There are not many parts of the world that can boast immunity to the sour markets resulting from the global credit crunch, but Central and Eastern Europe (CEE) can. As the lawyers on the ground there have it, it’s not so much a question of which country is hot, but which country is hottest.

Economic growth across the region is at its highest since the collapse of communism in 1991, with an expected average GDP growth rate of 7.2 per cent for 2007. Foreign direct investment doubled from $13 billion in 2005 to $26 billion in 2006 — but still the international lawyers have been slow to move in.

Sure, Moscow is now arguably as competitive as London thanks to a raft of English and American-owned outposts, but beyond a smattering of nameplates in Warsaw that is the extent of international legal advisers in the region. While the “magic circle” and its US rivals have sought to colonise the globe by attracting top local talent with lucrative pay packets, they have hit a dead-end in CEE.

The world’s biggest law firms flocked to the region in the early 1990s, attempting to capitalise on a wave of privatisations, but performed a collective about face as they came to an end. Today, there are really only five players who continue to take the region seriously: Allen & Overy, Clifford Chance, CMS Cameron McKenna, Linklaters and White & Case. The fact that CMS just elected Duncan Weston, the head of its CEE practice, as global managing partner, and that White & Case similarly picked its head of Moscow as chairman, shows there are names to be made there.

All five of these firms have offices throughout the CEE countries: White & Case is just about to add Romania to its footprint, while CMS just became the first UK-headquartered firm in Ukraine. The most mature markets are in the western part of the region — Poland, Hungary and the Czech Republic — where privatisation is largely complete and project finance, M&A, real estate and capital markets are taking off. Further east, in Romania, Bulgaria and Ukraine, it is infrastructure investment that is thriving: Ukraine, for example, has strategically important oil pipelines running east to west and north to south.

Private equity firms are also putting money into the CEE as they turn away from mature markets in search of high-growth investments. Such clients will find a region populated by first-rate local law firms. The best young lawyers typically served a stint at the global outfits early in their career, but then turned their backs on the all-but impossible route to equity, choosing instead to set up their own practices.

This is an entrepreneurial region where the talent is little older than the legal systems themselves, so there is no desire to be the local skivvy handling due diligence on a transaction being run from London or New York.

The recruitment markets in Prague, Warsaw and Moscow are thriving as unemployment plummets and the highly skilled workforce laps up offers from the global corporates moving in. Finding good young lawyers is nigh on impossible, and it is the prospering local law firms that can offer them a genuine career path.

For the global law firms that haven’t already established a foothold, it is beginning to look like the time has passed. They will be forced to make do with building referral relationships with incumbents.

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