Economic crisis sinks Latvian regime

With the Latvian economy in free fall and the population angry and in motion, the Latvian government, a four-party, center-right coalition, resigned Feb. 20.

In January, thousands of people surrounded government buildings for hours and fought with the cops. In early February, farmers blockaded the capital in protest over a sharp decline in their income. At that time, the agricultural minister resigned and the government managed to survive a no confidence vote.

But since then, the economy has worsened. Even an optimistic projection from the Central Bank has the Latvian economy contracting by 12 percent in 2009, with unemployment reaching double digits. The Latvian central statistics office has figures showing that nearly 10 percent of Latvia’s “economically active population” are looking for jobs. (Baltic News Service).

A whole host of economic indicators—including cargo loadings, railroad passengers, freight movement, gasoline sales and construction permits—show sharp declines. The new task of handling shipments for the U.S. troops in Afghanistan will only generate an income of $15 million a year and support a few hundred jobs. (BNS)

Given the popular mood and the galloping economic decline, two of the parties in the coalition—the Peoples Party, the largest, and the Union of Greens and Farmers—pulled the plug and told the prime minister to resign.

This is the first government in the EU to fall because of the economic crisis. Iceland, whose government also fell a few months ago, is not an EU member.

While Latvia is the worst off, the other former “Baltic tigers”—Lithuania and Estonia—are also reeling.

The fallout from an economic collapse in the Baltic area is likely to affect other EU countries. Austrian banks have lent over $300 billion, much of it to the Baltic states, and are sitting on nearly $200 billion worth of losses at least.