The EU and the Latvian state reportedly had reasonably consented to the proposed change. Parex bank imploded in 2008 and had to be bailed out by the state. The banking collapse is blamed to be the prime reason behind Latvia’s economic hardships and at a time it dragged the country to the edge of bankruptcy.

Regarding choosing the new name, Gwilliam explained that they chose the name as “it symbolises the return of value to our assets, the return of money from borrowers and therefore the return of value to the state.” Economy Minister Daniels Pavluts told reporters the name change was justified by the negative associations that the old Parex name still retains.

“Parex is associated with words like crash, crisis and bad bank,” Pavluts was quoted as saying by the press. The initiative means that the ailing bank has been re-branded for the second time since the initial bailout.

In August 2010, a new state-owned bank called Citadele was launched using Parex’s most valuable assets, with a rump bank retaining the old name.

The same has now transformed into Reverta. On 15 March Latvia’s financial watchdog agreed to withdraw Parex’s banking licence at the company’s request, effectively turning Reverta into an asset management company.

The chairman of the Society on Promoting Latvian-Belarusian Economic Ties Alfredas Cepanis motivates his words by the fact that embargo on Belarus would painfully affect not only Latvian manufacturers who bring their goods into this country, but especially transit: railways, ports, motor transportation, as well as banks.

“A billion Euro a year would be a kind of compensation for the lost market, decrease of cargo turnover at ports, new unemployed, decrease in tax revenue,” Cepanis said. He admits that Latvia can demand more, as Belarus can make steps to meet. Expenses of transport operators would grow considerably, as Ukrainian goods would be transported via Russia, and not directly via Belarus.

According to the estimations of the Latvian Confederation of Employers, sanctions against Belarus and Latvia can bring about losses of about Euro 480.9 million (336.9 mln lats).

In case the sanctions are aimed against Belarusian enterprises related to transit of oil and coal, railway cargo turnover is to decrease. It is 57% of the general cargo turnover, 3% 0of the GDP and 8.1% of budget revenues of the country.

According to other estimations, losses can be even higher, 4.5% of the GDP. Belarus is the second most important partner of Latvia in transportation industry, to which an important role in transit from Ukraine, Russia, Kazakhstan and so on belongs. The turnover of cargo between Latvia and Belarus in 2011 was 33.8 mln tons and 57% of the total amount of transportations.

A letter about possible results of the sanctions has been written to the head of the government Valdis Dombrovskis. There is no answer yet, Cepanis confessed.

Latvian Economy Minister Daniel Pavluts also agrees that the losses of Latvia caused by sanctions against Belarus would be about half a billion dollars. He noted however that every figure should be confirmed by mathematical calculations. The minister has also agreed that Latvia has a right to demand compensation from the EU.

Finance Minister Andris Vilks for his part does not hide that sanctions against Belarus would negatively affect the budget revenues, though he has not given concrete figures, mentioning just “dozens millions lats.”

Dombrovskis pointed out that the treaty aims at solving the eurozone’s current issues and ensuring a stable basis for its further development. It will also prevent similar crises in the future. “Latvia also wants to ensure economic growth and prosperity, with the help of eurozone advantages. We are interested in a stable and strong eurozone,” the Latvian PM explained.

Several analysts believe that fiscal discipline and economic growth exclude each other and that austerity measures will not lead to growth. Therefore, governments are being urged to increase their budget deficits to stimulate economic growth, Dombrovskis noted.

“I cannot agree with such statements. Stability is a precondition for growth. It is ensured by financial markets’ trust, which in turn is gained by prudent economic actions. According to such claims, Greece, who does not observe fiscal discipline and has a large budget deficit, should be flourishing, whilst Estonia with its smallest budget deficit and national debt should be consumed by depression.”

“In reality, however, Greece is sinking deeper, whilst Estonia registered the steepest growth in 2011, 8 percent of gross domestic product,” Dombrovskis underlined.

The IMF also warned that the Baltic nation could be going too far in its ultra-austere fiscal policy, and could afford to loosen up while engaging in more structural reforms for the long run. “Reform fatigue is increasingly evident,” the IMF said in a new assessment of the Latvian economy. “The economy continues to recover, but the worsening global outlook is likely to hurt growth next year.”

Projected growth of 4.5-5.0 percent this year could slow to 2.5 percent next year due to falling external demand, and “this could be optimistic if the euro area debt crisis were to worsen further,” the Fund said. It said the government’s tough spending and wage cuts in 2009 and 2010 have succeeded in bringing down the deficit to an expected 4.0 percent of gross domestic product in 2011, compared to nearly 10 percent two years earlier.

But excessive tightening has left the country with a still-high 14.6 percent unemployment rate and more than one quarter of the population lives in severe poverty. The IMF praised the country’s performance so far under its three-year 7.5-billion-euro ($10 billion) financial aid that ended in December.

But it questioned continued severe cuts by the government of Prime Minister Valdis Dombrovskis, without needed reforms to bring in more revenues, including tax increases.

“Many of the budget’s measures, an across-the-board freeze in nominal wages, cuts in central and local government investment, cuts in road maintenance, are of questionable quality,” it said. “Cuts in social safety net spending seem inadvisable given the increase in long-term unemployment,” it added.

“While across-the-board cuts might be unavoidable early on in the program, now that the crisis is over the fiscal consolidation should have been based more on structural reforms.”

It said lack of reforms could hurt the country’s progress in joining the eurozone, the country has pegged its lats currency to the euro for several years with this goal in mind. Without reforms, the IMF warned, the Latvian lat to the euro exchange rate could become “misaligned,” itself a problem in adopting the euro, currently shared by 17 countries.

Moreover, it added, the euro area debt crisis “raises important questions” about the goal of joining the euro. “Current uncertainty and tensions in the euro area could risk delays in Latvia’s euro adoption,” it said.

The panic among Swedish owned Swedbank’s depositors began Sunday after rumors spread that the financial institution was facing legal and liquidity problems in Estonia and Sweden.

Swedbank’s Latvian chief Maris Mancinskis on Monday called the rumors “absurd.” He said the bank is functioning normally and all depositors will have access to their funds via bank machines.

Mancinskis said some 10,000 Latvians withdrew over 10 million lats ($20 million) on Sunday.

Latvia’s 10th largest bank, Latvijas Krajbanka, is currently being liquidated after regulators uncovered fraud on a massive scale. Depositors were left without access to their money for days.

The rumors began about two weeks ago when Latvian authorities took over Latvian bank Krajbanka and intensified Friday, Backteman said, but he added that the rumors were completely groundless.

Swedbank estimates that the weekend’s cash machine withdrawals were seven times higher than during a normal weekend, at around 15 million lat ($29 million), Backteman said. Around a third of Swedbank’s Latvian cash machines were empty by 2000 GMT Sunday evening, he said.

Swedbank is working on ensuring sufficient liquidity in its Latvian cash machines and making sure its Latvian staff calms customers there, Backteman said, adding that his company is working closely with Swedish and Latvian authorities and with other Swedish banks in Latvia.

Apart from local market leader Swedbank, Sweden’s SEB AB (SEB-A.SK) and Nordea AB (NDA.SK) also have strong market positions in the country.

SEB has also seen larger cash withdrawals than usual in Latvia over the weekend, and is working on providing liquidity and calming its customers there, spokesman Claes Eliasson told Dow Jones Newswires. The rumors about Swedish banks lack foundation, he added.

Meanwhile, Nordea spokesman Erik Durhan said his company is monitoring the situation in Latvia, adding that the rumors were groundless.

The rumors in Latvia, which have been spreading in social media, include unfounded claims that Swedbank would leave the country and that it would be impossible to withdraw cash from the machines, Backteman said.

Latvian authorities may bring legal charges against the persons spreading the rumors, as such activity is illegal in the country, he added.

Latvia’s financial regulator, the Financial and Capital Markets Commission, is together with the police investigating the origin of the false rumors, spokeswoman Agnese Licite told Dow Jones Newswires, adding that the Latvian financial sector is “very healthy” and banks there meet the requirements for capital and liquidity.

Sweden’s Financial Supervisory Authority is monitoring the development in Latvia, liaising with the local authorities and Swedish banks, its head of large bank supervision, Henrik Noreus, told Dow Jones Newswires.

The risk of wider stability problems looks limited as the rumors are groundless and as the Swedish banks are stable and liquid, Noreus said, adding that the public’s concerns will hopefully ease as long as the Latvian cash machines are continually filled with new cash.

At 0924 GMT, shares in Swedbank were down 3% at SEK86.40, underperforming a 1.2% drop in the wider Stockholm market. Nordea was down 2% at SEK51.75 and SEB was 1.9% lower at SEK39.75.

Swedbank’s shares are weighed by the Latvian rumors and cash withdrawals, a Stockholm-based analyst said, adding that Nordea’s and SEB’s share price reactions are more limited as they have less extensive operations in the country.

Swedbank has rather small deposits in Latvia so the cash withdrawals shouldn’t have any big financial impact, he said, but added that the incident still hurts investor sentiment.

The six said they were leaving due to “undemocratic decision making” in the party, according to a press release published yesterday, adding they will support the Cabinet, which will have 50 of the legislature’s 100 seats. The new parliament, elected last month, began its first session today.

Since turning to the European Commission and the International Monetary Fund for a 7.5 billion-euro ($10.4 billion) loan in 2008, the Baltic country has lowered spending and raised taxes equal to about 16 percent of gross domestic product. It plans further cuts in next year’s budget to lower the deficit to 2.5 percent of GDP to adopt the euro in 2014.

“We don’t have time to play little games, we have work to do,” President Andris Berzins, who must name the next prime minister, told lawmakers today. “In any case we can’t talk about working for three years,” he said in an interview with Latvijas Radio before his remarks in parliament.

Failed Latvian Vote

In a sign of problems within the coalition, former President Valdis Zatlers failed to garner enough votes in two separate secret ballots to become speaker of the parliament today, a position the parties agreed he would get.

Dombrovskis’s Unity party and the Reform Party formed a coalition together with the National Alliance, which planned to have 56 votes, instead of a government with Harmony Center, which appeals to the country’s Russian minority. That grouping would have given the three-party government 73 seats.

About 2,000 supporters of Harmony protested outside of parliament today after the party, which won the most seats with 31, was left out of coalition talks, the Baltic News Service reported, citing police estimates.

Zatlers, leader of the Reform Party, has refused to negotiate with the Greens and Farmers Union due to their connection with Aivars Lembergs, the mayor of Ventspils, who is accused of money laundering and abuse of office. Lembergs denies all the charges.

The defections “revive the chances of the Greens and Farmers being in some sort of coalition,” Nils Muiznieks, a political scientist at the University of Latvia, said by phone. “How it will play out is completely up for grabs now.”

The yield on Latvia’s 400 million euro bond due 2018 fell 3 basis points to 4.79 percent today. Latvian five-year credit- default swaps, used to speculate on a borrower’s credit worthiness, were little changed at 307 basis points on 14th October.

“The economic situation is getting better, GDP could grow 4 percent or even higher this year,” said Griffiths, at a press conference in Riga today. “The difficulties in Europe will effect Latvia but to a less extent” than previously in 2008, he said.

Latvia’s economy grew 5.6 percent in the second quarter, the quickest pace in 3 1/2 years, after contracting by almost a quarter since 2008 following the end of credit-fueled real- estate bubble. The government was forced to turn to a group led by the European Commission and the IMF for a 7.5 billion-euro ($10 billion) loan in 2008 after the second-biggest bank needed a state rescue.

The commission and IMF are in Latvia as part of a review mission to look at the budget and economic estimates, the effect of a capital increase in airline AirBaltic AS and plans to split state owned Hipoteku Banka AS, Griffiths said.

Latvia’s mission with the EU and IMF ends in December. The IMF forecast the country’s GDP growth at 4 percent this year and 3 percent next year in its European outlook released yesterday.