Debt crisis

TALLINN -- The Estonian Central Bank has said that the European debt crisis poses a "increased risk" to the country's financial stability.

"There are two main channels through which the debt crisis may affect the Estonian financial sector. First of all, if euro-area liquidity and financing problems start having a stronger effect on the Nordic parent banks, their subsidiaries and branches operating in Estonia will also face more expensive financing costs," the bank said in a statement.

"Second of all, if external demand, the primary growth driver in Estonia, were to shrink to a great extent, the banking sector's income and the improvement in loan quality might suffer a setback. The likelihood of these risks materialising has increased in recent months."

EU leaders yesterday announced a massive package that is aimed at preventing a worsening of the bloc's debt crisis. The plan also included a bail-out for Greece.

"The likelihood of pessimistic future scenarios in the global economy has increased notably since the second half of the summer. The uncertain environment sets very high standards to Estonia's fiscal policy," the central bank said.