controls for dual-purpose technologies. In this context of an evolving European approach, the upcoming summit is a much-anticipated one for EU-China watchers. Despite the strain in relations, high-level diplomatic exchanges have continued in full swing, many of which, such as von der Leyen’s visit to China in April, EU Trade Commissioner Valdis Dombrovskis’s visit in September, and EU Foreign Policy Chief Josep Borrell’s visit in October were conducted in preparation for this summit. A sluggish Chinese economy gives Europe room to wield its economic leverage. However, grey areas in Europe’s China policy remain, especially with regard to the implementation of measures and the need for more effective coordination, often compromised by a lack of unity amongst member states and tendencies of leaders such as French President Emmanuel Macron and German Chancellor Olaf Scholz to prioritise business interests over all else. Thus, straddling the fine balance between economic opportunities and security risks will continue to be a test for how Europe manages its interdependence with the lucrative Chinese market. Previous EU-China summits have not produced a joint statement, and according to sources, this summit is unlikely to produce one as well. Yet it is an opportunity for the EU to put forward unresolved concerns and forge some common ground. Without concrete deliverables, the upcoming summit risks being another “dialogue of the deaf” as Borrell famously described the previous one. Amidst renewed transatlantic solidarity, Beijing’s rhetoric indicates that it seeks normalisation of ties with Europe and a more independent European policy towards China away from Washington’s influence. Yet for Brussels, reconciliation will be conditional on Beijing’s willingness to address fundamental divergences.

Tunisia is beset by deepening political and economic challenges. President Kais Saied is transforming the country’s parliamentary system into an authoritarian presidential one that has become increasingly repressive. Arrests and convictions of opposition politicians have surged. Saied’s aggressive anti-foreigner discourse has fuelled xenophobic sentiment and contributed to a spike in violent attacks against sub-Saharan migrants. Economically, Tunisia is grappling with the fallout of a decade of sluggish growth compounded by a series of economic shocks since 2020. The nation’s public debt has soared, with significant debt repayments looming. As the country tries to deal with mounting financial constraints, its inability to attract foreign loans is further clouding its economic future. Saied now must decide whether to embrace a credit agreement with the International Monetary Fund (IMF) or potentially default on Tunisia’s foreign debt. Against this backdrop, the EU and, in particular, Italy have a pivotal role to play. They can either help steer Tunisia toward a more stable economic future or watch it descend into chaos. A worrying political and economic outlook While the protests that led to the Arab Spring began in Tunisia, the promise of a more democratic and egalitarian society in the North African country did not come to fruition. To be sure, the protests did lead to the overthrow of autocratic Tunisian President Zine El Abidine Ben Ali in 2011. Moreover, Tunisia was the sole country to emerge from the regional uprisings with a new democracy. That experiment, however, foundered after Saied – who was elected to the presidency in 2019 – seized a monopoly on power in July 2021. Over the past two years, he has replaced the country’s semi-parliamentary system with one lacking checks and balances, consolidating power in his hands. People’s fear of repression resurfaced. Since mid-February 2023, arrests and convictions of public figures, especially politicians, have accelerated, undermining a disorganised and divided opposition. Meanwhile, large sections of the population have focused on survival in the face of a worsening economic crisis and have increasingly disengaged from politics. President Saied has attempted to shore up his dwindling support by pushing nationalist policies. He has jailed members of the opposition in a move that seems aimed at bolstering his standing with swathes of the public who are frustrated with the former political class. Saied has also xenophobically accused sub-Saharan migrants of conspiring to change Tunisia’s identity, creating a climate conducive to repeated violent attacks against a vulnerable minority. Economically, the country is still reeling from a decade of slow growth. After the 2011 uprising, the Tunisian government combatted rising unemployment in part by hiring hundreds of thousands of civil servants. Today, the public sector is the country’s largest employer and half of the annual budget is spent on the public payroll. At the same time, public and private investment in infrastructure, research and other growth-enhancing spending items has dropped significantly, leading to a sharp decline in GDP growth. External factors also chipped away at the Tunisian economy. The Covid-19 pandemic brought a collapse in tourism. Russia’s invasion of Ukraine, meanwhile, led to a spike in commodity prices. Surging inflation – particularly in food prices – and shortages of basic goods have eroded Tunisian living standards. Against this backdrop, Tunisia’s public debt has skyrocketed, reaching nearly 90 per cent of GDP in 2022, with substantial financing requirements needed to maintain current levels of spending. Credit rating agencies have downgraded the country as it struggles to balance its budget. The latest downgrade took place in June, when Fitch lowered Tunisia’s rating to CCC- (well into junk status territory). As a result, access to international financial markets has been virtually shut off, given the prohibitive interest rates (over 20 per cent) that this sovereign rating would entail. While the current account deficit has shrunk and foreign currency liquidity has improved over the past few months because of an uptick in tourism revenues and remittances from Tunisians working abroad, servicing its external debt will continue to be extremely challenging. With 2.6 billion US dollars in repayments scheduled for 2024 (including a euro-denominated bond maturing in February, equivalent to 900 million US dollars), it is still unclear how the government will be able to secure sufficient funds to meet these liabilities. The 2024 budget draft anticipates loans from Algeria and Saudi Arabia, as well as other, as yet unknown, external sources. The IMF deal and the role of the EU Despite these financing difficulties, Tunisia has not yet signed a deal with the IMF. In October 2022, Tunisia and the IMF agreed on the terms of a 48-month, 1.9 billion US dollar loan aimed at stabilising the economy, but Saied rejected the deal, fearing social unrest from cutting subsidies and reducing the public sector wage bill. The IMF board postponed the deal in response. Since then, the president has remained steadfast in his rejection of what he calls “foreign diktats” from the IMF and Western states. The Europeans – in particular, Italy – have pressed the IMF to reopen negotiations and offered incentives to persuade Saied to accept a revised deal, despite their internal divisions on how to treat Tunisia. They are applying this pressure largely because the economic fallout from a debt default could further increase the number of people – both nationals and migrants from sub-Saharan Africa – leaving Tunisia for Europe. While some EU member states, such as Germany, have taken a more critical stance towards Kais Saied’s authoritarian turn, eventually the migration, security and economic interests of Italy and, to an extent, France seem to have prevailed within the EU. Due to its geographic proximity to Tunisia, Italy would receive a majority of a migration influx, at least initially. For this reason, the Italian government has reiterated its concerns over Tunisia’s economic situation on multiple occasions, while refraining from expressing any criticism of the country’s increasingly authoritarian turn and violent attacks against sub-Saharan migrants. The EU has offered incentives to Tunisia to accept a deal with the IMF. After Giorgia Meloni and later EU Commission President Ursula von der Leyen and Dutch Prime Minister Mark Rutte visited Tunis in June, they unveiled 900 million euros in macro-financial assistance conditioned on a deal with the IMF and 105 million euros for joint cooperation on border management and anti-smuggling measures to reduce irregular migration to Europe. Despite the sweeteners the EU offered, the likelihood of a revised deal between Tunisia and the IMF has receded. In August, Saied removed the head of government, Najla Bouden, who had been directly involved in the negotiations with the IMF, and replaced her with a more pliant official, Ahmed Hanachi. Since then, Tunisia hasn’t put forward a revised proposal to the IMF. In October, the president reinforced his position by sacking Economy Minister Samir Saied after the latter claimed that a deal with the IMF would send a reassuring message to Tunisia’s foreign creditors. Tunisia has also rejected part of the funds offered by the EU. On 3 October, Saied rejected the first tranche of EU financial help, declaring that this “derisory” amount ran counter to the agreement between the two parties and was just “charity”. The repercussions of this refusal on the rest of the EU’s financial incentives are unclear. A fork in the road There are obvious reasons for Tunisia to secure a loan from the IMF. It would send a reassuring signal to Tunisia’s foreign partners and creditors. It could encourage Gulf Arab states to provide additional financial support in the form of government loans and deposits with the central bank, and investment in the economy. That would provide the Tunisian government with breathing space. But implementation of reforms required under the loan’s terms could set off anti-government protests by the country’s main trade union (the UGTT) and, in turn, government-led repression. To forestall such a scenario, the president himself could incite protests and riots by using nationalist rhetoric to scapegoat the IMF for any unpopular measures required by the loan. A no-agreement scenario, however, would have much more severe and potentially even catastrophic consequences. Without a loan, Tunisia would struggle to find alternative funding sources to meet its scheduled foreign debt repayments. Saied could then resort to a politically motivated strategic default, followed by negotiations to restructure the country’s external debt. Some Tunisian economists and supporters of the president are advocating for this approach: they say that declaring bankruptcy on external debt would allow the government to hammer out a restructuring plan with creditors and argue that the impact on the economy would be fairly limited, thanks to Tunisia’s capital controls and its banking sector’s low exposure to foreign bonds. But this approach carries great risk, as a foreign debt bankruptcy could lead to a run on Tunisian banks and destabilise the financial sector. In addition, the government could end the central bank’s independence to print money, fuelling an inflation spiral. Politically, a default and its socio-economic repercussions could open the door to a dangerous spiral of social and criminal violence. It could also boost irregular outward migration, with Tunisians fleeing the growing political and economic chaos. Widespread protests may erupt against the disastrous social effects of the president’s failed economic policy, prompting a violent response targeting businesspeople and political opponents for their alleged links to the West, as well as Western diplomats and the local Jewish community. Balancing economic support and respect for rights In light of these two possible scenarios, the EU and Italy should continue to encourage the Tunisian authorities to negotiate with the IMF, which remains the least politically and economically destabilising option on the table for Tunisia, if carried out with due care. At a minimum, a revised deal should include reduced expenditure cuts compared with the earlier proposal, particularly in the context of energy subsidies. At the same time, Italy and the EU should exercise caution and avoid turning their understandable concerns about Tunisia’s stability into a blank check for the president. In particular, they should press the authorities to rein in the abuses perpetrated against migrants and stave off potential attacks against opposition politicians, businesspeople and the local Jewish community. Aside from humanitarian considerations, this would serve Italy’s overarching goal of curbing migration: after all, attacks against the sub-Saharan minority have spurred outward migration, a trend that would accelerate if government persecution becomes even more severe. While supporting the deal, however, the EU and Italy should also prepare for the possibility of Tunisia continuing to reject it and declaring a foreign debt default. In such a scenario, the EU should be prepared to offer emergency financing to the country to help with imports of wheat, medicines and fuel. In doing so, the EU should synchronise the positions of member states to prevent conflicting agendas. Schisms have already emerged between countries like Germany and Italy over how to address Tunisia’s authoritarian drift. For this reason, acknowledgement of the importance of internal stability could provide a common ground in overcoming divisions and helping prevent a new wave of anti-migrant violence.

“Originally published by Homi Kharas at Brookings Future Development on 21 November 2023,” “Middle-class life satisfaction rests on two pillars. The first is the idea that hard work and self-initiative will lead to prosperity. The second is that thanks to this prosperity, the children of middle-class families will enjoy even more opportunities for the good life. Both pillars are shaking.” Joining the middle class has been a ticket to the good life for two centuries now, a history I trace in a new book “The Rise of the Global Middle Class.” The American Dream, the glorious years of European reconstruction after World War II, miracle economic growth in Japan and other East Asian countries, Xi Jinping’s great rejuvenation of the Chinese nation, and India’s software revolution each brought hundreds of millions of people into the ranks of the global middle class. Today, thanks to this progress, most of the world, upwards of 4 billion people, enjoy a middle-class or better lifestyle for the first time ever. Yet, across the world there is a clear sense of disquiet in the middle class. In the U.S., Princeton economists Anne Case and Angus Deaton have documented the prevalence of “deaths of despair” due to suicides, opioids, and alcohol poisoning among non-college educated white middle-class males. The Japanese have coined a specific word, karoshi, to describe deaths due to overwork among salaried professionals. China is seeing a campaign of tang ping, or lying flat, to protest the “996” expectations of employers—9 a.m. to 9 p.m. 6 days a week. India ranks 126th out of 137 in the rankings of the 2023 World Happiness Report. What is amiss? Middle-class life satisfaction rests on two pillars. The first is the idea that hard work and self-initiative will lead to prosperity. The second is that thanks to this prosperity, the children of middle-class families will enjoy even more opportunities for the good life. Both pillars are shaking. The first is threatened by the effects of technological change on jobs. The foundations of the second are being undermined by climate change, pollution, and the destruction of nature. For most of history, technology has changed the nature of work by reducing repetitive, routine, and manual labor. During COVID-19 and the ensuing recovery, many workers changed occupations. Those with good jobs, requiring cognitive, non-routine tasks, did better than those engaged in manual, repetitive tasks. There are pathways to high-wage work, but, as my Brookings colleagues Maria Escobari and co-authors have shown, access to these paths is unequal, and that is creating stress and mental health problems for many middle-class workers. Stepping-stone occupations that serve as a bridge between low-and higher-wage occupations, and even high-wage occupations themselves, are increasingly under threat from artificial intelligence. When the Writers Guild of America went on strike in May 2023, they demanded that ChatGPT be used only as a research tool, not for actual script writing, the creative process that is at the heart of their jobs. The wobbly second pillar of middle-class satisfaction is that young people are worrying that the mass consumption of the middle-class is responsible for unsustainable levels of greenhouse gas emissions, pollution and species extinction. On current trajectories, children born today will live in a world that is at least 3 degrees warmer than pre-industrial levels. The impact of such changes, according to the best available science, is terrifying. “Is a middle-class lifestyle consistent with a livable planet? Thankfully, the answer is yes, but only if there is significant change in economic policies.” This science forces the middle class to confront an existential question. Is a middle-class lifestyle consistent with a livable planet? Thankfully, the answer is yes, but only if there is significant change in economic policies. Consider the case of Switzerland, one of the richest economies in the world. The Swiss emit only 5 tonnes of greenhouse gases per person per year, less than one-third the U.S. level. One reason is that Switzerland buys a lot of electricity from France’s nuclear reactors. But on other measures, too, such as building efficiency, moving people on electric trains and buses, and insulating homes, the Swiss middle class outperform many of their peers. True, this is not enough. The 5 tonnes must be reduced to zero by 2050, but Switzerland’s case shows that most of the current levels of carbon emissions are not tied to middle-class standards of living but simply to bad or thoughtless policies in rich countries that can be readily corrected. In similar vein, pollution is a man-made problem, not a necessary corollary of high living standards. In its current form, recycling is not effective. A new concept of a circular economy offers much more promise. The idea is to “design out” waste and pollution, recycle materials and regenerate nature. One of the first problems the circular economy concept is tackling is the issue of plastic packaging. Because of its ubiquity, plastic continues to accumulate in our oceans (and increasingly in our bodies). There are, however, alternative materials that can be used for packaging, and already the European Union is on track to make all packaging recyclable by 2030. A third area of concern is human encroachment into nature. The current global system of food production is based on expanding croplands to grow feed or as pasture for animals, especially cattle and sheep. This system has a double cost. It contributes significantly to greenhouse gas emissions, and it destroys wildlands and biodiversity. The simplest option would be to encourage the middle class to switch to a vegetarian diet. If this magically happened in the world, a land area stretching from Alaska to Tierra del Fuego could be returned to nature. In a less extreme version, if beef and lamb were taken out of our diets, an area the size of North America could be re-wilded. These examples are not offered as realistic policy options in the medium term. They do, however, serve to make a point. If the middle-class is serious about preserving nature, it will require a major change in diet. That could come about through taxes on land-intensive foods or through technology—lab-grown meat is available but only at a higher price point, and it has yet to scale. The common theme in these threats to a middle-class lifestyle is that the values of hard work and personal responsibility that are the hallmark of middle-class success are no longer enough. Policymakers are caught in trying to deliver higher living standards to their citizens and more sustainable living standards for their children. There are long-run strategies where economic growth and sustainability go hand-in-hand, but no countries have yet shown how to manage the transition onto these low-carbon pathways in a rapid, credible way. So the future is uncertain, and the middle-class, which hates uncertainty, will remain disquieted until they are clear about how to best secure the lifestyles and progress to which they have become accustomed.

Obstacles created by Poland’s outgoing government and the deteriorating economic situation make the post-election outlook highly challenging. The victory of the opposition alliance in Poland’s 15 October elections showed that even an unfair and manipulated election can lead to a peaceful rejection of autocratic regime if society is mobilised sufficiently. However, tackling the populist legacy of the Law and Justice Party (Prawo i Sprawiedliwość, PiS) government will be neither easy nor fast, for several reasons. First, it remains unclear when a political transition can take place. President Andrzej Duda (closely associated with PiS) has sworn in a PiS minority government that is likely to be short-lived, and has made clear that he will defend PiS’s political and institutional legacy and use his veto power to stop legislation adopted by the new parliament. Overcoming a presidential veto requires a 60% majority in the Sejm (a lower house of the Polish parliament), which a democratic coalition is short of. This will make it challenging for a post-PiS government to restore constitutional principles of democracy, rule of law, the legal independence of many institutions (which have been packed with PiS loyalists, especially in the judiciary) and public media pluralism, at least until summer 2025, when President Duda’s term expires. Most of these changes will require new legislation. Rolling back unconstitutional PiS legislation in the Constitutional Court will be hard. The terms of PiS placemen and women in the court will expire between 2024 and 2031. The Constitutional Court can also block legislation passed by a new majority. This could mean difficulties with unfreezing money earmarked for Poland from the European Union’s Recovery and Resilience Facility. Access to the funds is conditional on meeting rule-of-law criteria that have been violated systematically by the PiS government. However, the most significant challenges wait for the new government in the economic sphere. Eight years of socioeconomic populism, with large-scale spending programmes (including generous family benefits, which will increase by 60% from January 2024), chaotic tax system changes and a freeze on energy tariffs, have led to an explosion of the general government deficit, set to reach 5.8% of GDP in 2023. The transparency of public finances deteriorated dramatically because of several off-budget funds and quasi-fiscal operations conducted by state-owned banks and energy companies. Therefore, the actual deficit may be higher than officially reported. Because of ultra-loose and politically motivated monetary policy since 2016, inflation has been above the National Bank of Poland target (2.5%) since December 2019. has been above the National Bank of Poland target (2.5%) since December 2019In March 2022, it jumped to a two-digit level, reaching 17.2% in March 2023. Since then, it has started decreasing, but its October 2023 level (6.3%) is still too high and may increase. Despite highly accommodating monetary and fiscal policies, the annual real GDP growth rate, once varying between 4% and 6%, is expected to decline to 0.4% in 2023. Thus, the Polish economy is experiencing stagflation. Meanwhile, a gradual increase in the retirement age to 67 for both men and women, introduced in 2013, was reversed by PiS in 2017, despite Poland’s shrinking working-age population – a consequence of population aging and large-scale emigration. The share of state ownership has been increased, especially in the banking and energy sectors. The latter became less competitive after several administrative mergers of state-controlled companies (for example, creating a super-conglomerate ORLEN). Investment in green energy has slowed in the face of various administrative and financial obstacles. To what extent a new government will be ready to tackle these problems remains unclear. During the election campaign, opposition parties sought to compete with PiS by offering more public spending programmes and lower taxes. They promised never to increase the retirement age. They were silent about privatisation, only pledging more professional and nepotism-free management of state-controlled companies. Since the election, several opposition promises detrimental to public finances have been repeated. The economic chapter in the coalition agreement between parties forming the future government is vague. The multi-party character of a future government (from the left to centre-right), and forthcoming local and European elections (both in spring 2024), may further discourage necessary economic reforms and fiscal adjustment. If such a political scenario prevails, the Polish economy risks slipping towards even deeper macroeconomic disequilibria and zero growth. This will not guarantee popularity and future election success for a coalition government. Therefore, despite all the political and legislative obstacles, the incoming government’s economic policy programme must address the root causes of the current troubles and respect fiscal constraints. Acknowledgements The author would like to thank Heather Grabbe, Ivo Maes, Lucio Pench, and Nicolas Veron for their comments and suggestions on a draft of this commentary.