Threat of financial contagion eases, but risks remain

The recent news that the ECB is prepared to buy “unlimited” quantities of peripheral government bonds has reduced the risk that banks in Emerging Europe will be hit by financial contagion from the eurozone. But familiar vulnerabilities in the region’s banking system persist – particularly a dependency on external borrowing – which leaves it open to a fresh escalation of the crisis in the euro-zone. In the meantime, credit conditions remain tight.