The Greek debt crisis is poised to undermine already dwindling investment flows into south-eastern Europe's emerging economies, adding to barriers to recovery in one of the continent's most fragile regions.
Greek lending in central and eastern Europe is concentrated mainly in Romania and Bulgaria, both struggling to recover from sharp economic contractions and most exposed to any scaling back in funding as Greece's banks shore up their own finances.
Greece has been a major investor in the region -- it is the second biggest in Serbia -- since the fall of communism in 1989. Its problems have so far had only a limited impact on nearby states and it is unclear how much of a drag it may create.
But the European Bank for Reconstruction and Development warned last week of potential hits to bank systems and economies and analysts have also raised concerns. Greek firms are also not expected to invest heavily in their usual target areas as they digest severe government cost cuts at home, while simple proximity to a country that has become the latest trouble spot on investors' radar may also be an issue.
I think there's a very real risk, actually, said Capital Economics analyst Neil Shearing. You may not get wholesale retreats from Romania and Bulgaria but you're not going to get an increase in flows, certainly.
By comparison, Greek banks and firms have little major activity in the European Union's emerging states further north and West like Poland, Hungary and the Czech Republic.
A 50-plus-percent spike in bank loan growth helped Romania's economy double in size from 2004 to 2008 and a similar trend gave Bulgaria a big boost, but that rate of expansion has fallen to near zero in both states and is not expected to return soon.
Mired in recession, they need foreign investment to kick-start recovery. But, since a string of downgrades to Greece's credit rating by rating agencies, banks are not likely to expand their loan books abroad this year.
Greek banks make up four of Bulgaria's top 10 and three of Serbia's. Two of Romania's top 10 are Greek and they account for 15 percent of banking assets. For Bulgaria, it is 30 percent, and its central bank governor has moved to quash government concerns about a possible liquidity drain.
In Serbia, Greek banks control more than 15 percent of assets, and even though the central bank says Athens' woes are not a problem, banking sources say officials are keeping a close eye on Greek lenders.
We could see some more cautiousness when it comes to extending credit action, which already is at a very low level, said BNP Paribas FX strategist Bartosz Pawlowski.
It will be something that will delay credit growth which in turn will delay economic recovery.
Greece's troubles are too recent to show up in actual data, analysts say, and some Austrian banks like Erste
But last year's data showed a push by Erste for more market share in Romania, where it is by far the biggest foreign-owned lender, raised its loan levels only marginally, to 11.2 billion euros, from 10.9 billion a year earlier.
The uncertainty is shown in analyst ratings on Greek banks -- Goldman Sachs has sell recommendations on Bank of Piraeus
Another problem is foreign investment in general. In Romania, it almost halved to 4.9 billion euros in 2009, from 9.5 billion a year earlier. Greece ranked sixth in FDI at the end of 2008, with a share of 6.5 percent.
Investment from Greece to Bulgaria also plummeted last year to just 48.5 million euros in 2009, or around 2 percent of FDI, from around 7 percent, or 400 million a year earlier.
In Serbia, FDI fell 60-70 percent last year to 1.5 billion euros, and while Greece's part was roughly flat at 46 million euros, it was well below the pre-crisis 336 million euros seen in 2007, central bank data showed.
On top of the region's own troubles -- which forced Bucharest and Belgrade to grab International Monetary Fund-led rescue loans to avoid worst crises last year -- another thing that is not likely to boost confidence is their simple proximity to a country investors now treat with more caution.
The Greek troubles and the Romanian situation send worrying signals. This all affects investor mood and the ability of the country to attract fresh capital, said Kiril Avramov, of the Political Capital think tank in Sofia.
Romania's economy is expected to grow by around 1.3 percent in 2010. Bulgaria's is still on shaky ground, with economists and the government seeing GDP growth at just 0.2-0.3 percent.
Capital Economics is more pessimistic, seeing Romania's GDP staying flat this year and Bulgaria's economy shrinking a further 1.5 percent.
That means investors looking to tap emerging Europe's recovery may shift money to more stable countries like Poland, the only European Union state to avoid recession last year, or those with limited Greek exposure including the Czech Republic.
Obviously more central European countries are less exposed to the Greek problems, as the impact is only indirect, said Miroslav Plojhar, an analyst at JP Morgan.
From this point of view, all other countries are much safer than Romania and Bulgaria.
(Additional reporting by Anna Mudeva and Tsvetelia Tsolova in Sofia; editing by Michael Winfrey)