Latvia and its Baltic neighbours Estonia and Lithuania are going through their most severe economic crisis since the Soviet Union disintegrated. Their troubles matter beyond their own borders: they could trigger a new wave of financial disruption across Europe, with politically perilous consequences.

Latvia’s tragedy is to be the victim of its own success. Eager to join the European Monetary Union, the government restrained deficits when it could have borrowed with abandon: at the end of 2008, public debt was less than 20 per cent of gross domestic product. Now it needs to borrow in order to combat Europe’s worst recession, but it is getting the cold shoulder.