Hi, this is Ott Tammik in Tallinn and Daniel Hornak in Bratislava. Welcome to our weekly newsletter on what’s shaping economics and investments from the Baltic Sea to the Balkans. You can subscribe here.

Baltic Hotbed

Telling Europe to spend more on defense is preaching to the converted in the Baltic states. The three countries have long been hawks on Russia, warning that they could be next to face aggression after Ukraine. Estonia, particularly, is already one of NATO’s top spenders compared with the size of its economy, doubling its military budget after Vladimir Putin invaded Ukraine. 

The tiny nation also is now a hotbed for defense startups in an industry primed to be supercharged by President Donald Trump’s decision to recalibrate American military support for Europe.

As well as planning an explosives factory, buying long-range rockets and implementing a tax to fund defense, the Estonian government has started a €100 million ($109 million) venture capital fund to invest in new firms.

One local startup already up and running is Frankenburg Technologies, which wants to use sensor technology designed for smartphones to build an air-defense platform for a fraction of the cost of existing systems. Its ranks include Estonia’s former military chief and a rocket scientist, with funding from one of the country’s richest businessmen. 

The outlook for success is as bright as it is grim for the prospect of more conflict. The Estonian defense industry’s export revenue rose by almost 60% from 2022 to 2023. A couple of years ago, Milrem Robotics became the first major acquisition of an Estonian defense company by an international buyer.

A Milrem Robotics technician checks a controller for a Tracked Hybrid Modular Infantry System drone vehicle at the startup's facility in Tallinn on March 3. Photographer: Peter Kollanyi/Bloomberg

Europe is planning to unleash billions of euros to buy military equipment, and its defense market is expected to triple in the next five to 10 years. Meanwhile, venture capital investment in startups increased 24% in 2024 to a record $5.2 billion, according to a report by the NATO Innovation Fund. 

Other countries in the region are also benefiting, albeit for long-established manufacturers. German giant Rheinmetall, which this week projected sales at its main defense business will jump 40% this year, is building factories in Hungary and Lithuania. 

Slovakia, meanwhile, already doubled exports of weapons and ammunition last year, making it one of the continent’s most prominent arms suppliers as a percentage of gross domestic product. “It’s great because it creates jobs and wages,” Defense Minister Robert Kalinak said.

Around the Region

Ukraine: President Volodymyr Zelenskiy agreed to a 30-day ceasefire deal with the US, but it hinges on Trump’s ability to pressure Putin to accept and Russia may have little incentive. A top Putin aide said Russia wanted a long-term solution and not a temporary halt in the fighting.

Poland: A public spat between Poland’s foreign minister and Elon Musk over Ukraine’s use of the billionaire’s Starlink satellite-internet system escalated when US Secretary of State Marco Rubio joined in.

Romania: The authorities banned far-right candidate Calin Georgescu from the rerun of the country’s presidential election, triggering street protests. Far-right parties scrambled to field new candidates after Georgescu didn’t endorse anybody.

Hungary: Inflation unexpectedly continued to accelerate for a fifth month in what the central bank under new Governor Mihaly Varga said warranted a continuation of tight monetary policy. Meanwhile, the budget deficit soared in February in the latest indication of the fiscal challenges facing Prime Minister Viktor Orban’s government.

Poland/Serbia: The central bank in Warsaw left interest rates unchanged and published new forecasts showing faster inflation next year. Its counterpart in Belgrade also kept borrowing costs unchanged as price pressures persist and the government confronts the biggest political protests in a decade.

Chart of the Week

Eastern Europe is experiencing its lowest birth rates in 250 years. Bosnia and Herzegovina, Bulgaria, Latvia and Lithuania have experienced particularly huge declines, as has Croatia. To address it, the government in Zagreb is among the most active looking for solutions and one of the most willing to accept migration as part of efforts to find a fix.

By the Numbers

• Romanian food canner Scandia Food Srl has set up a fund aimed at acquiring smaller companies in the region that are contending with succession issues. Scandia’s Trinity Investments seeks to build a portfolio with a total enterprise value of as much as €250 million ($272 million).
• CEZ reported adjusted net income of 32 billion koruna ($1.4 billion) for last year, better earnings than analysts expected. But the Czech power utility presented an outlook for a profit decline in 2025 due to lower electricity prices.
• Romanian inflation unexpectedly edged higher last month, with consumer prices rising at an annual rate of 5.02%. The uptick will likely mean the central bank will stick to its wait-and-see approach to cutting interest rates. 

Things to Watch

• Putin will probably agree to an eventual truce in Ukraine, though wants his own conditions to be met beforehand, likely dragging out negotiations. 
• Anti-government protesters in Serbia are expected to gather on Saturday while President Aleksandar Vucic claims opposition groups are plotting to seize key institutions. Meanwhile, Donald Trump Jr met with Vucic this week in a surprise visit to Belgrade.
• Hungarian Prime Minister Orban plans to hold a domestic campaign against Ukraine’s European Union accession in a bid to reverse a slide in the polls ahead of next year’s election.

Final Thought

About six years ago, Polish entrepreneur Dariusz Milek decided he’d had enough of running a chain of shoe stores and wanted to focus on his love of art and cycling. His company, CCC, was then hit by Covid lockdowns and lost as much as 90% of its stock market value the following year. Milek sought the help of two of Poland’s most prominent businessmen, TV mogul Zygmunt Solorz and InPost founder Rafal Brzoska. He’s now planning to pay them back by issuing more CCC stock after the company rejoined Warsaw’s benchmark index. CCC’s recovery has also restored Milek’s wealth. He’s now worth $1.4 billion, according to the Bloomberg Billionaire’s Index, plenty to spend on art and cycling.

Milek is issuing more CCC shares to pay back his fellow billionaires. Photographer: Damian Lemański/Bloomberg

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