Artificial Intelligence in Central and Eastern Europe: Opportunities and Challenges

Written by: Gabriella Tárnok – PhD Doctoral School of Law at ELTE University

Abstract

This paper focuses on the position of AI (artificial intelligence) technologies in the CEE region, while shortly reviewing the legislative initiatives in the EU related to the topic, such as the AI Act^[1], the new Product Liability Directive^[2], the Data Act^[3], the GDPR.^[4]

Although law plays a crucial role in the development of artificial intelligence by establishing binding rules and standards to safeguard societal well-being and protect fundamental rights, it is important to acknowledge that regulation can, at times, act as a constraint on the transformative potential of the technology.

The technology sector can reshape entire industries and alter business strategies. Also, regulatory compliance, alongside technological advancement, presents a significant challenge as not all EU countries are at the same level of digitalization, but innovation and the developments it brings remain key to Europe’s competitiveness.^[5]

For this reason, this paper also considers regional disparities in technological development, as some statistics suggest that certain parts of Central and Eastern Europe, such as Hungary, are progressing technological development at a slower pace compared to other regions of Europe. Businesses that have considered but ultimately decided not to adopt such technologies mainly cited a lack of expertise and high costs as the reasons for not implementing artificial intelligence.

But technology keeps advancing. This year’s trend highlights the growing integration of generative AI into virtual assistants. While Alexa, Siri, and Bixby have been around for over a decade, the industry is rapidly evolving with these new generative AI capabilities, bringing both promising opportunities and potential risks. Yet can all regions keep pace with this development? Do people trust these innovations, and are they able to adapt effectively? These questions guide the focus of this paper.

1. The Legal framework

The European Union has set itself the goal of creating a single market for AI systems through the world’s first comprehensive regulation on artificial intelligence.^[6]

A core objective is to ensure the proper functioning of the internal market, while promoting the development and deployment of products and services involving ethical and compliant AI systems – including autonomous AI – as well as strengthening cooperation with external partners.^[7] To date, the European Union has developed a comprehensive and coherent legal framework governing artificial intelligence and technological innovation, aimed at fostering progress while ensuring compliance with fundamental rights and societal safeguards. The Union viewed the future of regulation in EU-level legislation, as having distinct rules for each member state would entail high transaction costs, particularly in relation to cross-border transactions.^[8] Although each addresses digital technologies from a different perspective, they are complementary.

As a base of all, the Charter of Fundamental Rights sets out the personal, civil, political, economic, and social rights to which EU citizens are entitled. These include, among others, respect for human dignity (Article 1), the right to the integrity of the person (Article 3), the right to respect for private and family life (Article 7), and the protection of personal data (Article 8).^[9]

The AI Act establishes obligations for providers, importers, and distributors of AI systems, addressing issues such as risk management, human oversight, and transparency throughout the AI system’s lifecycle. Its connection to the GDPR lies in the data-driven nature of AI, which requires large datasets for training and deployment. According to the preamble of the GDPR, technological developments – particularly the processing of large volumes of data – affect how personal data is used.^[10] The Regulation sets out the principles of data processing and enshrines the principle of technological neutrality.^[11]

The Board’s opinion recommended the introduction of safeguards to ensure compliance with data protection principles, particularly emphasizing the principles of data minimisation (Article 5(1)(c) GDPR) and transparency (Article 5(1)(a) GDPR).^[12] This Regulation guarantees technological neutrality and the protection of personal data through obligations imposed on data controllers and the rights afforded to individuals.^[13]

The DMA’s link is more indirect and debated, although Article 15 of the DMA provides an indisputable point of contact. As the DMA preamble states, systems used to create user profiles based on data collected from end users (consumers) must be accompanied by audited descriptions. Including details on the basis for profiling and whether personal data or user-generated activity data is used.^[14]

The EU adopted the Digital Services Package, which includes both the Digital Services Act (DSA)^[15] and the Digital Markets Act (DMA)^[16], aiming to foster innovation in the digital economy. The DSA protects fundamental rights in the online environment, while the DMA ensures a level playing field for EU-based businesses.

As the DMA preamble states, systems used to create user profiles based on data collected from end users (consumers) must be accompanied by audited descriptions. Including details on the basis for profiling and whether personal data or user-generated activity data is used.^[17]

The DSA intersects with the AI Act particularly in cases where service providers deploy AI for content moderation or recommender systems. Also, to deliver personalised recommendations, the use of personal data is often required. Based on accumulated data, such AI-powered systems subtly reshape the flow of information.^[18] When referring to online personality profiles, we are not speaking of profiles users actively create themselves, but rather of those generated by the system through data analysis. This process involves the identification of relationships between data points in a database, which can lead to the identification and categorisation of individuals based on those data.^[19]

The Data Act seeks to strengthen the position of users by enabling them to freely share data, generated by their machines and devices. At the same time, it aims to foster competition and innovation.^[20] Regarding liability, the EU has revised the Product Liability Directive to cover AI-based products, easing the burden of proof in AI-related harm cases, which will be governed by the new directive from 2026.

At the beginning of 2025, however, it was decided that a dedicated AI liability directive would not be adopted in the near future.^[21] The reason was that parts of the proposed provisions had already been integrated into the revised Product Liability Directive, raising questions as to whether a separate legal instrument remained necessary. According to the European Commission, the lack of consensus ultimately prevented the adoption of the AI-specific liability directive.^[22]

But it can also mean that, in reaction to the global landscape, the EU has started shifting from a primarily regulatory stance toward a greater emphasis on innovation. This selective easing of regulations highlights the intricate political dynamics surrounding AI governance in Europe. While it reflects valid worries that excessively stringent rules might cause Europe to fall behind in the AI race or push innovation beyond its borders.^[23]

Looking in the direction of CEE, their obligation to comply with European Union legislation, especially in fields like digitization and innovation, makes them a compelling subject for examining transformative processes. This is particularly significant since European integration affects all EU-27 member states, requiring alignment with strategies where innovation and the growth of the digital economy are central.^[24]

2. The case of Central and Eastern Europe

When the pandemic struck the world in 2020, bringing widespread shutdowns, not only the Central and Eastern European (CEE) region but the entire globe made a significant leap forward in digitalization. Since then, this development has continued unabated, exerting profound impacts on both the economy and society.^[25] Digitization permeates numerous industries and has opened up new opportunities and solutions applicable to nearly every aspect of economic and social life, from education and healthcare to finance, transportation, trade, and beyond.^[26]

The European Union views digitalisation as a vital component of economic growth and strategic autonomy (including the development of digital infrastructure, the expansion of a skilled workforce, and the advancement of the digital economy).^[27] The overarching goal is to create a secure and liveable digital environment for all Europeans while enhancing competitiveness.^[28]

While the Central and Eastern European countries are far from a homogeneous group,^[29] they nonetheless contend with broadly similar challenges in the case of artificial intelligence. While most have adopted national AI strategies, the broader issues affecting Europe are equally present in the eastern part of the continent.^[30] Based on a review of research and statistical data, the following five factors have been identified as particularly significant in shaping the AI landscape in the CEE region:

1. Investment and Start-ups: the level of financial investment and the presence of innovative start-ups highly influence technological adoption. Data centers are needed to access to high-quality, also, well-governed datasets are essential for AI development and training.
2. Human Capital: The availability, skills, and continuous development of qualified personnel are critical for successful AI integration.
3. Tech Giants: The presence and involvement of major technology companies drive innovation, provide infrastructure, and shape local ecosystems.
4. Public Trust: Societal acceptance, confidence in technology, and perception of AI’s risks versus benefits impact the adoption and success of AI.

2.1 Investment and start-ups

Despite ongoing economic and technological development, the CEE region continues to lag behind much of Western Europe in several critical drivers of productivity, including institutional maturity, the quality of infrastructure, educational attainment, and the pace of technological advancement.^[31]

This disparity is reflected not only in the availability of skilled human capital but also in the effectiveness of policy frameworks and investment strategies. For instance, Romania, despite having a robust base of highly qualified software engineers, faces significant challenges in advancing AI development and implementing regulatory measures effectively, primarily due to limited government initiatives, insufficient public and private investment, and a relatively fragmented innovation ecosystem.^[32] Such structural and institutional constraints illustrate the broader difficulties that many CEE countries encounter when attempting to leverage digital transformation as a driver of economic competitiveness.^[33]

Nevertheless, there are some quite promising examples in alignment with the goals set out in the AI Continent Action Plan, as Europe must invest in infrastructure to remain competitive in both AI development and deployment.^[34] In this regard, Bulgaria’s “Discoverer” supercomputer, based at Sofia Tech Park, offers a potential foundation for further AI innovation. However, progress in the practical application and regulation of AI remains limited at the national level.^[35] Also, Lithuania’s government has launched an “AI Factory” initiative aimed at strengthening infrastructure.^[36]

Public and private investment in the Technology and AI sector is key. Between 2020 and 2024, the IT market in Central and Eastern Europe experienced an average annual growth rate of 10.9%. This rapid expansion has been driven by increased investment in digital infrastructure leading by Poland and Bulgaria.^[37] Poland, the Czech Republic, Bulgaria, and Slovakia are prioritizing investments in artificial intelligence, increasing internet accessibility for their populations, and strengthening citizens’ digital competencies.^[38]

Slovakia’s national broadband strategy aims to provide all households with minimum internet speeds of 100 Mbps, scalable up to 1 Gbps, while ensuring gigabit connectivity for key socio-economic hubs by 2030.^[39]

Figure 1 – AI Startup by Country Distribution^[40]

Start-ups play a critical role in the regional AI ecosystem. In 2024, 23.3% of AI-focused start-ups (Figure 1) in the region were based in Poland and 17.5% in Greece.^[41] The CEE countries actually outperform Western Europe in the number of companies in the digital sector.^[42]

The U.S. remains a highly attractive destination for European and Asian professionals.^[43] In addition, Europe is currently heavily dependent on external providers for AI components, including semiconductors and cloud storage infrastructure.^[44]

2.2 Human capital

The CEE region is currently facing substantial demographic pressures, which pose significant challenges for economic growth and labor market stability. Following Latvia, Hungary experienced a population decline of 4.7%, while Poland and Estonia both reported decreases of 3.4%. Bulgaria, Romania, Slovakia, and certain areas of the Baltic region also recorded falling populations, driven by a combination of outward migration and negative natural population change.^[45] These trends exacerbate existing mismatches between labor supply and demand, intensify skill shortages, and threaten the long-term sustainability of social and economic development in the region^[46].

However, it is essential for society to acquire minimum digital skills. According to “the European Commission’s Digitalization report 2025” the use of artificial intelligence also requires society to have adequate digital skills.^[47] These competencies are now essential for learning, employment, and communication. According to Eurostat, as of 2023, 56% of the European population aged 16–74 had at least basic digital skills.^[48]

The Czech Republic (69.1%), Estonia (62.6%), a comparatively larger share of the population possessing basic skills than the European average.^[49]

In this respect, Poland has started a cooperation with Google and Intel^[50] to stimulate AI applications in the energy and cybersecurity sectors, while also supporting education.^[51] Estonia has also introduced AI education in secondary schools in partnership with OpenAI and Anthropic.^[52] Slovakia has established its first high school with a specialised focus on artificial intelligence.^[53] In Bulgaria, Google has pledged $1 million in PhD scholarships, enabling students to be mentored by researchers from DeepMind.^[54]

Also, progress clearly depends on experts. The highest demand in the CEE IT labor market is observed for roles that are linked to AI. This growing demand is closely linked to the increasing adoption of artificial intelligence and other advanced digital technologies. Such as Software Developers, IT Administrators, Architects, Testers, Managers, Cloud Engineers, Cybersecurity Specialists, and Data Analysts. Despite the region’s expanding IT sector, in the Czech Republic approximately 63% of companies report difficulties in sourcing qualified talent.^[55]

2.3 The artificial intelligence race

One of the most formidable global competitions of the 21st century is currently unfolding: the race to lead and ultimately win the “artificial intelligence race.” Alongside Japan and Saudi Arabia, both the European Union and the United States are key players, with China also playing a significant role. The common goal is to achieve technological superiority (which in turn translates into economic dominance).

The United States has opted to prioritise technological advancement. This strategic divergence has, in many respects, proven more profitable for the U.S., as most innovation continues to stem from American companies.^[56] The emergence of new legal obligations has been cited by some as a factor contributing to companies relocating their AI operations outside of Europe.^[57] As a precursor to this trend, on 14 June 2023, when the European Parliament adopted its position and proposed amendments to the draft AI regulation, it clearly stated that the objective of the legislation was not to hinder innovation within the European Union. Nevertheless, on 30 June 2023, over 150 leading technology companies and investment firms sent an open letter to the European Commission, expressing concern about the potential restrictions the regulation might impose on AI development and the EU’s global competitiveness.^[58]

Data confirms that the United States and China are ahead of the European Union in the field of artificial intelligence.^[59] Several structural shortcomings explain this – including the comparatively lower significance of the IT sector in Europe and the absence of large-scale European technology companies.^[60] Unlike the United States, Europe lacks global tech giants such as Microsoft, meaning that European users are compelled to use word-processing software developed outside the continent rather than a solution developed in and for Europe. The same applies to AI-powered products and services.

In the context of AI, the interplay between skilled human capital, financial investment, and the pursuit of digital sovereignty becomes increasingly critical:

“Technological sovereignty aims to guarantee our independence and security by protecting our strategic infrastructure and reducing our dependence on non-European technology providers.”^[61]

The European Union has identified digital sovereignty as a strategic goal, aiming to ensure that member states can control critical digital infrastructure, data, and technologies while maintaining competitiveness and security. Participation in this objective is essential for the Central and Eastern European (CEE) region, as digital sovereignty is intertwined with the EU’s capacity to innovate, regulate AI, and protect economic and societal interests.^[62]

The European Union has acknowledged the lack of soveregnity, in an action plan on 9 April 2025 entitled the AI Continent Action Plan, which explicitly addresses the issue:

“The EU currently lags behind the US and China in terms of available data centre capacity, relying heavily on infrastructure installed in and controlled by other regions of the world, that EU users access via the cloud.”^[63]

Another key pillar of the AI Continent Action Plan is access to high-quality data to promote the uptake of AI. The plan aims to extend the use of AI to small and medium-sized enterprises (SMEs), mid-sized firms, and public sector institutions.^[64]

However, achieving this goal is complicated in the CEE context. Several countries in the region maintain strong economic and political ties with external powers, notably the United States and China, which can influence technology adoption patterns, investment flows, and regulatory alignment. This external orientation may hinder the region’s ability to fully participate in the EU-driven digital sovereignty agenda, making coordinated efforts and strategic policy alignment even more critical.^[65]

2.4 Public trust

In my view, the lack of public trust in AI is not only a challenge in Eastern Europe – it is a global phenomenon.

One of the regulation’s principal aims is to foster public trust in the application of artificial intelligence, thereby encouraging businesses not to shy away from technological innovation. People must view new technologies as tools capable of enhancing societal well-being. Accordingly, the regulatory approach is inherently human-centric. The ultimate objective is to establish a legal environment in which safe, trustworthy, and ethical artificial intelligence earns public trust.^[66]

Figure 2: Global Opinions about products and services using AI by country^[67]

Figure 2 illustrates that societal attitudes toward AI are very much divided in Central-Eastern European and across multiple other countries.

Public skepticism and concern toward AI are not unfounded. The more AI is used, the more incidents occur, indicating that the technology remains in an early developmental stage.^[68] According to the AI Incidents Database, a total of 233 AI-related incidents were reported globally in 2024, which is a 56.4% increase compared to 2023.^[69] Concerns extend to ethical and fairness considerations, and there is a widespread fear of declining personal data protection.^[70] Only 47% of respondents now trust AI companies to safeguard their personal data, a 3% decrease from 2023.^[71] Moreover, confidence in the impartiality of AI systems continues to decline, with fewer people believing that such systems are free from discrimination or bias.

It has also been proven that digitization and business innovation have a negative statistically significant relationship with a decrease in fatal accidents. This proves that the use of modern technology significantly affects occupational safety. Research by the International Labor Organization (International Labour Office, 2024) indicates that the use of advanced technologies, such as automation artificial intelligence and the Internet of Things (IoT), leads to a reduction in the risks associated with performing hazardous tasks.^[72]

3. The case of Hungary

Overall, Hungary’s AI strategy^[73] demonstrates a clear commitment to entering the AI sector; however, progress requires addressing the challenges related to factors present in the CEE region as well. Ensuring regulatory compliance, increasing investments, developing human resources and enhancing social acceptance are all equally necessary. This complex challenge marks a complex task in technological transformation.

Despite the ambitions laid out in the Strategy, the 2024 Digital Decade Country Report confirms that the use of AI among businesses in Hungary remains below the EU average.^[74] A revised and expanded version of Hungary’s AI strategy is expected in the near future, with active contributions from the Hungarian Artificial Intelligence Coalition, which aims to coordinate stakeholders from government, academia, and industry to foster development.

Projecting the critical factors – namely investment, human capital, major technology companies, and public trust – onto the Hungarian context allows for several key observations.

In the case of investments while certain developments have occurred, such as the expansion of 5G coverage, these are far from sufficient. These measures remain insufficient to fully support the widespread deployment of artificial intelligence technologies. A particularly significant domestic development is the Hungarian-language AI model, undertaken jointly by the Ministry of Innovation and Technology (ITM) and OTP Bank.^[75] This project underscores that fostering innovation requires not only financial investment but also close collaboration both between governments and between the public and private sectors.

Figure 3 – Technology use in enterprises with 10 or more employees^[76] (translated by the author)

In July 2025, ParTec AG and 3D Lézertechnika Zrt. sign a letter of intent for an AI data center to build in Hungary. The government announced Hungary’s entry into the AI sector by the development of this modular hyperscale AI data center, accompanied by a solar park and energy storage facilities, as part of a European flagship project in Central Europe. In partnership with ParTec AG the regular operation of the data center is expected to begin in 2027.^[77] Beyond strengthening domestic AI capacity, the initiative aims to attract further international investment and integrate Hungary more fully into global AI innovation networks. This project is in line with the National AI Strategy, as it highlights the importance of data processing and analysis, substantial investment is still needed in data collection, sharing, and management infrastructure.^[78]

The figure (Figure 3) above illustrates Hungary’s relative position among EU Member States in terms of the application of technology by economic actors. The data presents a mixed picture: Hungary ranks highly in digital sales, performs close to the EU average in cloud-based services, but behind in the use of AI, software, and robotics.

There are two main reasons for this situation. First, as in most Central and Eastern European countries, the development and adoption of AI technologies in Hungary are constrained by a shortage of skilled personnel and the need for continuous training. Second, the limited diffusion of AI in Hungary is closely linked to the structure of the national economy: small and medium-sized enterprises (SMEs) often operate under constrained financial conditions.

The Hungarian Central Statistical Office (KSH), in its 2023 publication Hungary, notes that technological innovation is a key factor in ensuring competitiveness and maintaining economic performance.^[79] Based on data from 2023, only 3.7% of enterprises employing ten or more people were using AI systems (below the EU average) although the number of companies operating in the ICT sector continues to grow steadily.^[80]

AI services – including natural language processing (NLP) applications such as chatbots, virtual assistants, sentiment analysis, and automated text processing – entail substantial costs. This represents a particularly heavy burden for small and medium-sized enterprises (SMEs), and the structure of the Hungarian economy.^[81] These businesses often face constrained financial resources and a shortage of skilled professionals.^[82]

According to the same KSH publication, the reasons for this discrepancy are:

“Hungarian companies primarily use AI-based technologies for marketing and sales, accounting, financial planning, and production processes. Companies that had considered but ultimately did not adopt AI solutions most commonly cited a lack of expertise and high costs as the main barriers to implementation.”

Public trust and acceptance are equally crucial for AI integration. Generational differences are evident, as national data indicate that 46% of Generation Z use AI tools daily, whereas older age groups remain more skeptical.^[83] A survey conducted by the Századvég Institute further illustrates the societal impact of AI, with 52% of respondents agreeing that “products and services using artificial intelligence will fundamentally change my daily life within the next 3-5 years.”^[84]

4. Final Remarks

Despite the undeniable risks associated with artificial intelligence, it is equally clear that AI has enormous potential to improve human life. Its benefits are not limited to a privileged few, rather, the entire global population stands to gain from its responsible deployment.

As this paper demonstrates, the EU is facing a major challenge, one that could even be characterized as a crisis. In a world where there is no “European Silicon Valley,” the EU had only one viable option: to lead the way in regulation by developing the first comprehensive AI legislative framework. Yet legislation alone is not enough to maintain pace with rapid technological advancement. The law-making process must continue, but attention must now shift to development. When the AI revolution began, some countries immediately prioritized innovation over regulation. The EU took a different approach, but it is now clear that the EU must also invest in its own AI development capacity.

In summary, while the EU has made full use of its institutional strengths, it remains structurally dependent on external technologies. Solving this issue is complex. Europe cannot simply “switch on” a software industry; society itself must be equipped to handle the transformation. Currently, only half of European citizens possess basic digital skills. The pace of progress could only accelerate if there were increased investment in resources. A key component of this is ensuring that society is both willing and able to adopt new technologies. Access and usability are essential prerequisites. While investment is occurring in the region, it remains insufficient when compared to other parts of the world.

The CEE countries are diverse in terms of economic structure and digital maturity, they face similar challenges regarding artificial intelligence (AI) adoption and integration into business. The region’s AI landscape is shaped by several critical factors, including investment and start-ups, human capital, the presence of major technology companies, public trust and the pursuit of technological sovereignty.

The Central and Eastern European region could take several more steps to support both national and regional digitalization. Despite ongoing economic and technological development, CEE countries are behind Western Europe including infrastructure quality, investment, and policy effectiveness.

As observed, the CEE region holds significant potential for development, and substantial progress is expected in the coming years given the scale of ongoing investments. Poland, in particular, emerges as a key driving force, hosting the largest number of startup companies and attracting the most substantial investments.

Human capital remains a central challenge. The region faces demographic decline and outward migration, exacerbating skill shortages and threatening long-term economic growth. Acquiring basic digital competencies has become essential, and countries have implemented educational initiatives to strengthen AI skills. High demand for AI-related roles while the emigration of skilled professionals to the United States further intensifies workforce challenges.

In this case the aim is supporting skilled professionals and researchers, while increasing the volume of strategic investment. Nonetheless, this is easier said than done. The migration and the lack of experts are significant and smaller nations and SMEs alike, such investments present considerable challenges, and the gap widens with each passing day.

In Hungary SMEs embracing the technological opportunities offered by AI at a slow pace. This may have serious implications for their competitiveness. Yet AI development will not stop. Its continuous evolution requires equally sustained effort from both the public and private sectors. This overview demonstrates that while Hungary and other countries in the region are taking steps toward technological advancement, numerous structural and systemic challenges remain.

In conclusion, while the CEE region has made notable strides in digitalization and AI development, challenges in infrastructure, human capital, investment, and societal trust continue to shape its digital ecosystem.

Endnotes

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