Hungary and Ukraine, the first east European victims of the global financial crisis, make an unlikely couple. The first is one of the European Union's wealthier new members, with a long history as an independent modern state. The second ranks among Europe's poorer nations, a country born in the collapse of the former Soviet Union that is still finding its feet in the world.

But they have been pushed together in the battle to safeguard their financial stability. On Wednesday the Hungarian central bank raised its main interest rate 300 basis points to 11.5 per cent in a bid to shore up the currency while Ukraine outlined plans for an International Monetary Fund loan.

United in the need for aid, the two countries face different economic challenges: Budapest's main problem is years of excessive public borrowing while Kiev's woes come largely from a recent credit-fuelled private sector investment boom.

In Hungary, foreign investors have been ready to buy high-yield government debt believing this future euro member was a safe bet. At home, voters did not complain because the borrowing allowed the state to preserve generous social benefits, not least subsidised access to Hungary's re­nowned spas. The ratio of government debt to gross domestic product soared above 60 per cent, far ahead of central European peers. Economic growth and foreign investment, once the envy of the region, slowed but, with the help of mounting debt and current account deficits, living standards continued to rise.

However, with government borrowing driving up forint interest rates, private borrowers increasingly turned to low-interest foreign currency loans, notably for mortgages. With most banks owned by west European multinationals there was ready access to euros and the forex share of local credits soared to 85 per cent.

With economists warning of trouble, Ferenc Gyurcsány, the Socialist prime minister, finally took action in 2006 when the budget deficit hit a record 9.2 per cent. Admitting politicians had told financial "lies", he cut public spending, but not so hard as to cause real pain.

When the global storm hit Hungary, Mr Gyurcsány's efforts proved woefully insufficient. Under pressure at home, many foreign-owned banks axed foreign exchange-denominated loans and OTP, the big Hungarian group, curtailed its foreign exchange credits. With markets swinging wildly, the government turned to the European Central Bank for a €4bn ($5.1bn, £3.1bn) credit line and asked the IMF to stand by. It cut next year's planned budget deficit from 3.2 per cent to 2.9 per cent. Economic growth is now set to fall from about 2 per cent this year to 1.2 per cent, the region's lowest outside the Baltic states.

But Krisztian Szabados of Political Capital, a public affairs consultancy, says Hungarians still do not accept lavish state support is unsustainable: "Polls show people accept the economic crisis will affect Hungary, but far fewer realise it will affect them personally."

In Ukraine, the crisis results from the investment boom that followed the 2004 Orange Revolution. Foreign and domestic companies poured funds into everything from steel mills to apartments and GDP growth reached 7.6 per cent last year. Economic expansion kept tax revenues rising fast, allowing the government - despite constant political turmoil - to run budget surpluses. But private credit growth soared above 60 per cent, driving up inflation and sucking in foreign loans.

Now the economy has suffered a double blow, with the prices of steel and chemicals, the biggest exports, dropping fast and the global crisis hitting access to foreign credit. The current account deficit is ballooning from 4 per cent of GDP last year to about 10 per cent in 2008 and perhaps the same in 2009 - double Hungary's.

Meanwhile, with the global crisis raging, banks and companies may be unable to refinance foreign loans. Kiev hopes the IMF will help close the financing gap left by the current account deficit. But retrenchment seems inevitable. President Viktor Yushchenko has announced emergency legislation to support banks and industry and cut public spending. The central bank has provided liquidity to safeguard banks.

Now credit growth is slowing fast, as is the economy as a whole. The IMF forecasts GDP growth will fall from 6.4 per cent this year to 2.5 per cent in 2009. Timothy Ash, head of emerging markets at the Royal Bank of Scotland, says the prospect is for "a very hard landing for the economy in the short term".

In Kiev as in Budapest, there are few signs of impending economic doom. Accustomed to the country's political crisis, residents do not seem concerned by talk of an economic shock. But in eastern Ukraine, home of the steel industry, workers are worried, particularly with Prominvestbank, a local lender, running into liquidity difficulties. Account-holders are queuing, sometimes for hours, only to find there is no cash. As one miner says: "How can you buy food for the next week and feed your family if you can't get your salary? It's a bit scary."

Additional reporting by Thomas Escritt and Roman Olearchyk