The European Central Bank announced plans to lend €3 billion to Sweden's central bank on Wednesday (10 June) as the country comes to terms with its heavy exposure to the crisis-hit Baltic region and in particular Latvia.

The loan - part of a swap agreement whereby the Riksbank can borrow up to €10 billion from the ECB in exchange for Swedish kronor - will help the Swedish central bank in turn to provide greater support to the country's private banks that currently face extensive loan losses.

Swedish banks lent extensively to the private sector in the Baltic states in recent years

"As a substantial part of the Swedish banks' funding is in foreign currency, the Riksbank needs to have a sufficiently large foreign-exchange reserve to be able to meet a potential need from the banks," the Riksbank said in a statement.

The ECB move is also intended to shore up confidence in the Baltic area where a collapse of Swedish banks - the main lenders in the region - could prove disastrous.

Thanks to its fiscal prudence, Slovakia's economy is relatively healthy. But troubled neighbors could keep foreign investors from rewarding it.

Jan Rollo, CEO of Slovenska Sporitelna, Slovakia's largest bank, has a problem you don't encounter too much these days. While banks worldwide struggle to raise capital, Slovenksa Sporitelna, a unit of Vienna-based Erste Group, has more money in deposits than it does in outstanding loans. "We're long on deposits," Rollo says with a wry smile in his eighth-floor office on the outskirts of Bratislava.

 Slovakia's fiscal discipline has helped the country weather the economic storm. The bank's headquarters overlook a small lake where a handful of bathers could be seen sunning themselves on a balmy day recently. The placid scene was not misleading. In fact, Slovakia is an island of relative calm in a troubled region. Growth has fallen sharply in line with all of Europe, but the country, as well as neighboring Poland and the Czech Republic, are in relatively good shape from a financial point of view.

Slovakia's government balance sheet, for example, is healthy compared to its European neighbors. The public budget deficit equals 28 percent of gross domestic product, less than half of Germany's debt ratio and a pittance compared with Italy's, where the national debt exceeds a year's total economic output. Unlike Hungarians or Romanians, the Slovaks did not take out large numbers of mortgages and loans denominated in Swiss francs or other foreign currencies, which then became ruinously expensive to repay when their domestic currencies plunged. Slovakia's current account deficit was about 6 percent in 2008, compared with nearly 25 percent in Latvia.

EU ministers have agreed on a framework for improving financial supervision but the 27 member states remain split over what powers new regulators should have.

The financial crisis exposed gaps in cross-border supervision, which meant institutional problems in one country had a knock-on effect on neighbours.

But next week EU leaders will have to consider how much power they want new EU-wide supervisory bodies to have.

The UK is wary of EU regulators encroaching on the City of London.

UK Chancellor Alastair Darling said he was happy with the EU plans "in many respects". But he opposed a proposal to give EU regulators powers over national taxation.