EBRD's Berglof: Bulgaria Vulnerable to Greek Debt Crisis

Erik Berglof, chief economist at the European Bank for Reconstruction and Development. Photo from Radio Free Europe

Bulgaria is among the emerging economies on the outskirts of Europe, which are most at risk of a slow-down in the wake of the euro-zone sovereign debt crisis, according to EBRD.

"Bulgarian banks are vulnerable [being subsidiaries of Greek parents], but a lot of work has been put into building a firewall around Greece. It seems to be holding up for now and this is good news," Erik Berglof, chief economist at the European Bank for Reconstruction and Development, told Bloomberg Television's broadcast "On the Move".

"We have preparations for the case that the subsidiaries no longer have the support of their parents. This is a scenario, which we must take into account. That might not be the main scenario, but we must take it into account," he added.

As major French and Italian banks reined in lending, fears that this might affect growth in some Southeastern Europe have emerged.

"There has not been any acceleration of this [trend], but in almost any scenario you could think of now there would be some impact on the subsidiaries of these banks."

Asked whether some of these banks may go under because of the contagion spreading out, Berglof said this is not the most likely event now.

"Now we should figure out which subsidiaries depend particularly on their parents and need new capital. This is the kind of situation we need to prepare for."

Berglof voiced optimism that European policy-makers are doing the right thing to get Europe back on track.

"I feel confident that the focus now is on the right things. As Olli Rehn mentioned recently having a coordinated capitalization of the banks is the right way to go."

Greek banks hold nearly a 30% of the Bulgarian banking market, a 20% share of the bank loans and one-third of all deposits.

Some of the biggest lenders in Bulgaria are managed by Italy's UniCredit, Greece's National Bank of Greece, Hungary's OTP and Austria's Raiffeisen.

Other Greek banks present in Bulgaria include EFG Eurobank, Piraeus, Emporiki and Alpha Bank.

Experts have warned that Bulgaria, the European Union member boasting one of the the bloc's smallest budget deficit, risks seeing its banks sucked under by the fiscal sins of neighboring Greece.

Earlier this year Bulgaria's central bank assuaged fears over funds outflow from Greek bank subsidiaries in the country to headquarters in Greece, saying this is part of the free movement of capital.

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