Latvia warns Swedish banks to resume lending

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Latvia’s prime minister has warned Swedish banks they risk choking off recovery in the Baltic state’s crisis-hit economy unless they resume lending.

Banks such as Swedbank and SEB, which dominate the Latvian market, have reined in credit as they struggle to contain rising bad loans amid the deepest recession in the European Union.

“The . . . abrupt stopping of credit is a very problematic issue,” said Valdis Dombrovskis, the prime minister. “We expect Swedish banks to start [lending] again.”

Mr Dombrovskis said the banks must share responsibility after they helped sow the seeds of crisis by lending “irresponsibly”. The economy has contracted by about 18 per cent this year after a long period of rapid growth was thrown into reverse by the global credit crunch.

“Of course you can say that Latvians were borrowing irresponsibly but to borrow irresponsibly you need someone to lend irresponsibly,” he said. “We had very easy credit in a very overheated economy. Now we have almost no credit in a very deep recession.”

The Prime Minister makes some good points.  These are exactly the same issues confounding the U.S. banking system and one reason quantitative easing doesn’t foster more lending.

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