Hi, this is Andrea Dudik in Prague. Welcome to our weekly newsletter on what’s shaping economics and investments from the Baltic Sea to the Balkans. You can subscribe here.

Scaling Up

Rheinmetall’s plan to take part in building ammunition and gunpower factories in Bulgaria at a cost of more than €1 billion ($1.2 billion) scored many superlatives in the Balkan country.

The key one is that it’s the first international investment in the defense industry in Bulgaria’s history of such a scale, as my colleagues Laura Alviz and Slav Okov reported this week. And the timing comes as little surprise: military hardware producers are struggling to keep up with demand as Europe races to arm itself.

Rheinmetall is no stranger to the region. It’s made some of its biggest investments in Hungary, for example, producing equipment such as infantry fighting vehicles. This week, it signed a deal to build a €550 million gunpowder factory in Romania. But Bulgaria has more pedigree when it comes to manufacturing.

Defense has played a vital role in the country’s economy since the Cold War and it still employs more than 20,000 people. Unlike many other industries that struggled to transition from communism to capitalism, Bulgaria’s defense companies have thrived and even spawned some of the nation’s wealthiest businessmen.

Expectations are high that Rheinmetall will help modernize production lines of ammunition to bring them up to NATO standard and ramp up output. The company, which is listed on the German stock exchange, also might help lift the lid on Bulgarian companies that are owned by the state or private entities.

Already, Rheinmetall has shone a light on who still pulls the strings in Bulgaria. The plan was announced in a Facebook livestream by Rheinmetall’s chief executive officer, Armin Papperger. Alongside him was Boyko Borissov, former premier, leader of the ruling GERB party and the politician who has dominated Bulgarian politics for more than a decade.

Boyko Borissov holds no official government role, but he’s still one of Bulgaria’s most influential people. Photographer: Geert Vanden Wijngaert/Bloomberg

Around the Region

Ukraine: Russia unleashed a wave of drone and missile strikes on Kyiv, in defiance of US calls for an end to the fighting. The attack killed 15 people, including four children, and injured at least 48, Ukrainian authorities said. 

Slovenia: In an exclusive interview, the country’s foreign minister warned the European Union risked projecting a double standard if it failed to take Israel to task for the bloodshed in the Gaza Strip as it moves ahead with additional sanctions against Russia. 

Poland: Leadership shakeups at state-run companies look set to continue following changes at insurer PZU and energy group Orlen since the government appointed a new state assets minister last month.

Moldova: Germany, France and Poland sought to bolster the leadership in Chisinau amid mounting concerns that next month’s parliamentary elections might produce a strong result for pro-Russian parties.

Kosovo: Parliament elected a speaker, ending a political stalemate that paralyzed decision-making and prevented the formation of a new government six months after the country’s election.

Chart of the Week

The Baltic states are grappling with a sharp rise in radio and satellite interference and governments accuse Russia of positioning equipment for electronic warfare close to their borders. Officials in Estonia said an armed drone that crashed in the country this week is likely to be a Ukrainian UAV that veered off course due to interference.

By the Numbers

• Hungary’s central bank kept the benchmark interest rate unchanged at 6.5% for an 11th month, keeping borrowing costs the highest in the EU along with Romania.
• The water in Poland’s longest river, the Vistula, dropped to its lowest level ever in Warsaw —  9 centimeters (3.5 inches) —  raising new drought concerns.
• Norway plans to spend $8.5 billion in aid for Ukraine in 2026, largely in line with the nation’s contribution this year.

Things to Watch

• The Bled Strategic Forum in Slovenia will bring Balkan leaders together on Sept. 1-2. The theme this year is “permacrisis” and “geopolitical uncertainty.”
• Polish President Karol Nawrocki will travel to the US to meet Donald Trump on Sept. 3. The meeting follows Nawrocki’s inauguration as head of state earlier this month and will build on cordial ties in stark contrast to Prime Minister Donald Tusk.
• Poland’s central bank will announce its interest rates decision on Sept. 3 — with economists expecting a cut being most likely — and Governor Adam Glapinski will speak at a news conference the following day.

Final Thought

A luxury ranch a short drive from Budapest is raising uncomfortable questions for Prime Minister Viktor Orban as his opponents focus on allegations of corruption among the ruling elite in the runup to next year’s election. Orban has long said there was nothing to see at the Habsburg-era farm owned by his father, which he described as a run-of-the-mill agricultural business. A former ruling party politician turned anti-graft crusader made headlines this week after he said that on a recent visit he found a manor with two swimming pools, manicured lawns and buildings housing an elaborate library and dining hall. There’s no evidence of wrongdoing, but opposition leader Peter Magyar, whose party is leading in the polls, has vowed to probe the origins of the money used for the construction should he win power.

Viktor Orban faces arguably his biggest political test yet at next year’s election. Photographer: Simon Wohlfahrt/Bloomberg

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