EBRD: East Europe, central Asia at “serious risk” from euro-area debt crisis

EBRD: East Europe, central Asia at “serious risk” from euro-area debt crisis

PanARMENIAN.Net - East Europe and central Asia are at “serious risk” from the euro-area debt crisis that prompted leaders of the currency union to craft a new aid package for Greece, the European Bank for Reconstruction and Development said.

The EBRD raised its 2011 economic growth forecast for the 29 countries in which it invests to 4.8 percent from the 4.6 percent predicted in May, while still expecting a slowdown to 4.4 percent next year, according to a report released July 22.

Failing to solve the sovereign crisis would halt investment and capital inflows to east Europe, and losses booked by western banks, owners of more than 70 percent of the region’s lenders, would prompt them to curb loans, the EBRD said. Euro-area leaders, after eight hours of talks yesterday, announced 159 billion euros ($229 billion) in new aid for Greece and cajoled bondholders to foot part of the bill.

“We feel a little bit better about those concerns today than we did yesterday,” said EBRD chief economist Erik Berglof. “There will always be a lingering worry, but what was done yesterday is a brave move.”

Euro-region leaders also empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after a market rout last week sparked concern the crisis was spreading. The fund can also aid troubled banks and offer credit-lines to repel speculators.

The prediction “assumes a relatively benign external environment in which risks from the euro zone are contained,” the London-based EBRD said in the e-mailed report. “An escalation of the euro-zone crisis would pose serious risks to growth and recovery across the region.

While Russia and other countries of the former Soviet Union are the least exposed to risks from the euro region, energy producers would be hit by stagnation in the euro area, which would reduce demand for commodities, the EBRD said.

Russia will grow 4.6 percent this year and 4.7 percent in 2012, and Ukraine will expand 5 percent and 4.5 percent, the bank forecast. Kazakh gross domestic product will increase 7 percent both years, according to the EBRD, Bloomberg reported.

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