Ukraine, Hungary, and Serbia are all in emergency talks with the International Monetary Fund, raising fears that an exodus of foreign investors will set off a systemic crisis across Eastern Europe.

A team of IMF trouble-shooters rushed to Kiev on Wednesay to draw up a possible standby loan to help Ukraine stabilize its bank after a panic run on deposits this month.

The outlook has darkened since President Viktor Yushchenko dissolved parliament in a dispute that threatens to anger the country’s Russian minority. Kiev and Moscow are at loggerheads over the Sevastopol base used by Russia’s Black Sea fleet.

Foreign investment has largely dried up, leaving it unclear whether banks with large debts in dollars and euros will be able to roll over short-term loans. The government has already seized Prominvestbank, suspending payments to creditors. The authorities have frozen all time deposits.

The plunge in steel and grain prices over recent weeks has made matters worse, hitting two of the country’s key exports. Zaporizhtal, MML Steel, and Donsetsk Steel are all slashing output.

"The global credit crisis is spreading to the most leveraged economies in the world," said Danske Bank.

"Iceland was the canary. It was the first to need a helping hand from the IMF, but all countries that have had asset bubbles and rely on foreign funding are vulnerable," said Lars Christensen, the bank’s East Europe expert.

The credit default swaps (CDS) for Argentina, Pakistan, and Ecuador are flashing warnings of insolvency, while the Baltic States, Romania, Bulgaria, and Turkey are at risk as it becomes harder to finance current account deficits.

"This is turning serious," said Hans Redeker, currency chief at BNP Paribas.

"Countries in Eastern Europe have been living beyond means for years and now they face a full-blown credit crunch. They are going to have to cut back on imports and that will push the eurozone deeper into recession," he said.

... more here: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3204874/Crisis-spreads-to-Eastern-Europe-as-Ukraine-Hungary-and-Serbia-call-IMF.html