1. Introduction
As Europe confronts a convergence of geopolitical conflict, Central and Eastern Europe has moved from being a periphery to centre of the continent’s future. Across the region, governments and institutions are grappling with how to sustain growth, finance transformation, and preserve stability under conditions of uncertainty.
From Austria’s call for deeper financial integration, to Poland’s state-led industrial strategy and Estonia’s small-state resilience, a common thread emerges: resilience alone is no longer sufficient. The region is entering a phase of strategic rebalancing – between state and market, banks and capital markets, openness and autonomy, national priorities and European integration.
This article brings together these institutional perspectives from the Financial Times CEE Forum 2026 to map how Central and Eastern Europe is redefining its economics and political economy.
2. CEE growth, resilience and strong regional ties
Central, Eastern, and Southeast Europe continue to play a structural role in Austria’s economy, a reality that reflects deeper interdependencies within the European Union. According to Austrian Finance Minister Markus Martabert, 22% of Austrian goods exports are directed to the region, while 21% of imports originate there. More than 30% of Austria’s outward foreign direct investment flows into Central and Eastern Europe, and over 600,000 workers in Austria – more than 15% of the workforce – have roots in the region.
Despite a challenging international environment, the region continues to demonstrate relative economic resilience. Drawing on forecasts from the Vienna Institute of International Economic Studies, Martabert noted that CEE economies are expected to maintain comparatively robust growth, even as Europe grapples with industrial weakness in Germany, rising trade frictions, demographic decline and the continued economic fallout from Russia’s war of aggression against Ukraine.
At the same time, he acknowledged that these pressures are structural rather than temporary. Trade disruption, demographic transition, and geopolitical instability are reshaping the region’s development path and forcing governments to rethink long-standing growth models.
From a macroeconomic perspective, the EBRD expects regional growth of around 3.3% in 2026, placing Central and Southeastern Europe at the upper end of global GDP growth forecasts. However, Greg Guyett, First Vice President at the EBRD, noted that performance will remain uneven, with faster growth expected in eastern and southern parts of the region and more modest results in Central Europe.
The principal downside risk remains a further slowdown in Germany, particularly in automotive and manufacturing sectors. At the same time, Guyett identified a potential upside linked to the reorganisation of global supply chains, which increasingly position the region as a manufacturing and assembly hub serving Western European markets.
As he put it, while “we certainly wish we lived in a less messy world,” current geopolitical and economic trends may, paradoxically, work in the region’s favour.
While this assessment points to an export-oriented regional dynamic, one of Martabert’s central arguments concerned the evolving nature of growth in the region. Rising wages, he argued, are not merely a social outcome but a macroeconomic driver. Higher incomes can strengthen domestic demand and push firms to innovate, encouraging a move up the value chain. This process could support what he described as a “structural transition from an export-orientated growth model towards a more sustainable growth model based on domestic consumption and investment.” Such a shift would reduce exposure to external shocks – including Germany’s – while creating a more balanced and resilient economic structure.
Financial stability as a driver of growth
Reflecting on the legacy of the financial crisis, Martabert argued that the region’s financial sector is now structurally stronger. Stricter capital rules, local refinancing, and balance-sheet discipline have created a system that is “significantly more stable than during the financial crisis.”
Today, the financial sector in Central and Eastern Europe is well capitalised and capable of delivering stable financing. Martabert stressed that it can act not only as a buffer against economic shocks, but also as a driving force for technological adoption and development, particularly by providing risk capital for companies seeking to deploy technologies.
It is worth noting the sector’s future role in Ukraine’s reconstruction (see Section 5), alongside institutions such as the World Bank Group, the EBRD, and the EIB, combining financing with technical expertise.
According to Martin Kocher, Governor of the Oesterreichische Nationalbank, the European Union faces three broad pathways: deepening the single market to unlock domestic growth, diversifying external partnerships to secure trade and critical inputs and advancing integration – particularly toward Central, Eastern, and Southeastern Europe.
3. Capital markets integration and European scale
Kocher characterised the financial systems of Central, Eastern, and Southeastern Europe as fundamentally sound but heterogeneous. Banking sectors across the region are generally well capitalised, profitable and has low levels of non-performing loans. A particularly notable feature is the strength of domestic private-sector deposits, which in several countries exceed the volume of private-sector credit.
This imbalance can be interpreted either as a deposit overhang or a credit shortfall, especially where private-sector lending remains low relative to GDP. In many cases, surplus deposits are channelled into sovereign debt, reinforcing a strong sovereign–bank nexus.
Kocher characterised the financial systems of Central, Eastern, and Southeastern Europe as fundamentally sound but heterogeneous. Banking sectors across the region are generally well capitalised, profitable, and marked by low levels of non-performing loans. A particularly notable feature is the strength of domestic private-sector deposits, which in several countries exceed the volume of private-sector credit.
This imbalance can be interpreted either as a deposit overhang or a credit shortfall, especially where private-sector lending remains low relative to GDP. In many cases, surplus deposits are channelled into sovereign debt, reinforcing a strong sovereign–bank nexus.
Despite these constraints, he identified clear potential for further financial deepening, provided that the region does not rely exclusively on banks to deliver future growth. Kocher was explicit in rejecting a binary framing between bank-based and market-based systems: “arguing in favour of a bigger role for capital markets does not mean arguing against banks.” In this regard, Western European banks, such as Unicredit, Intesa SanPaolo and Raiffaisen Bank are increasingly present in CEE markets, bringing a wealth of knowledge and capital flow.
Instead, he described a two-pillar financial system – banks and capital markets – as a form of diversification that improves risk-sharing and funding conditions. Well-functioning capital markets can expand access to finance for startups and scaling firms that lack collateral or track records, while also offering households alternatives to bank deposits for long-term savings and pensions.
At the EU level, Kocher framed capital markets as a structural tool for deeper integration. Integrated markets allow capital to flow across borders and create a funding pool capable of absorbing asymmetric shocks. In a context of repeated crises – from the pandemic to geopolitical escalation – Kocher argued that Europe must act collectively to reduce dependencies. Deepening the single market across goods, services, labour and capital remains one of Europe’s most powerful growth levers. Deep and liquid capital markets would strengthen the EU’s economic autonomy even if participation were limited to European actors, but they also enhance the international role of the euro, particularly as ageing societies globally generate rising savings.
The slow progress of the Capital Markets Union
Despite some progress, Europe continues to lag behind global peers. While EU capital markets have grown relative to GDP over the past decade, Europe’s share of global capital markets has declined faster than its share of global GDP. Corporate bond financing remains stagnant, venture capital – though growing – still represents less than one-eighth of US levels, and EU households hold over €10 trillion in cash and deposits rather than market instruments. In CEE, the gap is even wider. Corporate debt securities remain far below EU averages relative to GDP, and more than two-thirds are held by non-residents, limiting domestic financial development.
Guyett was clear that capital availability remains the binding constraint on the region’s ambitions. In the short term, the EBRD continues to deploy its balance sheet aggressively, anchoring investments that crowd in private capital. Since Russia’s invasion of Ukraine, the Bank has made over 30 commitments to fund managers, amounting to more than €1 billion across venture capital and private equity vehicles focused on CEE. In addition, the EBRD has deployed a further €500 million in co-investments directly into private companies, supporting employment and helping to stabilise investment flows during periods of heightened uncertainty.
Yet these efforts are not sufficient on their own. Across the region, capital market capitalisation averages around 35% of GDP, a level that would place it outside the global top 20 if measured as a standalone economy. Guyett argued that only capital markets at scale can consistently attract the volume of global finance seeking investment opportunities. Developing robust and well-governed capital markets is also essential for recycling domestic savings into productive investment, particularly in ageing societies. Referencing the EBRD’s Brave Old World transition report, he noted that ageing populations can only be sustainably supported if retirement assets are invested for growth rather than preserved in low-yield instruments.
More than a decade after the launch of the Capital Markets Union (CMU), Kocher offered a frank assessment: “Progress has been too slow and not following a consistent and logical path.” While acknowledging incremental advances – such as improvements in market infrastructure and transparency through initiatives like the European Single Access Point (ESAP) – he stressed that achievements remain fragmented. Recent efforts under the rebranded Savings and Investment Union include proposals to revitalise securitisation markets and improve financial literacy. Kocher noted that securitisation can support bank lending by freeing balance-sheet capacity, but warned of the need for careful balance given past crises linked to poorly designed structures.
Beyond EU-level reforms, Kocher and Guyett highlighted the importance of regional initiatives. A recent memorandum of understanding among eight CEE countries (MoU dated 25 August 2025 between Slovakia, Slovenia, Croatia, Bulgaria, Romania, Poland, Hungary, and North Macedonia) aims to improve liquidity and raise international visibility of local capital markets. Supported by the EBRD and coordinated with regional stock exchanges, the initiative seeks to create a functional trading hub capable of attracting global investors. Guyett pointed to the MSCI Baltic Index as a precedent and expressed the ambition to replicate similar outcomes at a larger scale in CEE. He also highlighted the importance of developing local-currency debt markets, not only equity markets, as part of a comprehensive capital market ecosystem.
As seen with other initiatives in the security and infrastructure realms, extra-EU formats of cooperation can complement EU-wide efforts and help smaller markets overcome scale constraints.
4. Poland’s state-centred growth model
Poland’s recent economic performance has reinforced its position as one of the most dynamic economies in CEE. According to projections cited by Eliza Zeidler, Secretary of State at Poland’s Ministry of State Assets, the country is expected to record the fastest growth rate in the EU, outperforming even the EBRD’s regional forecast of 3.3%. This momentum has given renewed prominence to a distinctive feature of Poland’s economic model: the strategic role of state-controlled enterprises.
Nearly half of Poland’s 100 largest companies by turnover are state-controlled, giving the government an unusually strong influence over key sectors. Zeidler framed this not as a legacy of economic nationalism, but as an instrument to actively shape development outcomes – particularly under conditions of geopolitical tension.
A central policy concept is “local content”, defined as increasing the participation of Polish firms in investment projects carried out by companies with State Treasury shareholding. As Zeidler explained, the objective is to boost domestic production and job creation, while strengthening Poland’s industrial base: “local content provides a response to challenges of global competition, economic pressure, and strategic autonomy.”
This approach is explicitly designed to operate within EU legal and regulatory frameworks, rejecting protectionism while seeking to ensure that domestic firms fully benefit from large-scale investment activity.
While defending the strategic importance of state ownership, Zeidler emphasised that Poland does not view the defence sector as a closed ecosystem. Private firms – particularly in areas such as drone technology – are increasingly seen as partners rather than competitors. The challenge, she acknowledged, lies in structuring cooperation between large state-controlled groups and agile private innovators. Nevertheless, the government is actively seeking hybrid models that combine public scale with private-sector dynamism.
State ownership also plays a stabilising role in Poland’s financial system. State-controlled banks hold nearly half of total banking assets, a structure that Zeidler argued proved valuable during recent crises, including COVID-19 and the energy shock. According to her assessment, state banks helped maintain credit flows to households and businesses at times when uncertainty constrained private lending. This did not replace market competition but complemented it, aligning financial responses with broader public objectives such as employment protection and economic continuity.
The Ministry’s role, she emphasised, remains supervisory rather than operational, focused on long-term strategic value rather than day-to-day banking decisions.
Defence spending as a driver of growth
Nowhere is the role of state ownership more visible than in defence. Poland currently spends around 4.7% of GDP on defence, with plans to reach 5%, making it the largest proportional spender in NATO. While much of this spending has historically gone toward foreign procurement, attention is increasingly shifting toward domestic defence manufacturing.
Zeidler argued that the consolidation of more than 50 defence entities under the state-controlled PGZ group has delivered long-term benefits. She argued that “the fact that the largest defence manufacturer is under state control significantly facilitates the spending of record funds on the modernisation of the armed forces.” During periods when defence demand was low, state ownership preserved industrial capacity, skills and employment. Today, it enables the rapid and targeted deployment of record defence budgets, expanding production and technological capabilities.
Beyond defence itself, she described the sector as both profitable and innovative, with spillovers into dual-use technologies and adjacent industries. Polish defence firms are increasingly attracting interest from allied armed forces, reinforcing the sector’s contribution to both national and European security.
5. Estonia’s perspective of capital markets integration and defence
Among CEE economies, Estonia has experienced one of the most acute economic shocks since Russia’s full-scale invasion of Ukraine. Jürgen Ligi, Estonia’s Minister of Finance, described the country as “the most suffered economy from the war,” pointing to a prolonged period of recession combined with elevated inflation.
Estonia’s recent downturn reflects structural exposure rather than domestic imbalance. As Ligi emphasised, Estonia’s small economic size amplifies sensitivity to external demand and regional shocks. Export dependence – particularly on Scandinavian markets – left the economy vulnerable to weakening demand and currency adjustments in Northern Europe. He added: “Our export is not that diversified to survive the decline of demand from Scandinavian countries.”
By mid-2025, however, the trend began to reverse. Growth resumed, inflation fell sharply, and price increases approached zero in recent months, allowing cautious optimism to return. For Ligi, this recovery does not negate vulnerability but confirms the economy’s capacity to stabilise once external pressures ease.
Turning to financial integration, Ligi offered a blunt assessment of Europe’s long-running efforts to create a unified capital market and stressed: “we are not the United States of Europe.”
Rebranded as the Savings and Investment Union, the initiative still faces the same obstacles, namely national interests and political reluctance
For Estonia, the lack of a fully integrated capital market is economically inefficient and increasingly self-defeating. Ligi cited internal data showing that intra-EU trade declined in 2025 for the first time since 2016, underlining Europe’s failure to fully leverage its own internal market. At the same time, Estonia does not perceive itself as a passive victim of fragmentation. Despite its size, the country consistently punches above its weight, leading globally in unicorns per capita and ranking first in tax competitiveness for over a decade.
Defence and the war in Ukraine
Estonia combines high defence spending with extraordinary support for Ukraine, remaining the largest donor globally as a share of GDP. For Ligi, this commitment reflects a broader principle: the war is not only about Ukraine, but about the survival of liberal democracy itself. He was explicit in questioning whether burden sharing – both transatlantic and European – has been adequate. While Europe has moved decisively compared to initial expectations, Ligi argued that the United States has not matched its moral responsibility with sufficient material support.
Within Europe, progress has been uneven. Estonia has consistently pushed for the use of frozen Russian assets, particularly central bank reserves, to finance Ukraine. Initially resisted, this position has gradually gained traction, with larger member states shifting their stance over time.
At the same time, Ligi acknowledged growing fragmentation. He pointed to opt-outs from EU-level Ukraine financing by Hungary, Slovakia, and the Czech Republic, warning that solidarity could erode further if unanimity remains a constraint.
Finally, Ligi recognised recent changes in EU policy, including limited EIB financing for defence and adjustments to the EU budget toward security spending. In his view, these steps, while symbolically important, remain modest relative to the scale of the challenge.
6. Ukraine and defence: top priorities
Support for Ukraine remains the EBRD’s highest priority. Since early 2022, the Bank has deployed more than €9 billion, including around €3 billion in new financing in 2025 alone. These funds have been used to maintain energy supply, transport infrastructure, essential services among others, while supporting private-sector employment and financial system stability. Guyett also highlighted policy initiatives, including programmes to reintegrate veterans into the workforce, and noted that EBRD shareholders have approved a €4 billion capital increase to enable the Bank to take greater risk in sustaining support for Ukraine.
Furthermore, Martabert was explicit about the fiscal realities confronting Europe. While some observers identify potential risks in asset markets or artificial intelligence, he pointed to the immediate and tangible costs of geopolitical conflict. By late 2025, an additional €90 billion had been made available for Ukraine, bringing total fiscal commitments to unprecedented levels. These expenditures coincide with rising costs linked to population ageing and the renewed imperative to build European defence capabilities. According to Martabert, only joint European efforts can contain these costs and avoid duplication, reinforcing the case for deeper fiscal coordination.
Looking beyond Poland’s borders, Zeidler framed support for Ukraine not in terms of reconstruction but recovery, a process Poland sees as central to regional stability and European security. She identified three pillars underpinning Poland’s engagement. First, exports: Polish goods already account for nearly one-third of EU exports to Ukraine, a share that continues to grow. Second, logistics and connectivity: Poland’s geographic position makes it a natural hub for transport and supply chains connections. Third, development investment, particularly in infrastructure and energy security.
Zeidler argued that Poland’s business experience, institutional capacity, and integration with EU markets position it to play a central role in Ukraine’s recovery and EU alignment. She underlined that “Poland is not only a close neighbour of Ukraine; we are a strategic partner.”
7. Georgia’s growth paradox: macroeconomics and uncertainty
Over the past decade, Georgia has emerged as one of the fastest-growing economies in its wider region. Lasha Khutsishvili, Georgia’s Minister of Finance, characterised this performance as structural rather than cyclical, rooted in reform-driven policies. Georgia’s case illustrates a central paradox facing parts of the EU’s eastern neighbourhood: exceptional macroeconomic performance coexisting with political uncertainty. Strong growth and sustained investment inflows have so far insulated the economy from domestic and regional shocks.
According to Khutsishvili, Georgia’s economic growth has consistently exceeded that of its regional peers for more than ten years. Over the past five years alone, the economy recorded average annual growth of around 9.3%, placing Georgia among the fastest-growing economies globally. In real terms, output expanded by more than 55%, while GDP per capita in nominal US dollar terms doubled, rising from roughly $5,000 to over $10,000.
This expansion occurred alongside a sharp strengthening of macroeconomic fundamentals. The budget deficit declined from around 9% of GDP to 1.4%, public debt fell from 59% to 34% of GDP, and the current account deficit narrowed to a historically low level of approximately 2.5% of GDP. For Khutsishvili, this combination is critical: “macroeconomic stability is the basis of strong and sustainable economic growth.”
Georgia’s growth model rests on what the finance minister described as prudent fiscal and monetary policy, which has helped anchor private-sector confidence during periods of global turbulence. Beyond macroeconomics, several sectors have acted as key growth engines. Tourism stands out prominently. Revenues from the sector have fully recovered from the COVID shock and now exceed pre-pandemic levels by almost 50%, making it one of the largest contributors to growth. Other leading sectors include finance, ICT, education, construction and international logistics, all of which have attracted significant foreign direct investment and supported export expansion.
Nevertheless, while Georgia’s macroeconomic indicators remain robust, political uncertainty has increasingly shaped external perceptions. International institutions, including the IMF, have identified domestic political tensions as a key risk factor. Khutsishvili did not deny the presence of political or geopolitical challenges but consistently framed them as non-novel risks for a small, open economy. He argued that Georgia’s economic resilience is demonstrated precisely by its ability to sustain growth and stability through such episodes. On investment, Georgia has continued to attract FDI averaging around 6% of GDP over the past five years, a level well above the global average and roughly four times the EU average.
Reinvestment trends are particularly telling. Domestic and foreign companies have almost doubled reinvestment volumes over the past five years, which Khutsishvili interpreted as a sign of sustained confidence in economic policy.
It is worth mentioning that major projects take up most of the FDIs’ share, including a $6.6 billion investment agreement with UAE-based MR Group, equivalent to around 20% of Georgia’s GDP.
Russia and diversification
Claims that Georgia is drifting economically toward Russia were also directly addressed. Khutsishvili stressed that trade dependence on Russia remains limited, with Russia accounting for around 9% of exports and 10% of imports. Georgian exports to Russia are concentrated in traditional products – wine, mineral water and agricultural goods – rather than strategic or industrial sectors: “we do not see dependence on any market, including the Russian market” added Khutsishvili.
The European Union remains Georgia’s largest overall trading partner, accounting for approximately 20% of total trade, reinforcing the country’s continued economic anchoring in European markets. Moreover, roughly 80-82% of Georgia’s annual FDI originates from the EU, the UK and the US, a pattern that has held for nearly a decade. This continuity counters claims that Georgia is economically reorienting away from Western partners.
Khutsishvili was explicit in framing Georgia’s long-term orientation as European. The government has committed to aligning all national legislation with EU law by 2028, a process involving all ministries and regulatory bodies.
This alignment is presented not only as a political signal but as an economic strategy designed to improve market access and investor confidence. Khutsishvili acknowledged that EU accession is ultimately a political decision but emphasised that Georgia intends to be technically and legally prepared.
