The financial chaos reaches the extreme borders of the Eurozone. The latest victim of the crisis is Latvia. The Treasury of the Baltic Republic canceled an auction of XNUMX-year government bonds last night. But the real problem in Riga is called Latvijas Krajbanka, a small bank controlled by the Lithuanian Snoras Bank, itself nationalized last week by the Vilnius government. At this point it is possible that the Latvian institute will end up following the same fate, unless it declares bankruptcy. Meanwhile, yesterday the state suspended its activities.
“My idea is that at the moment the government bond markets are at a standstill – explains Charles Robertson of Renaissance Capital in London to the Financial Times -. This unloads on the less liquid markets in southern Europe. We will see new problems in this sense in the coming weeks ”.
The Latvian authorities have tried to reassure the public by arguing that a bank failure would not create a systemic problem. Furthermore, it is said, the market that is generated around the country's debt is so tiny that a couple of bank traders on vacation are enough to cancel an auction.
According to Ilmars Rimsevics, governor of the central bank, liquidity is not lacking, “nor are there any other sources of nervousness. We're sitting on ample reserves and don't need a new issue. We will wait until the 2012 budget is approved and the credit rating will be upgraded early next year. It will be a much better time to issue a new XNUMX-year bond."
Latvia owes most of its problems today to the credit bubble that inflated between 2004 and 2008, which caused large short-term debts related to private consumption and a large current account deficit. The external debt of the banks is equal to 35% of the GDP.
