If everything goes to plan, the European Union (EU) will have two additional members in a few months, Romania and Bulgaria. Romania, with a population of 22 million compared with Bulgaria's seven and a half million, is by far the more attractive of the two markets with the potential for huge returns on investment. Real estate activity in Bucharest is currently very high, as western retailers and pre-accession speculators look to enter the market; foreign banks are buying stakes in local banks (most notably Austria's Erste Bank's €3.7bn (£2.6bn) acquisition of BCR) and the country is gearing up to give its infrastructure a much-needed overhaul: the classic indicators of a country about to enter the EU.

Naturally, foreign law firms are following their clients to Bucharest, with a raft of Austrian firms making their Romanian debut in the past year or so. Austrian independent Wolf Theiss, which already has a sizeable network of offices in eastern Europe, launched its Romania offering last autumn with 12 lawyers; that number now stands at 17. "Romania stands out among the emerging markets of eastern Europe," Wolf Theiss partner Horst Ebhardt enthuses. "Almost every industry is trying to get a foothold there, especially real estate clients." The firm plans to grow its office to 25-30 lawyers by next year, signalling the firm's confidence in the market's potential.

Market observers agree there is room for many more law firms in Bucharest, despite the growing number of good local firms. The country's largest and oldest firm, Nestor Nestor Diculescu Kingston Petersen, has provided the model upon which newer, smaller firms base themselves. A number of mergers has demonstrated the maturing of the market. Ten-partner Tuca Zbarcea & Associates rebranded itself this year after Gabriel Zbarcea joined the firm. Tuca was the result of a split-off from local leader Musat & Associatii last year when Florentin Tuca left with a team of 22 lawyers.

Zamfirescu Racoti Predoiu is the result of a merger at the start of this year, forming a 30-lawyer full service firm that promised to bring much-needed specialisation to the market. With CMS Cameron McKenna, Linklaters, Germany's Noerr Stiefenhofer and Salans leading the international presence in Bucharest, Romania's legal market has all the signs of developing into a weighty legal centre over the next decade. The constant rumours that more magic circle and City firms are considering a launch in the market is surely proof of this.

Ukraine growth areas

Romania's easterly neighbour, Ukraine, is also the focus of much law firm attention, despite the political uncertainty caused by the recent parliamentary elections. Austria's leading law firms, including Schoenherr and Cerha Hempel Spiegelfeld Hlawati, are present in the market, while Czech independent Peterka & Partners recently announced a June launch in Kiev. The firm is sending two associates to the Ukrainian capital and has hired eight local lawyers; Prague-based Monika Hoskova will head the office.

"Our decision was led by clients who want to expand their businesses more eastwards than central Europe," says Peterka partner Pavla Prikrylova.

With low labour and production costs and state investment incentives on offer, Ukraine's workforce is attractive for manufacturing clients.

"Among the biggest problems in the market are the changing legislation coupled with a lack of law firms capable of working according to western standards," explains Prikrylova.

Baker & McKenzie, Chadbourne & Parke and Salans are among the only large western law firms to have a presence in the city, but local firms are responding to a growing need for quality legal advice delivered to western standards. Local firm Magister & Partners last month merged with litigation specialist Pravis: Reznikov Vlasenko and Partners to create a seven-partner, 60-lawyer firm.

"The logic behind the merger was very simple," says managing partner Oleg Riabokon. "We started developing a litigation and arbitration practice back in 2004, which took off. We realised by last year that we were attracting more business than we could handle. As we were always going head to head with Pravis on cases, we decided to join forces." Pravis is headed by high-profile litigators Olexiy Reznikov and Serhii Vlasenko, best known for representing Ukrainian president Victor Yuschenko in the country's Supreme Court over the 2004 election annulment fiasco.

Riabokon says the need for expert finance – loan structuring and Eurobonds, for example – is a likely growth area. Corporate tax was recently cut to 25%, while personal income tax was slashed, making the country's tax structure a lot more competitive.

While EU membership may be a long way off for Ukraine, making it a much more risky market than Romania, client interest may well lead more firms into this emerging market. "We constantly hear rumours of firms coming into the market," says Riabokon, who says the firm would welcome the competition.

DLA Piper Rudnick Gray Cary's 2005 acquistion of EV Law's CIS network boosted its presence in the region but, for now, other top UK and US firms are keeping quiet about their plans.