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How frustrated Asia's policy makers must be. Having navigated the global financial crisis with relative success, they could yet find themselves set back by a debt crisis in Europe.

Europe has rallied around Greece for now, giving markets a needed boost Monday. Stocks rose across Asia and currencies rebounded in response to a $954.83 billion bailout plan from Brussels. But the European response over the weekend may not be the last word.

Asia itself doesn't face the kind of macroeconomic problems that have beset Greece and its neighbors. High foreign-exchange reserves and apparently low government-debt levels relative to gross domestic product mean a sudden loss of confidence isn't likely in any of the region's major economies.

But the region will remain affected by volatility elsewhere. China's banks, for example, seeking to raise $70 billion through stock issuance in the wake of a $1.4 trillion lending spree, could find their plans thwarted by rattled stock-market investors. If Chinese banks can't raise that capital, the country's lending-for-investment model could stall.

There's a high measure of reliance, too, in some countries, on the European banking system. At the end of 2009, European banks accounted for 25% of overseas lending to emerging Asia, on top of 33% of such lending coming from the U.K., according to Standard Chartered research. In the best case, borrowing costs could rise. In the worst, Asia won't avoid a credit crunch initiated in Europe.

Asia could also suffer if European countries are forced to tighten fiscal policy aggressively, which could crimp growth and demand for Asian products. Exports to Europe account for 10% of Singapore's total exports, a proportion that rises to 22% in China, according to Credit Suisse.

Asian policy makers could, of course, try to repeat the stimulus tricks of 2008 to stave off any European contagion.

But the fiscal cupboard -- while not bare -- is less well-stocked. As for monetary policy, only Australia has significant room to cut rates this time around.

Asia might look in comparatively good health compared with the rest of the world. But policy makers across the region will still be crossing their fingers that Europe's response over the weekend really can stem the crisis.

Andrew Peaple and Mohammed Hadi

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