Risk of contagion of the debt crisis in the Balkans

Smoke in the Balkans: Belgrade — The Eurozone debt crisis is stoking growing fears of spillover in the small and vulnerable economies of the Balkans, with stricken Italy and Greece close neighbors and major trade partners. A World Bank report this week warned that the debt crisis, with its epicentre in Greece, could see economic links under threat, with trade, direct investment, bank lending and foreign remittances all at risk. Trade with the EU is a key driver for exports and overall economic growth in the region, accounting in some cases for up to half of all activity, it said. For Serbia, Bosnia, Macedonia, Montenegro, Kosovo and Albania, some 58.2 percent of their total exports in 2010 went to the European Union, mainly to Italy and Germany. Concerns are even greater in Croatia which plans to join the EU in 2013. “Almost all foreign banks in these countries are from EU countries, with a comparatively high share of Greek- and Italian-owned banks. Further stress on their respective parent banks could potentially create another credit crunch in the region,” warned World Bank economist Ron Hood. The World Bank projects growth in the region of 2.5 percent in 2011 and 2.1 percent in 2012 — but only if the eurozone crisis is resolved, which appears increasingly open to debate as more and more member states get into trouble. “Should the crisis worsen, economic growth in these countries could be much worse,” Hood said. Serbian Central bank governor Dejan Soskic warned that his country has “already been touched by the crisis.” “As a result, economic activity suffers and projections for next year’s growth are in danger,” Soskic said, with 2012 current forecast at 1.5 percent.