The Latvian ultimatum

“In secret talks with Swedish banks, Anders Borg explained the growing pressure that exists within the International Monetary Fund (IMF) to force Latvia into a devaluation. A collapse in Latvia would have serious implications for several major Swedish banks. With a devaluation the already high loan losses would explode overnight, especially because many Latvians have loans in euro, which would become significantly more expensive.”

The IMF is to force a devaluation? This is likely because the Latvian government refuses to cut it’s budget further. If they cut further, the citizens will vote out the government, because further cuts will be extremely painful.

Update:

Sovereign default?  Worries over crisis-hit Latvia rise as debt auction disappoints

“Latvia’s central bank warned Wednesday of “another wave of distrust” beginning to roll over the Baltic country, as the government received no bids for one of its three auctions for debt securities”

If the eurozone lets the Baltics blow up like this, Eastern Europe is going to be a can of worms politically.

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