The European Commission raised its growth predictions for the core euro currency area to 0.9 percent this year, from the 0.7 percent forecast in February, and kept 2011 forecasts as they were at 1.5 percent.

However, Brussels voiced concern at the potential for a domino effect on financial markets that have battered Greece for months, bringing down the value of the euro against the dollar, and subsequently turned their sights on Spain and Portugal.

"In order to safeguard the economic recovery, which is still rather modest and somewhat fragile, it's absolutely essential to contain the bushfire in Greece so that it will not become a forest fire," said the EU's economic and monetary affairs commissioner Olli Rehn.

The fear of contagion constitutes a genuine "threat to financial stability for the European Union and its economy as a whole," Rehn underlined.

As public deficit and debt fears spread, the commission said the Greek economy would shrink by 3.0 percent -- and, on the eve of the British general election, showed that the 2010 deficit planned by its Labour government would hit 12.0 percent, worse than all the other countries considered most at risk.

However, Britain's battered economy is forecast to grow by 1.2 percent in 2010.

Britain is not in the eurozone, and neither is industrial powerhouse Poland, the EU's strongest economic performer last year and again way out in front with 2.7 percent growth forecast this year and 3.3 percent tipped in 2011.

"The improved outlook for economic growth this year is good news for Europe," Rehn added.

However, "we must now ensure that growth will not be derailed by risks related to financial stability.

"Sustainable growth calls for determined fiscal consolidation efforts and reforms that enhance productivity and employment," he said.

The turnaround from an unprecedented 4.1-percent contraction endured last year when Europe was in the throes of its deepest recession since World War II sees the 27-nation EU, home to half a billion people and the world's biggest open trading bloc, tipped to post 1.0 percent growth.

But the overall deficit figure for its core eurozone was put at 6.6 percent in 2010 -- more than double the notional three percent agreed limit.

The situation is very different for Greece, as its currency partners and the IMF ready to transfer up to 110 billion euros (145 billion dollars) of rescue loans to Athens over the next three years to prevent it defaulting on its massive debts.

Brussels now predicts a 3.0-percent contraction of Greek gross domestic product (GDP), a radical revision compared to the 0.3 percent drop foreseen last November, with recession there now expected to last right through 2011.

Greece is forecast to bring its deficit down to 9.8 percent of GDP this year, from the 13.6 percent in 2009 which made a eurozone bailout package a necessity and triggered a painful austerity drive that has caused riots in the streets.

For Spain and Portugal, the commission revised its growth predictions upwards to 0.4 percent and 0.5 percent respectively this year.

Italy is also considered in choppy waters, underlined by a heavy debt ratio pegged at 118.2 percent for 2010, comparesd to the eurozone average of 84.7 percent.

Meanwhile, Europe's biggest economy, Germany, is predicted to grow by 1.2 percent this year, although just 1.6 percent next year in a slight downwards revision.

German Chancellor Angela Merkel said on Wednesday that Europe was at an economic and political "crossroads," and called for tougher penalties to be applied to European countries that break rules on deficit and debt levels, relative to GDP.

"The Greek crisis has brought it home to us in drastic fashion what a lackadaisical budget and financial policy can lead to," Merkel said.

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