Latvia, says prime minister Valdis Dombrovskis, faces a choice of economic scenarios: bad, and really bad. The bad scenario is slashing spending to restrain next year’s budget deficit and ensure it receives the next tranche of a €7.5bn rescue package from the International Monetary Fund and other lenders. The really bad one is failing to make the cuts, so torpedoing the loan. The government is under pressure from Brussels and major partner Sweden to follow the first course. The problem is Latvia’s main coalition parties are balking at the $1bn cuts demanded by lenders, which could deepen its economic nosedive, with only $650m agreed so far.

Amid all this, Mr Dombrovskis has called for legislation that could hurt the mainly Swedish banks that have hefty exposure to Latvia’s mortgage market. The law would limit mortgage-holders’ liability to the current value of their properties, not the full loan. With property prices down two-thirds since 2007, banks’ losses could be huge. The question is whether the proposal is serious, or a bargaining chip in negotiations with international creditors.