CEE Perspective Weekly Digest - Issue 2

Council agrees negotiating position on European Competitiveness Fund

What happened?

The Council has adopted its partial negotiating position on the proposed European Competitiveness Fund (ECF), one of the flagship instruments of the EU’s next Multiannual Financial Framework (2028–2034). The fund aims to support strategic technologies, industrial competitiveness and economic resilience by bringing together several existing EU funding programmes under a single framework. The Council's position strengthens Member States' role in governance, clarifies links with existing instruments and introduces additional measures to support SMEs and attract private investment. 

Why it matters for CEE

The ECF reflects growing efforts to mobilise investment, strengthen innovation and improve Europe's competitiveness. For Central and Eastern Europe, it could support investment in strategic sectors such as digital technologies, advanced manufacturing and clean industry. However, ensuring that funding and private capital are not concentrated in larger Member States will be essential if the fund is to contribute to economic convergence across the EU. 

EBA proposes simplification of EU bank capital rules

What happened? 

The European Banking Authority (EBA) has published proposals aimed at simplifying the EU prudential framework for banks. The initiative seeks to reduce unnecessary complexity in capital requirements, streamline supervisory processes and improve consistency across the banking sector. The EBA has also identified further areas for simplification, including supervisory reporting, stress testing and benchmarking exercises. 

Why it matters for CEE

The proposals reflect the EU's broader push to reduce regulatory burdens while maintaining financial stability. For Central and Eastern Europe, a more proportionate prudential framework could lower compliance costs for smaller banks and support access to finance, provided simplification does not come at the expense of effective supervision. 

AI Act simplification package approved by Parliament

What happened? 

The European Parliament has approvedtargeted amendments to the AI Act as part of the Digital Omnibus package. The changes delay certain obligations for high-risk AI systems, simplify compliance requirements and reduce regulatory overlaps, while maintaining restrictions on particularly harmful AI applications. 

Why it matters for CEE

The reforms aim to support innovation and competitiveness by providing greater legal certainty and reducing compliance burdens. For Central and Eastern Europe, a more proportionate framework could help start-ups and growing technology firms develop and deploy AI solutions, although attracting investment will also depend on access to capital, digital infrastructure and skilled talent.

Poland set to graduate from World Bank development lending

Poland and the World Bank have agreed a new Country Partnership Framework covering the period to 2031, under which Poland is expected to graduate from the World Bank's main development lending programme. The decision reflects Poland's strong economic transformation over the past three decades, supported by sustained growth, EU funding and increasing access to international capital markets. While the World Bank will continue to provide advisory support, regular borrowing is expected to end after 2031. 

The move marks an important milestone for both Poland and the wider CEE region. Poland has emerged as one of the EU's strongest-performing economies and is increasingly being recognised as a mature market, with discussions underway on a potential upgrade of its stock market from emerging to developed status. The country's graduation from World Bank lending highlights its successful economic convergence and may serve as a benchmark for other countries in the region. 

Czech National Bank raises interest rates for the first time in four years

The Czech National Bank (CNB) raised its benchmark two-week repo rate by 25 basis points to 3.75%. The decision reflects concerns over persistent inflationary pressures, particularly from strong wage growth, rising services prices and robust domestic demand, despite headline inflation remaining close to the CNB's 2% target. The new interest rate levels came into effect on 19 June 2026. 

The move is significant for the wider CEE region as it highlights the challenge many central banks continue to face in balancing economic growth with inflation control. It also signals that monetary easing cycles in Central Europe may be approaching their limits if underlying inflation proves more persistent than expected. 

Slovakia faces growing fiscal pressures after debt threshold breach

Slovakia's parliament backed the government in a confidence vote triggered by the country's constitutional debt brake mechanism after public debt rose to 61.4% of GDP in 2025, significantly above the legal threshold of 52%. While the vote was ultimately a formality, it has intensified debate over Slovakia's fiscal trajectory as the government continues to run sizeable budget deficits and debt is projected to rise further in the coming years. 

The development highlights the fiscal challenges facing Slovakia, as policymakers seek to balance economic growth, social spending and debt sustainability. 

Foreign investment into CEE weakens despite Romania's investment boom

According to a recent article published by the Vienna Institute for International Economic Studies (wiiw), foreign direct investment trends across Central, East and Southeast Europe remained mixed in 2025. While Romania recorded a 45% increase in FDI inflows and Poland also saw growth, investment weakened significantly in several countries, including Slovakia and the Baltic States. The report highlights that newly announced greenfield investment projects fell to their lowest level in six years, reflecting growing investor caution towards the region amid geopolitical uncertainty and changing economic conditions. 

The findings also point to broader structural shifts across the region. As labour costs rise in some CEE economies, traditional manufacturing-led investment models are becoming less dominant. At the same time, Romania's strong performance demonstrates that countries offering attractive investment conditions can continue to attract significant capital. Looking ahead, investment flows are expected to remain under pressure, although Ukraine's future reconstruction and continued Chinese investment could create new opportunities for the region.