The declaration made by Greek government officials that it will miss its fiscal deficit this year and probably be mired in recession for the rest of next year has triggered another cause for concern among Asia-Pacific economies.

This revelation has already caused an abrupt disruption of stock markets on Monday with European bank shares suffering the harshest falls amid apprehensions that private sector bond holders may be required to absorb bigger losses than what was decided in a July bailout plan for Greece, according to reports from Reuters.

Most governments in the Asia-Pacific regions are aware that the risk depends on the likelihood that financial markets may entertain similar anxieties about the management of public debt.

Magnified Sovereign Debt Funding Costs

A report by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) late last year mentioned that this situation "would manifest itself in similar increases in the funding cost of new sovereign debt issuance, Such a situation would not only increase the budgetary impacts to government of new debt issuance, but increase the private sector's cost of issuing debt."

"This effect is due to the fact that interest rates on private sector debts are usually set on a basis of risk premium over and above that of the economy's sovereign bond rates," the report said.

Three major channels have been identified by ESCAP through which the European debt crisis could spill out into the region.

One is the influence on the cost of sovereign debt financing for Asia-Pacific economies, another is the trade channel which is pushed by the reduce growth in some European nations on import demand for goods and services in the region. The last is the impact of debt crisis on the international financial sector and effect of credit to regional banks and businesses.

Meanwhile, the economy of Greece is expected to undergo a fourth consecutive year of tightening, declining by 2.5 percent in 2012 after a projected 5.5 percent fall this year, based on the 2012 budget draft submitted by the country's financial officials to parliament following negotiations with international creditors.

These statistics are in accordance with recent projections made by the International Monetary Fund (IMF) but is much worse than the forecasts made in July to calculate the 109 billion euro rescue package which anticipated a return to 0.6 percent growth in 2012, according to Reuters.

A provision in the ESCAP paper stated that the world's global financial markets have yet to be persuaded that the affected European economies will be able to trim down budget deficits adequately to lower public debt to the necessary level.