If you want to see the EU’s future, the best place to look might not be along the banks of the river Rhine. Instead, it may be on the Vistula. May 2024 was the 20th anniversary of the EU’s so-called big bang enlargement, when 10 new member states joined the union. Poland, the largest of the new members, has seen a profound social and economic transformation since then. The question now is what the future holds in store for it, and by extension the rest of the EU.

The economic side has been the starkest, and clearest, contrast. Poland’s GDP per capita, in constant international dollars, went from around $5700 in 2003, the year before accession, to more than $22,100 in 2023. It has gone from being at just over 50% of average GDP per capita levels in the EU in 2004 to around 80% now. If you adjust for purchasing power parity, its economy has surpassed the Netherlands to become the EU’s fifth largest.

Some of this was due to funds from the EU intended to help poorer, newly acceded members catch up. But, as the Polish Economic Institute highlighted, the heavy lifter has been the single market. Poland benefitted from a large rise in inbound foreign direct investment across the board, and supply chain integration helped its manufacturing sector. But this improved economic performance is not limited to manufacturing. IT services became a significant success as well. By 2021, the value-added generated by the sector doubled compared to 2008.

Poland’s social changes over this time have been equally significant. The big trend is arguably secularisation. Poland was, and still is, one of Europe’s most religious countries. But this is changing fast. In 2021’s census, 71% of Poles self-identified as Roman Catholics, compared to 88% in 2011. Those who say they regularly practice has fallen off a cliff. As of 2021, 43% of all Poles said they regularly practised a religion. Only 25% of young people in Poland do now.

This has, in recent years, become a source of social and political tension. Poland’s current government, a coalition of centre-left, centrist, and centre-right parties, has been split over attempts to overturn an almost total ban on abortion. When the ban was introduced, in 2020, it sparked widespread protests across the country, especially in large cities.

Politically, the country has divided not just on social lines, but on geographic ones too. For decades, the split has been between a more liberal, and economically developed, north and west, Poland A, and a more conservative, and less developed, east, Poland B. You can see the boundary clearly in the results of last year’s parliamentary elections. Poland A still voted for the centrist Civic Coalition, while Poland B still opted for PiS.

But can Poland’s growth in living standards continue? After the pandemic, and the ensuing energy crisis, Poland suffered a very bad spate of inflation. Its real GDP per capita actually fell in 2022 as a result of this. That year, inflation hit more than 14%, higher than most western European countries. It will also face the consequences of a slowdown further west, especially in Germany.

There will, however, be new opportunities too. An era of global protectionism could actually bring benefits for Poland. It is a prime candidate for re-shoring. There are also possible economic dividends to be realised from green industrialisation. Poland is relatively late to decarbonisation, but it is beginning to happen in full force. In 2022, it was the fastest-growing market in the world for heat pumps. Although this has slowed down since, more favourable pro-green laws in other areas from the current government should help the energy transition occur more smoothly.

One thing that does not look likely to change, however, is Poland’s social and political polarisation. The centrists may have beaten PiS last year. But the party and its de facto leader, Jaroslaw Kaczynski, show no signs of going away. The emergence of the far-right Confederation party is another new trend that could drive a more heated political discourse. It is especially popular amongst younger men, showing a new gender divide in politics that is increasingly common worldwide.

In both respects, an interesting comparison point lies further east. The Korean sociologist Chang Kyun-Sup coined the term compressed modernity to refer to the rapid economic development and social transformation his own country, South Korea, saw in the second half of the 20th century. Like in Poland, South Korea's sudden economic growth was nothing short of unbelievable. But it left some people behind, and was accompanied by changes in social attitudes that spread unevenly through the population. Today South Korea boasts some of the world's most impressive cities, strongest universities, and cutting-edge technology, alongside pockets of intense poverty and a political gender divide that is even worse than Poland's. Is it a portent of something new, for good or ill, in the old continent?

This is a play-book from the olden days, something you would not expect to see any more in the age of fiscal rules and fiscal councils. Rachel Reeves, the UK’s new Chancellor the Exchequer, expressed herself to be shocked of having found a black hole in the public finances she inherited from her Conservative predecessor.

Black hole fairy tales are 90% bogus. They are usually the beginning of a string of broken promises. They serve the sole purpose to allow a new government to blame its predecessor and to escape from one's own election promises. With a majority as large as the one Sir Keir Starmer enjoys, he can let rip.

The BBC quotes Reeves as putting the black hole at €20bn. This is not a real black hole, but the list of items selected by civil servants as in an urgent need of attention. Ministers looked through “the books” and were shocked to find that the problems were more severe than they anticipated.

We have no doubt that the Labour government will end up raising taxes to fill the imaginary black hole. If underspending on public services is the stated cause of the fiscal hole, then for sure you cannot fix it by spending less on public services.

We are not alone to wonder why we go through this black hole charade when it was clear from the start that a policy to raise public sector investment from current levels would require tax increases. This story also raises a bigger concern: that this government, like the previous one, really has no post-Brexit economic strategy. The underlying issue that needs fixing in the UK is not public services, but the lack of productivity growth. If productivity growth slumbers at the same levels, it will not be possible to maintain the current combination of taxes and spending. One way out of this dilemma is to dare deep structural reforms to the way the British public sector works.

Real fiscal black holes do exist but they are rare. We recall the Greek 2009 elections, when the new Socialist government found a real black hole in the public finances. This is how the euro area’s sovereign debt crisis started.

The UK does not have a black hole. It is very normal that finance ministers leave parts of the spending plans unfunded. The recent German budget deal left out €17bn in savings that have yet to be agreed. Christian Lindner said there is a wiggle room. Even in fiscal-rule obsessed Germany, governments are not required to achieve pinpoint landings. Lindner is not the paragon of fiscal virtue he claims to be. His hole is about the same order of magnitude as the hole found by Rachel Reeves. The hole in France is larger still. 

Benjamin Netanyahu had his moment with this appearance in front of both houses of Congress, where he promised to continue the war until Hamas is defeated. His vision for Gaza the day after the war includes an Israel military presence and a security alliance based on the Abraham accords to counter Iran. He said the war is crucial to assure the security of the region, not only with Hamas in Gaza but also Hezbollah in Lebanon and the Houthis in Yemen. He urged Congress to send weapons quicker so that they can finish the job.

He blamed Hamas for the death toll of Palestinian civilians, while praising the Israeli army for its restraint and for having made it the least deadly war in the history of urban warfare. Netanyahu called protesters at US campuses Iran’s useful idiots, and shamed their university management for not taking a clear position next to Israel. As for the International Criminal Court, Netanyahu dismissed the accusations of not delivering aid into Gaza a complete fabrication, and called its accusation of Israel deliberately targeting civilians Hamas propaganda.

Republicans responded to his war speech with roaring applause. Several Democrats boycotted the session, including Bernie Sanders, former speaker of the house Nancy Pelosi, and Senate majority whip Dick Durbin. Like many Democrats not in attendance, Pelosi instead met with families of the hostages. She called Netanyahu’s speech by far the worst presentation of any foreign dignitary. Amongst those who attended, some remained seated, whilst others joined in the standing ovations for Netanyahu. Kamala Harris chose not to be there, but to meet him later in the White House. Her foreign policy team is reportedly much more critical towards the Israeli government.

Listening to his speech, it seemed to us as if Netanyahu’s world is irreconcilable with the one we have seeing on our screens over the past months and the one the ICC or the ICJ has been investigating. Those 38,900 killed in Gaza or the targeting of civilian infrastructures are not a testimony to restraint, even if Rafah turned out to be less of a catastrophe than feared. There was no mention of the illegal settlements and violence in the West Bank either. Netanyahu’s idea that continued confrontation and terror will finally defeat Hamas and unsettle Palestinian claims to the land has not worked in the past. And without recognising both sides and their sufferings, no peace talks can succeed.

Will Netanyahu’s Abraham alliance in the region succeed? Not if Israel continues refusing to recognise a Palestinian state. Also, would Israel be ready to meet Arab states as equals? This would require accepting the role of primus inter pares. Yesterday, we were still very far away from a path towards peace.

You can’t do a Bidenomics word construction with a name like Harris – or Trump for that matter. And that’s probably a good thing. None of the two remaining US presidential candidates have an economic policy as distinctive as Joe Biden’s. We know about Trump’s 10% flat tariff. When it comes to potential economic pain the US could inflict on Europe, the single largest would be a dollar devaluation. From what we discern from the economic policy discourse of either candidate, we think a dollar devaluation is possible under either candidate. But we struggle to see how Trump could engineer it if he wanted to, or how Harris could prevent it.

Biden’s big idea was the inflation reduction act, the defining piece of legislation of his presidency. We are no big fans of re-shoring and re-industrialisation. It would have been economically and geopolitically wiser to build strategic partnerships in Latin America, Africa, Asia, and Europe. But it worked for him and the Democrats politically. The IRA has clearly been one of the politically and economically most consequential industrial policies since Airbus. It succeeded on its narrow terms. From a European perspective, the IRA was more hostile than anything that happened under Trump. His steel and aluminium tariffs had no macroeconomic impact, but the IRA has deep and lasting effects on European manufacturing. Europeans should probably take a more aloof position on the US elections than they currently do.

Harris will undoubtedly campaign as a continuity candidate, but what she will do as president is harder to make out. She is on the moderate left of the Democratic Party, more sceptical than Biden on trade, more inclined to raise corporate taxes and invest in green technologies, but we struggle to discern an economic strategy, which is not to be confused with having positions on certain issues. The main architect of Bidenomics, Jake Sullivan, the US National Security adviser, will leave the administration when Biden goes. It will probably matter more whom a president Harris would appoint to the administration’s various economic functions than what her own policies are. If you are 59 years old, and you don’t have distinctive economic policy ideas, chances are that economic policy will not be what defines your presidency.

The EU's economic fortunes are ultimately more dependent on what we do than on what happens in the US. It is the dependency reflex that makes Europeans worry about Trump. The EU’s chronic inability to establish the euro as a rival to the dollar keeps us Europeans in a state of depreciated delusion. That may still last for a while. Or not.

We have more to fear what either of them might inadvertently do as president than what they are now saying they will do. This is the price of dependence.

Socrates once said: I neither know nor think I know. Variants of this statement have permeated western philosophy since Plato. Their wisdom has, unfortunately, not reached the world of political analysis and its crazy uncle, the betting markets. They have become irrationally over-reliant on polls. The French and UK opinion polling ahead of the elections should serve as a warning sign to anybody who thinks that they know the outcome of the Trump-vs-Harris presidential race.

The pollsters in Europe got it dramatically wrong. The fact that the UK pollsters were right about the Labour majority should not obscure the massive polling failure. Labour polled over 40% before the elections and ended up with less than 34%. The French pollsters, normally amongst the most reliable, could not predict the victory of the Left in the final round of the parliamentary elections. The reason is that polling is fiendishly difficult in the presence of late material intrusions: tactical voting in France, and the entry of Nigel Farage’s Reform Party as a competitor to the Conservatives on the right. There are no prizes for guessing what the big intruding event in the US campaign has been.

We saw someone yesterday listing a number of polls that had Trump ahead of Harris. These polls were between an actual candidate and a hypothetical one. Such polls are useless. The Democrats were smart not to waste the next month in a bitter primary contest, but to align behind Kamala Harris. The voters have a little over three months to get to know her. This is the best chance they have against Donald Trump. That will still have been the right call if Trump were to win. There is nothing in today’s data, absolutely zero, that can help us place an informed bet on this race. It’s a mugs game.

We noted that after the last mid-terms elections, a lot of political commentators predicted that Trump was finished. They doubled down on those predictions when the court cases started. After the debate with Joe Biden, opinion swung violently in the other direction. People started to talk about Trump as the most likely next US president.

The fact is nothing has changed in the last two years. The polls remain too close to call – especially in the battleground states and counties that will ultimately determine the outcome of the elections. Yet the betting markets were swinging violently. The volatility is the result of extrapolated misjudgements based on fake data. A sure way to beat the political betting markets is to bet against their volatility. 

Our advice is to stick with Socrates. The correct answer as to who will win the US elections is: We don’t know. And we shouldn’t think we do.

Until Joe Biden announced his resignation as the Democrats' candidate yesterday, Benjamin Netanyahu’s visit to Washington was to be the biggest story this coming week. But the script has just been rewritten. Biden’s decision to put the country's interests ahead of his own will stand in sharp contrast to Netanyahu’s personal narrative of total victory, no matter what the price is.

Netanyahu is to address a joint session of Congress, and will be received by Joe Biden in the White House. The visit is to give Netanyahu political legitimacy eight months into the war in Gaza, amid increased pressures to resign at home. As an act of defiance of the International Court of Justice or the International Criminal Court it suggests that the only legitimacy necessary for Israel is US support.

Israel has become a partisan issue in these US elections, with the Republicans seeing themselves as the only pro-Israel party. For House Speaker Mike Johnson, even Biden’s decision to withhold the shipment of the 2,000-pound bombs that cause disproportionate civilian casualties is unacceptable. The Democrats are split between an older generation that sees it as its moral duty to support Israel, and a younger one that see Israel as a colonial power responsible for the deaths of Palestinian civilians in Gaza.

Now that Biden decided to end his political career, he has more liberty to do what he wants in his final six months. He could stand up to Netanyahu if he wanted to. He can shift how the world will remember him.

Biden has been a staunch supporter of Netanyahu throughout the past decades. Since Israel launched its military campaign in Gaza, Biden had warned Netanyahu many times to protect civilians. Still, Israel went ahead without having to fear many consequences from the US. Biden could change this in his last six months in office.

Some argue that Netanyahu may simply wait this one out, counting on Donald Trump to come to power. But this election is not yet decided. Voters also may not tolerate a prolongation of Israel’s war in Gaza until November or an escalation into the region via Lebanon or Yemen, and by extension Iran. Also, even if Trump may be a supporter of Israel, he will look after his own interests more than after Netanyahu’s. These interests may be aligned, or they may not. That is not entirely in the hands of Netanyahu. Don’t count on Trump’s loyalty. Biden’s offer could turn out be the best deal Netanyahu may get.

Another reminder that business as usual is no longer an option is last week’s landmark ruling from the ICJ. The highest court of the United Nation concluded that Israel’s continued presence in the entirety of the Palestinian territory is unlawful, as it violates the Palestinian right to self-determination. The court ordered that Israel should evacuate its settler population in the West Bank and East Jerusalem and return all land and assets seized, and offer reparations for any material damage caused by its wrongful acts. While not binding, this ruling is unprecedented in its extent, by calling for the return of the annexed land as soon as possible. It will be up to the UN member states to define the modalities of such a move. They could delay its implementation, but UN member states will have to decide whether or not Israel can continue to defy international law, and what consequences it has.

Benjamin Netanyahu is playing for time, amping up pressure on Gaza and hardening his conditions in current ceasefire talks. Ahead of his address to both US houses of Congress next week, the Biden administration had hoped to agree with him a long term deal leading towards a two-state solution under the stewardship of the United Arab Emirates. Yet Israel’s Knesset just rejected any notion of a two-state solution, while Joe Biden's position is weakening at home. Netanyahu may hope for Donald Trump and his vice-president J.D. Vance, a staunch supporter of Israel, to get elected in November before settling for anything. The war in Gaza, meanwhile, continues with daily military attacks and civilian casualties.

Compared to the US, the EU is not a key player in ceasefire talks. But it can shape itself a role for the post-war period. The EU has been the largest donor to Palestinian humanitarian needs, and has a strong interest in guaranteeing the security for Israel and its neighbours. EU member states all back the two-state solution as the ultimate guarantee for security in the region. This is a blueprint, and a mandate for the EU in its new legislative term.

It will be up to Kaja Kallas and her team to define the foreign policy towards the Middle East. She will be supported by Ursula von der Leyen’s Commission. Yesterday, von der Leyen promised to create a new portfolio focussed on the Mediterranean region. In a nod to Spain and Ireland, she promised a new agenda for the Middle East and more attention to Gaza. She pledged to increase humanitarian aid, up from €200m, and to work on a plan for the day after the war in Gaza ends.

It makes sense to split the portfolio of the Directorate-General for Neighbourhood and Enlargement Negotiations into one for EU candidate countries and one for neighbourhood policy in the Middle East and Africa. It separates the necessities of EU accession talks from defining, almost from scratch, an urgently needed neighbourhood agenda for the Middle East and Africa.

While politics and security of the Middle East is at play between the US and the regional powers, economic cooperation is a matter the EU knows well enough to make it work. EU countries also are much closer than the US to the region, and thus can play a crucial role in stability efforts. Energy, economic stability, job creation, security, and migration are all of mutual interest to both regions, the EU and the Middle East. It needs more attention to set up relations, and have a positive impact in the region. One migration deal here or there is not the only thing the EU should be remembered for.

After this month’s British election, the UK’s foreign policy will not change overnight. But there is a significant shift in thinking that has taken place. The idea that, like the US, the UK would after Brexit tilt more to the Indo-Pacific now looks like it is gone. Instead, the new direction of security and defence policy is more Europe-first. The problem is that Europe is not just the UK. Labour will need interlocutors on the other side of the English Channel. There are not too many options.

For Labour, security and defence take priority of place in its plans for re-setting relations with the EU. The party has said that it wants to agree a new security pact with the union relatively quickly. An obvious priority is support for Ukraine. But Labour’s own ideas around security are wide-ranging. David Lammy, now the British foreign secretary, has said that he wants the agreement to cover irregular migration, energy, climate change, and pandemics.

The other side is pivoting away from the Indo-Pacific. This is partly about interests, but also capabilities. John Healey, the new British defence secretary, has been the firmest voice here. He had described the aforementioned Indo-Pacific tilt as a serious flaw of the previous British government’s defence and security policy footing. According to Healey, the UK’s most pressing needs and interests are in Europe, whilst the British navy in particular is not equipped to play as major a role on the other side of the world.

Taken in isolation, it is hard to disagree with this attitude. What happens between China, the US, and its Pacific allies affects everyone, the UK included. But since the UK is in Europe, and has limited means to defend itself, focusing on Europe makes more sense. So does Lammy’s more expansive idea of common security issues. All of the issues he talked about affect both the EU and UK in tandem because of their geographic proximity. The English Channel is wider conceptually than it is physically. 

But it risks repeating an old problem with British attitudes to the EU: having a conversation with itself without considering what’s going on elsewhere. The difficult part with making any security pact work in practice, beyond empty statements of intent, is going to be finding willing partners.

France barely has a functioning government right now. Emmanuel Macron is strongly supportive of Ukraine. But without enough budgetary support from the National Assembly, he is mostly limited to rhetoric. If the far-right gains further in strength, it is unlikely to be amenable to the UK on defence, energy, climate, or immigration policy. Germany is undergoing another round of debt brake-induced consolidation. It will be cutting its defence expenditure in real terms, and wants to also cut its own direct support for Ukraine. This basically leaves Poland, a big spender on defence relative to the size of its economy, but smaller in absolute terms than France or Germany.

Not so long ago, Greece used to be the bearer of bad news for the EU, be it on its fiscal position, migration, or tensions with Turkey. Today, it reads like a beacon of hope, at least on two fronts. The Greek government under Kyriakos Mitsotakis manages to deliver better than expected fiscal performance and lifted the credit rating with a positive outlook. Outperforming goals seems to come easy to this administration. In the first half of this year, GDP and expenditures were less and tax revenues more than expected resulting in a budget surplus that was €1.7bn above target. Those times when Greece’s deficit figures exploded and the government had difficulties to adhere to the targets set by the bailout programmes in the ten years between 2009 and 2018 seem far behind in the past.

Similar when it comes to foreign policy relations to its closest neighbour, Turkey. Their diplomatic relations are currently enjoying a period of detente after a period of border and migrant disputes with the potential for armed confrontation over the 2018-2022 period. The disputes have not disappeared, but they agreed to disagree and postponed any resolution to later. Now the two sides are considering whether the time has come to talk about those controversial issues, ranging from Cyprus to maritime demarcation borders for economic exploitation rights and demilitarisation on Greek islands close to Turkey. Recep Tayip Erdogan and Kyriakos Mitsotakis are to meet in September at the sidelines of the UN’s General Assembly. They are the two to decide whether the time is ripe to talk about issues that involve concessions. Trying to deliver solution comes with some political risk. Any concessions would embolden the hardliners in each of the two countries and foster the rise of nationalism.

The times for the left may be over but the rise of the right is still in the making. Alexis Tsipras was the leader who rose from the left on the promise to end austerity policies during the bailout years. It never happened, and his Syriza party lost support. Now Greece is in the hands of a conservative government that keeps on outperforming fiscal expectations. This will not always remain so, the more public debt is shifted to be hold by the private sector rather than European institutions, the more they also become subject to interest rate rises. Growth may also not always outperform in its long stretch towards repaying its debt to the EU. But this time the political threat comes from the right, with various far-right parties on the rise. Three of the four far-right parties made it into the European parliament and got nearly 20% of Greece’s total seats. The Greek Solution, Niki and Voice of Reason are a mix of nationalist, religious and patriotic parties. Opening up the disputes with Turkey is within their domain. Will they rise and fall like Syriza did over Turkey and migrants?

There is only one way to deal with the likes of Viktor Orbán: move forward in important areas of European integration, leaving Hungary behind. For as long as the EU sticks to the Maastricht/Lisbon format of integration, there is no way that the EU can fight a member state that has veto rights: over the EU’s budget, and the most important aspects of foreign policy and security policy, especially economic sanctions. The EU miscalculated in 2020 when it pushed for its rule of law procedures that it would later deploy against Poland and Hungary. They thought that as a net recipient of EU funds, Orbán could be tamed. What he did is to use the sanctions as blackmail tool against the EU when it needed his vote to impose sanctions against Russia.

Yesterday, Ursula von der Leyen doubled down in her vendetta against Orbán with the announcement that no commissioners would attend future informal ministerial meetings in Hungary. The European Commission will only dispatch senior officials. The Commission will also not proceed with the traditional inaugural visit to the Hungarian EU Presidency – all in protest against Orbán’s visit to Moscow and to Florida, where he met Donald Trump. Earlier yesterday we heard that Josep Borrell organised a meeting of the foreign affairs council at the same time when the Hungarian presidency had tried to convene an informal meeting of foreign ministers.

This has a certain playground-fight quality to it. It happened before. In 1965, it was Charles de Gaulle who refused to send ministers to Council meetings because he did not want the EU to assume supra-national powers. This was a battle de Gaulle lost. Six months later, the EU and France agreed what became known as the Luxembourg compromise, which allowed de Gaulle to retreat from his position in a face-saving manner. We would not have thought that the EU itself would consider using empty chair tactics. For the Commission to do this sets precedents. Did they think this through?

While integration is the only long-term solution to the Orbán problem, the best response in the short-run would be simply to ignore him, and to make it clear to everyone that he does not represent the European Council, not even the EU Council, in matters relating to foreign and security policy.