Southeast Europe’s largest economy, Romania, entered 2025 in a state of uncertainty. After the unprecedented decision to cancel the presidential election at the end of 2024, new elections are due to be scheduled for early 2025, but the date is as yet unknown. In the meantime, the two former ruling parties, the Social Democratic Party (PSD) and National Liberal Party (PNL) have formed a new government – but its long-term stability depends on the outcome of the presidential election. 

Calin Georgescu, the far-right, pro-Russian candidate whose first round victory led to the decision to cancel the presidential election, still leads in recent polls. If he is allowed to run again, he would almost certainly make it to the second round, and could emerge as Romania’s next president. 

It’s as yet unclear who the ruling coalition will back; Prime Minister Marcel Ciolacu is staying out of the race after his poor showing last time, while the coalition’s pick for the re-run, Crin Antonescu, has suspended his presidential bid. Bucharest mayor Nicusur Dan is the most prominent candidate committed to running for president, but is polling well behind Georgescu. 

Despite the lack of clarity about Romania’s political direction, Romania’s new government has endorsed a draft first fiscal corrective package, with an estimated combined budgetary impact of around 1% of GDP in 2025. This is in line with the annual fiscal consolidation target envisaged under the European Commission’s Excessive Deficit Procedure (EDP) plan but roughly half of the actual consolidation effort needed. With the presidential election in mind, the government tried to sweeten the pill, denying it is an austerity package, but it still met with strong criticism by affected groups from business leaders to public sector employees. 

Meanwhile, the controversy over the presidential election and lack of future clarity have been damaging to Romania’s reputation among investors. In December, Fitch Ratings revised the outlook on Romania's long-term Issuer Default Rating (IDR) to negative from stable, while affirming the IDR at BBB-.

Bulgaria is in a similar state of political flux – and has been since early 2021. Since then there have been seven general elections, each leading to fragmented parliaments, while the country is ruled by either caretaker governments or short-lived, unstable coalitions. The latest vote in October 2024 was no different, and Bulgaria is likely heading for yet another election in spring 2025, with no clear prospect of a route out of the long-lived crisis. 

Croatia enters 2025 in mid-presidential election. The second round, due to take place on January 12, will most likely result in a victory for incumbent President Zoran Milanovic, setting up another period of uneasy cohabitation with the Croatian Democratic Union (HDZ) led government. The HDZ is also under pressure after a series of corruption scandals, most recently concerning ex-health minister Vili Beros, who was arrested in autumn 2024. In Neighbouring Slovenia, the popularity of the ruling Freedom Party has slumped to a record low, which the right-wing opposition Slovenia Democratic Party (SDS) has exploited as it seeks a comeback. A general election is due to happen by spring 2026, but there is speculation it may be brought forward to 2025. The return of former US president Donald Trump could benefit SDS leader Janez Jansa, who is poised to capitalise on any resurgence in populist sentiment.

Elections are also upcoming in Albania and Kosovo. In the former, Prime Minister Edi Rama’s Socialists are expected to take yet another term amid opposition disarray, but protests and potentially broader unrest are expected as the Socialists have now been in power for almost 12 years. Kosovan Prime Minister Albin Kurti’s left-wing nationalist Vetevendosje is also heading for another term, polls indicate. 

By contrast, Serbia’s ruling Serbian Progressive Party (SNS) remains deeply entrenched in power. Successive waves of protests – the latest sparked by a deadly accident at Novi Sad railway station – have failed to dislodge President Aleksandar Vucic’s party from power. 

However, Belgrade remains under pressure for its neutral stance towards Russia. The US is expected to sanction the country’s largest oil and gas company, NIS, in which Russia’s Gazprom is a major shareholder, in mid-January. Serbia’s refusal to sanction Russia, and thus align with the EU’s Common Foreign and Security Policy, has led to calls for its EU accession progress to be frozen, but Belgrade shows no sign of budging on the issue. 

EU accession is a primary goal across the Western Balkans region. Montenegro remains the frontrunner, with hopes of accession by the end of the decade. Albania is also advancing, no longer held back by its neighbour’s lack of progress as it is no longer coupled with North Macedonia. 

It is unclear how North Macedonia will manage to unblock its EU path as unpopular constitutional changes required by EU member Bulgaria have to be passed before it can open negotiations.

Meanwhile, the EU aspiring Western Balkans region is benefitting from a pre-accession boost as it emerges as a nearshoring destination for European companies thanks to its geographic proximity, skilled workforce and relatively low cost. Romania has long been a destination for both manufacturing and IT services, but smaller economies such as Serbia and North Macedonia have become increasingly prominent in sectors such as automotive components. The region’s catchup potential – all 11 Southeast European economies except Slovenia are poorer than their Central European counterparts in per capita terms – is helping drive faster growth. 

Ever since the invasion of Ukraine nearly three years ago there has been concern that Russia could seek to step up its interference in the Balkans to destabilise the region and distract the West from its support for Ukraine. So far this has not happened, but there are several ongoing situations to watch. 

Bosnia remains unstable, with Bosnian Serb leader Milorad Dodik – a Putin ally who has several times visited Moscow since the invasion of Ukraine – continuing to foment discord with rhetoric about the secession of Bosnia’s Serb entity Republika Srpska and steps to reject the authority of Bosnia’s state-level institutions. 

The situation in northern Kosovo, mainly populated by ethnic Serbs, has become increasingly unstable. There have been several violent incidents, the most serious being the killing of a Kosovan border guard by an armed Serb gang. Meanwhile, under Kurti Pristina has been seeking to stamp its authority on the northern region, sparking protests by local Serbs and international criticism. There are hopes in Belgrade that the return of Donald Trump to power in the US may lead to a more Serb-friendly stance from Washington. 

An energy crisis caused by the cut-off of Russian gas supplies at the beginning of January threatens to undermine stability in Moldova, where the pro-EU Party of Action and Solidarity (PAS) is seeking re-election this spring. PAS leader President Maia Sandu held onto her position in October 2024, despite large-scale Russian interference. However, a hike in energy costs will be damaging for the PAS. 

Meanwhile a humanitarian crisis is unfolding in the Russia-backed separatist Transnistria region, which until January 1 imported Russian gas both for its own use and to produce electricity to supply the entire country. There is speculation Tiraspol – which has refused help to ease the crisis – could exploit the situation to destabilise the country as whole and make a renewed bid for independence.

 

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