Latvia must hold its breath, again. A few weeks before an IMF review which is a prerequisite for continued international financial support, a war of words has broken out between Latvia and its creditors – the Fund, the European Union and, crucially, the Nordic countries – over the depth of spending cuts to be proposed in the country’s 2010 budget.

Riga claims that, because of better-than-expected revenues, savage spending cuts of 500m lats ($1bn) can be replaced with merely swingeing ones of 325m, allowing the country to reduce public borrowing to 8.5 per cent of GDP without further unnecessary pain. The double-headed axe is to be replaced with the hacksaw. The creditors who helped the country narrowly avert financial annihilation earlier this year with a €7.5bn loan have made it clear they view this as unacceptable backsliding.