Latvia’s is the second European government, after Iceland, to fall as a direct result of the global economic woes.

From the BBC:

Latvian Prime Minister Ivars Godmanis and his center-right government have resigned, amid turmoil triggered by economic crisis in the Baltic state.

President Valdis Zatlers has accepted the resignations and is beginning talks to try to form a new administration.

The country’s economy is in recession and is set to contract by up to 12% in 2009, with unemployment rising by 50%.[...]

[...] Latvia’s economy has shrunk at its fastest rate since the early 1990s, after it split from the Soviet Union and regained its independence.

Latvia’s gross domestic product (GDP) fell 10.5% in the last quarter of 2008, compared with the same period a year earlier. Economists believe GDP could fall as much as 10% this year.

The country had enjoyed several boom years – in 2006 the economy was still growing by 12% a year – but the global credit crunch has hit Latvia hard.

Correspondents say a major reason for the decline was that locally-owned banks, which make up 40% of the Latvian financial system, were taking deposits from abroad and investing them in the booming property market.[...]

[...] When the property market begin to decline and foreign credit dried up, confidence in Latvian banks evaporated.

The second largest bank, Parex, collapsed after depositors panicked and has been largely nationalized.