East Europe has a sudden awakening these days. After a decade long shopping spree mainly focused on cars and home improvements consumers in the Baltic and Balkan countries are tripping over loan payments and sustaining inflation. Edward Hugh's blog Global Economy Matters leads the blogging pack with an unsurpassed depth of information on Hungary's economic situation as the country is sucked into the global credit crisis.

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Attributing the crisis to the usual wrongdoings of politicians like running up fiscal and current account deficits Hugh highlights the country's fragile exposure to foreign currency mortgages which rose by some 50% since 2007. As if that were not enough for a country whose trade partners are slipping into recession too, Hungarians have also more than tripled their outstanding Forint-denominated loans since 2006.

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Foreign banks in Hungary stopped or scaled back forex lending earlier this week, reports Hugh:

Oesterreichische Volksbanken AG's Hungarian unit suspended Swiss Franc and U.S. dollar loans in Hungary on Wednesday. The bank, which has declined to elaborate to the local press on its decision, will continue to lend euros it says. Swiss Francs are however the key currency in the Hungarian context, since around 80% of new mortgage lending has been in CHF. Bayerische Landesbank local subsidiary MKB was the first bank in Hungary this week to announce (on Tuesday) the suspension of new foreign-currency personal loans, saying the volatility of the forint made them too risky for clients. One by one the other banks in the market have all been following suit.

Even as late as yesterday central bank Governor Volodymyr Stelmakh had been saying IMF help wasn't needed. The banking system is "normal and reliable,'' he said in an interview.

Head of sovereigns in Europe Edward Parker from Fitch consequently noted that the worse than expected correction in financial markets coupled with the vulnerable macroeconomic enviroment as the main reasons for the downgrade. More specifically, the mixture of external deficits funded to a large extent by inflows of credit (e.g. some 30% for Lithuania) supplied by foreign banks lies at the root of the decision and incidentally, as it were, also at the root of the macroeconomic vulnerabilities of the Baltic economies.

An index of investors' and analysts' expectations for the CEE region over the next six months plunged to minus 51.1 points in October from minus 30.6 in September according to latest the survey from the ZEW Center for European Economic Research and Erste Bank AG.

Goldman reduced the Czech Republic's 2008 growth forecast to 4.3 percent this year from 4.4 percent, while the 2009 outlook was changed to 2.5 percent from 3.8 percent.

Komercni Banka AS, the third-largest Czech bank, fell the most since 1999. OTP Nyrt. slid to its lowest level in almost five years after HSBC Holdings Plc downgraded Hungary's largest bank on concern its loan expansion may slow and credit quality worsen, while Bank Pekao SA, Poland's biggest bank, posted its steepest drop on record.

Komercni lost 530 koruna, or 17 percent, to 2,510 in Prague trading.