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Latvia on the verge of financial collapse

In a worrying development it has been revealed that a $100 million auction of short-term government debt failed to attract any bidders in Latvia today placing the country on the verge of financial collapse. While to many people Latvia may be irrelevant to their own local economies it is the potential knock-on effect to confidence, investors and surrounding countries which will have the biggest impact.

It is also well known that Swedish banks have significant exposure to the Latvian economy and as a consequence stand to lose substantial sums of money if the economy was to collapse. While the government of the day are well aware of the situation and the urgency with which they need to act it will likely take third-party funding to save a total collapse. As a consequence, the Latvian government are in talks with the International Monetary Fund and the European Union about emergency funding.

This could not have come at a worse time with the fragile nature of European economies and worldwide economies laid there over the last few weeks. European countries are themselves running short of funds and many will be unable to inject more capital into a European Union led rescue package without being significantly weakened themselves. Perhaps the European Union is now paying the price of bringing in significantly smaller and weaker economies over the last few years?

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