The euro zone deficit crisis will prompt fiscal cuts that will hit demand for exports from central and Eastern Europe and undermine the region's recovery, the EBRD said on Friday.

Against a backdrop of market uncertainty surrounding the crisis package approved to shore up euro zone periphery states, Kazakhstan and Montenegro said they were looking to issue eurobonds -- the former in dollars and the latter in euros -- while Bosnia said its public debt would rise due to the weak euro.

The European Bank for Reconstruction and Development said the impact of southern Europe's fiscal woes and the public sector consolidation needed to fix it would be illustrated in new growth forecasts for the CEE region due for release on Saturday.

Measures in western Europe that drag down demand -- fiscal restraints for example -- ... will have an impact on central and eastern Europe as they depend so much on exports to the euro zone, EBRD Chief Economist Erik Berglof told Reuters Insider television at the sidelines of the bank's annual meeting.

In January, the London-based development bank said the region would grow 3.3 percent on average in 2010.

One of the worst-hit regions last year at the height of the global financial crisis, countries stretching from the Baltics to the Black Sea and are trying to recover ground after a downturn that saw Latvia's economy contract 18 percent and others shrink in the high single digits.

Although Poland, the Czech Republic, and several other countries are expected to show growth this year, low demand from the euro zone is expected to prolong pain for countries seen shrinking, such as Hungary and Romania.

We were a bit more optimistic before but the outside risks are clearly what we are worrying about now, he said.

Earlier this month, the bank warned that Bulgaria, Romania and Serbia may suffer as a result of the crisis in Greece, due to high levels of Greek banking exposure in these countries.

Now that risk has been compounded by sluggish demand among more developed European Union states that has sapped the pull of manufactured goods from the export-heavy region.

The EBRD was set up at the end of the Cold War to help former communist economies adjust to free markets and operates in 29 countries.

EURO BONDS

Kazakhstan's finance minister Bolat Zhamishev said his country was planning to raise at least $500-750 million Eurobond in the second half of the year, the first in a decade for the resource-rich Central Asian country.

We are not planning to issue a large Eurobond. The minimum volume that we're focusing on is $500-750 million, he told Reuters at the sidelines of the annual meeting of the European Bank of Reconstruction and Development (EBRD).

Montenegro's finance minister also said his country expected to return to mild growth this year and still planned to issue a eurobond worth up to 200 million euros but was carefully watching the situation in the wake of the Greek debt crisis.

We still plan to tap the markets but whether it will be before the summer depends on the assessment of our managers. The plan remains to issue up to 200 million euros, Luksic said in an interview.

He said the European Union applicant's economy, which contracted 5.3 percent last year according to the government and by 7 percent according to the IMF, would post mild growth and in the next few years the economy would return to its natural growth rates of between 4 and 5 percent.

He said the budget deficit would taper off from this year's 4.5 percent of gross domestic product. We plan to balance the budget in 2012 and have a slight surplus in 2013, Luksic said.

Weakness in the euro would also push up Bosnia's public debt by 5 percent this year, its central bank governor said. Bosnia's marka currency is pegged to euro at a fixed rate under a currency board while most of its debt is in dollars.

We have no Greek banks but there is some impact (from the euro zone debt crisis) because our currency is anchored to the euro, Kemal Kozaric said.

Our debt will be around five percent higher because of the weak euro. Bosnia's debt currently stands at around 30 percent of gross domestic product. Kozaric said he expected the government to stop short of any new borrowing this year.

(Writing by Michael Winfrey; editing by John Stonestreet)

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