Will the European debt crisis spread east?

Eastern Europe may not look like a candidate for a sovereign-debt crisis, but a potential issue is an economic slowdown spreading from west to east as austerity and shaken confidence hamper growth.

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.

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