Latvia’s economy is on life support. Even with the EUR 7.5 billion ($9.8 bn) IMF-led loan package announced in December, this small Baltic economy is still looking at a GDP contraction of around 15% in 2009 - the sharpest contraction in the EU and among the sharpest in the world.

The immediate concern is that such life support, in the form of the European Commission and IMF-led loan package, will not be enough to avert a full-scale meltdown in Latvia. The bigger concern is that this meltdown, if it occurs, could trigger a dangerous domino effect across Eastern Europe, Sweden and even beyond.

Default On The Horizon?