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Hungary has returned cap in hand to the International Monetary Fund after kicking out inspectors last year, becoming the first country in Eastern Europe to succumb to contagion from eurozone debt stress.
Rising bond yields and a weakening forint has forced the country's Fidesz government to swallow its pride and request a "precautionary" credit from both the International Monetary Fund and Europe, reportedly of €4bn b(£3.4bn).
The growing likelihood that Hungary's debt will be downgraded has accelerated capital flight, causing two-year debt yields to jump from 5.5pc to 7.5pc since September.
"Hungary is a warning sign," said Neil Shearing from Capital Economics. "It is the country where the risks are most acute in the region, so this is where you would expect to trouble to start. We fear this may spread to Ukraine and the Balkans. Eastern Europe has enormous external financing needs for the banking system. They won't be able to roll over debts if there is a credit freeze in Western Europe." Mr Shearing said Hungary has to raise external finance equal to 18pc of GDP over the next year. The figures are 14pc for Croatia, and 13pc for Bulgaria.
Eastern Europe is dependent on eurozone lenders and their subsidiaries for about 80pc of its banking system. This leaves the region vulnerable to a credit crunch as foreign groups slash loan books – by €2 trillion over 18 months, according to a Deutsche Bank study – to meet the EU's requirement for 9pc core tier 1 capital.