Will the European debt crisis spread east?

For emerging Europe, "risks of contagion from the euro area are rising", says Pasquale Diana of Morgan Stanley. The Hungarian forint and the Polish zloty have slumped to record lows against the Swiss franc, mimicking the sharp slide in the euro-franc rate in recent weeks. Hungarian equities fell by 3% on Monday alone.

Eastern Europe does not look like a candidate for a sovereign-debt crisis. Timothy Ash of RBS has noted that the average public debt level in the region is 40% of GDP, around half the EU average. But one potential issue is an economic slowdown spreading from west to east as austerity and shaken confidence hamper growth.

Then there's bank contagion. Western banks have 76% of the eastern European banking market trouble at home as funding costs and losses rise could prompt them to rein in lending in the east. Italy's UniCredit and Intesa are two of the region's top lenders. If banks retrench, "the already modest credit recovery" in the region "could become even weaker", says Diana.

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Finally, a particular problem in Hungary and Poland is Swiss franc-denominated mortgages and loans. In Hungary, 64% of mortgages and 54% of corporate loans are in foreign currencies, mainly in Swiss francs, while a large proportion of Polish mortgages are also in francs. These originally offered low interest rates and the eastern currencies were expected to rise. But slumping local currencies have made it increasingly difficult for locals to service and pay off their loans. That threatens to increase bank losses and crimp spending. Given all this, even without a nasty credit squeeze, eastern Europe is likely to remain the "growth laggard" among emerging markets, says Ash.