Latvian Prime Minister Ivars Godmanis quit on Friday, the latest political casualty of an ever deepening global economic crisis that has wracked once booming eastern European states.
“The prime minister submitted a letter of resignation and I accepted it,” Latvian President Valdis Zatlers told reporters after a closed-door meeting with Godmanis, whose four-party coalition government finally collapsed after weeks on the brink.
The government has been trying to tackle the economic woes of the country’s 2.3 million people who got used in recent years to boom times and increasing wealth, all of which is now at risk in the global credit crunch.
Latvians’ discontent over belt-tightening and politicians’ alleged corruption and nepotism came to a head in a Jan. 13 rally by 10,000 people in Riga, where hundreds of protesters clashed with security forces.
Latvia showed the fastest GDP growth in the EU in 2006 but its economy is expected to contract 12 percent this year, with unemployment soaring to 12.7 percent from the current 8.3 percent. Fellow Baltic states Lithuania and Estonia face similar troubles.
Godmanis said his position became untenable when the two largest members of his center-right coalition, the People’s Party and the Union of Greens and Farmers, failed to respond earlier on Friday to his call to back him.
“I told them this is the moment of truth,” he said.
Zatlers said he would hold talks tomorrow on forming a new coalition with leaders of parties from across the Baltic state’s spectrum.
Godmanis had survived a Feb. 3 no-confidence vote thanks to the coalition’s control of 53 seats in the 100-member parliament.
He faced renewed pressure last week, however, when Zatlers announced he had lost trust in the prime minister amid Cabinet squabbles.
Lars Christensen, chief analyst at Danske Bank, said “the renewed political crisis in Latvia is likely to deal yet another blow to the already hard-hit Baltic markets.”
The EU’s crisis-hit eastern members, including Latvia, have decided to hold a mini-summit on March 1 to send a message against protectionism to their richer western partners.
Latvia slipped into recession last year — after years at the top of the EU growth table — as rampant inflation, the end of a credit boom and the global slump took their toll.
It was forced to seek a 7.5 billion euro (US$9.6 billion) bailout from the IMF and other lenders in December, and as part of the deal the government has slashed public spending and hiked taxes.
IMF officials are visiting Latvia for follow-up talks. Godmanis said his outgoing government would be unable to sign any more binding documents with the lender.
“This is a huge problem and those parties that have decided to pull out [of the coalition government] need to think about it,” he said.
There have been suggestions that the rebel parties pulled out to distance themselves from the unpopular coalition ahead of June’s local elections — or if Zatlers calls a snap national poll.
Christensen warned in a statement that an election campaign could see “a rise in populist sentiment and it is very likely that the government’s austerity measures will come under serious criticism.”