Latvia is struggling to avoid devaluing its currency, the lat, and is facing demands from Swedish banks and the International Monetary Fund to institute severe budget cuts as a precondition to pumping in the capital needed to avoid a deep recession and maintain the lat's value, The Wall Street Journal reported Saturday.
The situation is revealing fragility at the edges of the European economy and reportedly has sparked fears that a currency crisis could spread to fellow Baltic nations Lithuania and Estonia.
"The situation in Latvia is a threat, everyone is afraid of regional spillover, though we see that different markets are reacting differently," Dariusz Filar, a member of Poland's Monetary Policy Council, told the Journal. "The situation requires an international response."
The Journal said the Polish zloty, the Bulgarian lev and the Hungarian forint are also under pressure and potentially at risk.
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