EBRD warns on impact of eurozone crisis in ex Soviet bloc

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The European Bank for Reconstruction and Development warned Friday that the eurozone debt crisis could pose serious risks to the ex Soviet bloc, even as the organisation upgraded its growth forecasts.

The EBRD's warning came amid an easing in the crisis after eurozone powers had agreed late on Thursday for a second bailout package for troubled member nation Greece.

"An escalation of the eurozone crisis would pose serious risks to growth and recovery across the region, especially in south-eastern Europe and the new EU members," said EBRD chief economist Erik Berglof in an economic update.

However, the bank lifted its 2011 growth forecast for eastern Europe to 4.8 percent, up from the prior estimate of 4.6 percent expansion, amid the broader global economic recovery. The 2012 forecast was unchanged at 4.4 percent.

"The EBRD has revised up slightly its growth forecasts for emerging Europe for 2011, but the bank's latest economic outlook warns of mounting risks from the eurozone that could jeopardise economic prospects for the region," it said.

The bank, which usually invests in private enterprises together with commercial partners, operates in 29 countries from central Europe to central Asia which have significant links to embattled Greek banks.

"The recovery in south-eastern Europe was still weak and this region was most directly threatened by the financial instability related to the eurozone turmoil, as significant parts of the region's banks are owned by Greek banks.

"In the event of an escalation of the crisis, some of these banks could require financial support and might struggle to keep up their lending to the local economies.

"This could contribute to a notable downturn in economic growth in that region," the EBRD added.

The London-based lender was originally formed in 1991 to help former communist nations in their transition to market economies.

© 2011 AFP

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