The Tech - Online EditionMIT's oldest and largest
newspaper & the first
newspaper published
on the web
Boston Weather: 41.0°F | Partly Cloudy
Article Tools

FRANKFURT, Germany — A major development bank sharply reduced its growth forecast for Eastern Europe on Tuesday and warned of risks to the region’s banks, another example of how the sovereign debt crisis is radiating outside the eurozone.

The European Bank for Reconstruction and Development — which lends to businesses and governments in the former Soviet bloc and is underwritten by Europe and the United States — cut its growth estimate for Central Europe and the Baltics to 1.7 percent for 2012.

In July, the bank predicted an expansion of 3.4 percent for the eight countries in the region, which stretches from Croatia to Estonia.

Southeastern Europe, which includes Romania, Bulgaria, Serbia, and four other countries, will grow 1.6 percent next year, the bank said, down from a forecast of 3.7 percent in July. Those countries are suffering from their ties to Greece, the eurozone country with the gravest debt and economic problems.

Even the revised predictions may be optimistic, because they are based on the assumption that Western Europe will slow to a standstill but avoid recession, and that policymakers will manage to contain the debt crisis.

In recent weeks many economists have started predicting that Europe is headed for recession. Whether European leaders manage to tame the debt crisis is an open question.