ZAGREB - The euro zone deficit crisis will prompt fiscal cuts that will hit demand for exports from central and Eastern Europe and undermine the region's recovery, the EBRD said on Friday. Against a backdrop of market uncertainty surrounding the crisis package approved to shore up euro zone periphery states, Kazakhstan and Montenegro said they were looking to issue eurobonds - the former in dollars and the latter in euros - while Bosnia said its public debt would rise due to the weak euro. The European Bank for Reconstruction and Development said the impact of southern Europe's fiscal woes and the public sector consolidation needed to fix it would be illustrated in new growth forecasts for the CEE region due for release on Saturday. "Measures in western Europe that drag down demand fiscal restraints for example will have an impact on central and eastern Europe as they depend so much on exports to the euro zone," EBRD Chief Economist Erik Berglof told Reuters Insider television at the sidelines of the bank's annual meeting. In January, the London-based development bank said the region would grow 3.3 per cent on average in 2010. One of the worst-hit regions last year at the height of the global financial crisis, countries stretching from the Baltics to the Black Sea and are trying to recover ground after a downturn that saw Latvia's economy contract 18 per cent and others shrink in the high single digits. Although Poland, the Czech Republic, and several other countries are expected to show growth this year, low demand from the euro zone is expected to prolong pain for countries seen shrinking, such as Hungary and Romania. "We were a bit more optimistic before but the outside risks are clearly what we are worrying about now," he said. Earlier this month, the bank warned that Bulgaria, Romania and Serbia may suffer as a result of the crisis in Greece, due to high levels of Greek banking exposure in these countries. Now that risk has been compounded by sluggish demand among more developed European Union states that has sapped the pull of manufactured goods from the export-heavy region. The EBRD was set up at the end of the Cold War to help former communist economies adjust to free markets and operates in 29 countries.
