Friday, 19 March 2010 04:00

As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

The People's Party, the largest group in a five-party coalition, walked out amid disputes over how to cope with the country's severe problems.

Unemployment has now hit 20 per cent and the economy contracted by 18 per cent last year.

The People's Party quit after its action plan failed to get the backing of Valdis Dombrovskis, the Latvian prime minister, who labelled it "populist".

Mr Dombrovskis warned the People's Party's departure could cause yet further economic instability.

"Any contradictions in the government are immediately reflected in the financial markets, and they directly affect the fiscal stability our country... a policy that is truly responsible for the country cannot be self-centred," he said.

But he said remained confident that an emergency IMF bail-out worth
£6.7bn would remain unaffected by the political instability.

New Era, Mr Dombrovskis's party, confirmed it had already extended
invitations to other parties to join a new coalition in an attempt on
gain the majority in Latvia's 100-seat parliament.

It attempted to play down concerns about the prospect of a minority
government at the helm of country in severe economic turmoil.

Laila Dimrote, a spokeswoman for New Era, said: "This is not a big
deal. Latvia has had many minority governments in the past, and often
this is the case prior to elections."

Hopefully, subscribers and readers are taking full advantage of the research at hand (see File Icon Banks exposed to Central and Eastern Europe). This plays into the fact that Latvia, and its neighboring countries, are
in a depression. This economic contagion will be both converted into
financial contagion through the banking system and transmitted as both
financial and economic contagion to the wealthier western countries that
have large economic claims on Latvia and do trade with them.

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graphic to enlarge...


For more opinion and analysis, see:

I will be publishing the foreign claims model (which will tie all of the
myriad global risks into one, cogent risk model) and my analysis of
Italy early next week for subscribers, along with a free accompanying
analysis for non-paying subscribers and readers. Ireland, the UK and
Spain are on tap...

Earlier installments of the Reggie Middleton's Pan-European Sovereign Debt Crisis

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

  6. The Beginning of the Endgame is Coming???

  7. I Think It's Confirmed, Greece Will Be the First Domino to Fall

  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
  10. "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!
  11. Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...
  12. The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino

Last modified on Friday, 19 March 2010 04:00