A writer who projects emotions on to the weather is guilty of the “pathetic fallacy”. But, at the risk of sounding both pathetic and fallacious, it was entirely appropriate that the sky darkened and the thunder cracked as I approached the office of the Latvian prime minister in Riga last week. The gloomy atmosphere reflected the dark mood in a small, embattled country of 2.2m people. While business headlines in the rest of the world speak of clearing skies and rays of sunshine, the Baltic states are still in the midst of a howling economic gale.
Despite the region’s small size, the intensifying crisis in the Baltics cannot be treated as a freakish local squall of little concern to outsiders. Bank failures or plunging currencies in the three Baltic nations – Latvia, Lithuania and Estonia – could threaten the fragile prospect of recovery in the rest of Europe. These countries also sit on one of the world’s most sensitive political fault-lines. They are the European Union’s frontier states, bordering Russia.
The economic downturns in the region are shocking. Last week, Lithuania announced that its economy had shrunk by 22.4 per cent, at an annual rate, during the second quarter of 2009. Latvia and Estonia are likely to record similar falls when they announce their figures. Dalia Grybauskaite, the Lithuanian president, told me last week that her country might have to apply to the International Monetary Fund for a loan. Latvia has already trodden that path. Last week it agreed its second loan in eight months from the IMF and the EU.
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