Concerns over the deepening crisis in Greece have weighed on financial markets across the region over the past couple of weeks. While no country has escaped, the contagion risks appear greatest in Bulgaria and Romania, where financial linkages with Greece are strong, and Hungary, where fiscal risks are greatest. By contrast, reasonably solid macro fundamentals should ensure that the Czech Republic remains comparatively insulated. In the near-term, market fluctuations will depend in large part on whether either Brussels or the IMF gives a stronger commitment to bail out Greece. Irrespective of this, however, we see further downside risk to all of the region’s financial markets over the second half of this year, as the pace of recovery ultimately disappoints, global risk appetite dips and, in the case of Russia, oil prices slip back.