Bulgaria, together with Latvia, Estonia and Lithuania, are trapped with currency pegs at over-valued rates, implying harsh deflation, the Daily Telegraph wrote in an article about the global recession.

"There is a limit as to how much pain can be borne in democracies," said Edward Parker, Fitch's head of emerging Europe, who spoke at a Fitch Ratings conference on Eastern Europe.

According to him there is no quick fix for Eastern Europe.

"It is going to be even more difficult for them to export their way out of trouble than it was for East Asia in the 1998 crisis," said Parker.

The article points out that the European Central Bank is paying close attention to mounting difficulties at 25 banks deemed crucial to the health of the eurozone financial system, fearing another wave of bank turmoil next year if the recession drags on.

"The banks are strong enough to weather the current downturn so long as there is a rapid "V-shaped" recovery but not if it takes longer to refloat the economy," said Dejan Krusec, the ECB's financial stability expert.

"If this is 'U-shaped', the banks will have problems. There are 25 banks we monitor that are strategically important," he said.

According to Krusec the problem is not 2009.

"Euro-area banks are well enough capitalised to cover losses. The problem is 2010. We are concerned about the length (of recession)."

The ECB has slashed its forecasts, predicting a 4.6 % contraction this year and a further fall of 0.3 % next year, with no recovery until mid-2010. This precludes any chance of a V-shaped rebound.

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