SZEKESFEHERVAR, Hungary (Reuters) - For Hungarian businessman Ervin Majdan, membership of the European Union used to be a one-way ticket to prosperity.
But the border-free access to markets and capital that once boosted his printing business is now threatening to crush it.
The euro zone debt crisis has depressed demand, undermined Hungary's forint currency and squeezed bank lending. That has forced former chemist Majdan to cut his once 75-strong workforce by half, shutter two of his three shops and has hit profits.
"Big banks are leaving the small business sector, or are demanding extremely tough conditions and more and more collateral," said Majdan, a stocky man with a courteous manner and easy smile.
"We can go to smaller banks, which are still willing to talk to smaller companies, but they demand higher rates, so we end up squeezed on that end. Worst of all, some banks just won't lend, period," the 55-year-old told Reuters from his office in the industrial zone at Szekesfehervar, southwest of Budapest.
Economists raised the alarm about the region last month after regulators in Austria, whose banks dominate lending in emerging Europe, said three lenders needed extra capital.
The news sparked renewed concerns, which first arose in 2008, that the banks could withdraw capital from their local subsidiaries, cut financing lines, or sell units to raise cash, putting pressure on a region already suffering moribund domestic demand and contagion from the euro zone.
The European Banking Authority has told Europe's banks they must raise 106 billion euros by the end of June to ensure they can withstand shocks. A big worry is that these banks will choose to shrink their loans to meet the capital ratio requirements, rather than raise capital.
According to analysts at Morgan Stanley, there is almost 140 billion euros from parent and cross-border funding at risk of deleveraging from Western European banks in Poland, the Czech Republic, Hungary, Romania and Bulgaria.
So far that has not happened in this region, and domestic regulators say they can prevent, or temper, such an outflow because of rules that would make it difficult to withdraw significant amounts. Romania, Poland and Serbia also have cash available from the International Monetary Fund.
But Hungary has suffered because of unorthodox and unpredictable government policies, including scrapping an IMF deal, nationalization of private pensions, and a crisis tax on big banks, all of which spooked investors.
Lending in Hungary, the most exposed of central Europe's developing economies to the euro zone debt storm, has dropped since 2008, a trend its central bank does not expect to end soon.
Investors have their eyes peeled for the first signs of capital flight from there, as well as Romania, Bulgaria and Serbia, which are vulnerable because of their close links with western neighbors, particularly Greek and Italian banks.
They are particularly focused on the region's currencies. While they have all suffered this year, their performance suggests parent banks are not pulling significant funds, yet.
The Hungarian forint is down 2 percent against the euro since October, Poland's zloty 1 percent and the Czech crown 2 percent. A much sharper foreign exchange move would be the clearest indication of funds leaving the region.
Another shock would have a big impact.
The 10 EU members from former communist Europe were catching up rapidly with their western neighbors until the 2008 crash sent almost all of them into recession.
Cities like Bucharest have changed beyond recognition in the last 20 years. When Romanians toppled dictator Nicolae Ceausescu in 1989, the city was nearly empty of cars and advertising, snarled with long queues of people trying to buy scarce basic foodstuffs like bread and oil. There was only one bank.
Now it is regularly gridlocked with luxury cars, has bank branches on almost every corner, and supermarkets and shopping malls offer an extensive selection of goods that previous generations could barely dream of.
Development accelerated in the lead up to EU accession in 2007 and shiny new office blocks and malls shot up before the construction sector crashed. Half-finished shells abound.
Living standards in the region are still much lower than in western Europe, but that also means more potential growth and most foreign-owned parent banks say they aim to stay.
Nevertheless, the region is jittery.
Austria's announcement last month that three banks with big businesses in emerging Europe needed an extra capital buffer stoked outrage. Romanian President Traian Basescu, known for his blunt manner, accused Vienna of abandoning Bucharest.
"You have made huge profits and if you are now getting ready to leave Romania unfinanced during the crisis, we will think it is an act lacking fair play towards Romania," he said.
The most recent available data from central banks show loans have increased in most of the region's countries since 2009, although it slowed to single digits in October. Local banking units say they are funding more lending through rising local deposits.
"We will not have the rate of (lending) growth that we were seeing in the past before the crisis, in 2007. But we are not in the same situation as in 2008," said Gianni Franco Papa, central and eastern Europe head for Unicredit and its Bank Austria unit.
"I think central and eastern Europe is in much better shape than then."
Rating agency Fitch also said it did not see the new rules crimping lending in the region by Austrian banks.
Elsewhere, firms say their main problem is not a lack of credit but poor demand. In the Czech Republic, construction sales have fallen by a fifth since a real estate boom ended in 2008 and some 80,000 workers have lost their jobs. Unoccupied new houses and apartments litter the country.
"The volume of orders by Czech agricultural companies ... has fallen to a fifth (of pre-crisis levels)," said Josef Hanus, who owns a small company supplying equipment and spare parts to farmers. "The third quarter was a disaster."
In Serbia, the banks' biggest problem is the weak economy and the knock-on effect of defaults. One senior executive at a European-owned bank subsidiary there expects parents to instruct units to keep a tighter rein on lending.
"The banks have enough resources for lending, but don't have enough good clients to lend to," the executive said.
Some companies have struggled to adjust their business pitches to meet this closer scrutiny.
"It depends on how you present your case to a bank," said Stefan Willems, who runs loan broker Easy Credit in Romania. "People give up if they get declined two or three times."
Policymakers say their banking systems are well capitalized and the loan-to-deposit ratios are healthy, but are still putting more safeguards in place.
Romania has put Greek-owned banks, which make up about a sixth of its lending sector, under special supervision. It plans a new facility that would take them over if any should fail.
Albania may give the central bank power to demand foreign parent banks transform their subsidiaries into local entities.
Poland and the Czech Republic have strict limits on lending of local units to parents, and across the region banks must report all transactions to regulators, which can decline permission for transfers which might affect capital adequacy.
These safeguards are little comfort in Hungary, where lenders -- who already pay the highest bank tax in Europe -- are fuming because the government is trying to force them to shoulder the burden of losses on foreign currency loans.
The monthly payments on these loans have skyrocketed due to the weak forint.
Printer Majdan, who started his Regal printing business putting patterns on shopping bags in his garage, says his generation has had to restart life three times -- once when communism fell in 1989, then when EU membership opened up new markets and opportunities, and now in the face of a global economic crisis.
"While you're healthy you never think of your lifestyle, how to prepare for illness. It's only when you're ill that you focus on healing, but here there are few doctors and you have to do the healing on your own."
Additional reporting by Sam Cage in Bucharest, Michael Shields in Vienna, Roman Gazdik and Jana Mlcochova in Prague, and Matt Robinson and Aleksandar Vasovic in Belgrade; Writing by Sam Cage; Editing by Michael Winfrey and Jodie Ginsberg