Latvia has collapsed due to economic crisis

Reports are coming in that the Latvian government has collapsed after the People's party plain quit.

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".

From Business Week:

Greece has nothing on Latvia

All the attention of the financial world has been focused on Greece. This is captured in one alarming statement made by the head of the German debt management agency.

"I think if one of the 16 members would default, it would be a collapse of the whole system," German Finance Agency managing director Carl Heinz Daube told a bond conference in London.
"If a country goes bankrupt, it will be the end (of the euro zone)," he told a panel discussion at a bond conference in London.

You would think that Greece is suffering from an epic economic collapse. In fact their economy has shrunk less than 3%.

More trouble in the fringes of Europe

While the world breathes a sigh of relief that Moody's didn't join Fitch and S&P in downgrading Greece debt to junk, trouble is brewing elsewhere.

For instance, Latvia's budget situation is reaching crisis levels again.

Latvia's constitutional court Monday struck down pension cuts that form a key plank of an austerity drive, casting doubt on a crucial IMF and EU-led bailout for the recession-hit Baltic state.

Latvia about to implode

Latvia, and several other former Soviet bloc nations have been on life-support for a long time. It looks like the first eastern European domino is about to fall.

(MarketWatch) -- It's never good news when a government bond auction fails. It's particularly bad news when an auction fails for a note maturing in just six months. And it's really bad news when there isn't any bid at all.
Yet that's what happened Wednesday when Latvia tried to sell close to $17 million of paper.
The Baltic country is squabbling with Western -- mostly Swedish -- leaders over spending cuts, and it's a very real possibility that the country may be forced to devalue its euro-pegged currency if emergency global funds don't arrive.