The prevailing view that Emerging Europe should be able to avoid contagion from the escalating crisis in the euro-zone could prove to be dangerously complacent. At the very least, strong trade ties should ensure that growth in the region slows over the next year as demand in the euro-zone softens. But the potential for the euro crisis to spread to the region’s banking sectors poses a far more dangerous channel of contagion, which could ultimately tip some economies in Emerging Europe back into recession and – in the extreme – require fresh bailouts from the IMF.
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