EBRD warns Greek crisis could threaten Eastern Europe recovery

The European Bank for Reconstruction and Development has warned that the Greek crisis could harm recovery in Eastern Europe, hit by the worst economic turmoil since fall of communism.

"In many respects the latest developments in the eurozone are highly relevant for the countries gathered around this table," EBRD president Thomas Mirow said in a reference to the impact of the Greek debt debacle on the eastern European countries supported by the bank.

"The crisis in Greece has the potential to set back recovery efforts, especially if Greek banks and their subsidiaries in the region were to be affected more deeply by the uncertainty in the markets, despite their fundamental health," Mr Mirow said.

He repeated that the region had faced the worst economic crisis since the beginning of the transition period into market economies.

The director spoke at a meeting of premiers and officials from around a dozen south eastern European countries held on the sidelines of the two-day annual gathering of EBRD board governors.

"We are now seeing a return to recovery, but we also know that any recovery will be prolonged and patchy," Mr Mirow said, stressing five areas that he said required political focus to support sustained growth.

Among the five, Mr Mirow emphasised the development of local financial markets, labelling it an imperative.

He also called for further support for small and medium-seized businesses, the fight against wasting energy, boosting regional commercial links and the region's integration into the European Union.

The global financial crisis ravaged economies in central and eastern Europe, largely because many of them were heavily reliant on foreign capital or high commodity prices.

The economy in the EBRD area - stretching from central Europe to central Asia - is expected to grow 3.3 per cent this year after a contraction of six per cent in 2009. However the bank is expected during the annual meeting to announce new predictions for the zone.

The EBRD, set up in 1991 to help former Communist nations make the transition to market economies, operates in 29 countries and usually invests in private enterprises together with commercial partners.

Only two years ago the bank's mere existence was questioned as it had successfully carried out its initial mission of ushering in market economies, but EBRD officials believe the global downturn proved otherwise. To ease the fallout from the recession, and to counter the drying up of private investment sources, the bank has brought its investment to record levels, with €8 billion planned for this year.