Thousands of Latvians gathered in downtown Riga in mid-January 2009 to demand the resignation of the centre-right government, which they blamed for rising unemployment and the country's economic woes. (Roman Koksarov/Associated Press)

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The faster they rise, the faster they fall. It's the analogy Alf Vanags uses to describe Latvia's calamitous topple from grace.

Vanags is director of the Baltic Institute for Commercial and Economic Policy Studies and he has been watching his country's financial downfall from his office in the capital Riga.

"It's grim," he says. "If you look at the figures, it's the worst in Europe."

Indeed, Latvia is expected to see its economy shrink by an astonishing 12 per cent in 2009. That's after already enduring a steep decline in 2008.

The number of unemployed has doubled and the jobless rate is expected to rise to 15 per cent or more this year.

Latvia's newest prime minister, Valdis Dombrovskis, a former finance minister, was asked on Feb. 26, 2009 to try to form a government. (Roman Koksarov/Associated Press)

The country has been forced to ask the International Monetary Fund and the European Union for an emergency bailout of 7.5 billion Euros, which is almost $12 billion in Canadian currency.

It came after the government was forced to nationalize the country's second largest bank and around the same time as the country's national debt was declared junk by the credit ratings agency Standard & Poors.

In short, the economy is a mess.

The darling of the Baltics

How did it come to this? In 2006, Latvia was held up as a shining example of a former Soviet state that had done everything right.

Riga hosted its first NATO summit then where George W. Bush and Stephen Harper were welcomed as honoured guests of the country's then president Vaira Vike-Freiberga, who had spent much of her life in Canada.

Three years later, Vike-Freiberga has been replaced (as, this week, was the Latvian prime minister) and the country that once boasted the continent's highest rate of growth is now the poor man of Europe.

In retrospect, Vanags says, Latvians should have seen it coming.

"We had a property boom, just like everywhere else," Vanags points out. "The booming house prices made people feel richer so they borrowed and spent money on consumer goods, on three holidays a year.

"And then, the real estate bubble began to deflate and we were hit by the general effects of the world financial crisis. And here we are."

Here we are

Among Latvians, there is deep pessimism about the country's prospects for recovery. Consider the case of Andres Alexandros.

With a mortgage and two young children, Alexandros was laid off recently from his job at a car dealership. His spouse, Inga Kruma is on maternity leave and caring for their two boys, one four, the other seven months.

"Of course I am worried about the future," Kruma says, balancing the baby on her knee in the family's small flat in the suburbs of Riga. "How will we live?"

Frustration over the country's deep problems erupted into violence last month when rioters clashed with police and 40 people were injured.

The country's prime minister resigned under intense public pressure. But hardly anyone believes a new government will bring about any real change. Latvians openly express contempt for their elected leaders.

Not the only one

Latvia's troubles may rank among the most serious in Europe at the moment. But it is not alone in the continent's economic emergency ward.

Poland, Hungary and the Czech Republic have all watched their currencies slump in value. Ukraine and Hungary have also been forced to go cap in hand to the IMF.

In Kiev, protesters took to the streets to express their outrage over the worsening economic crisis.

It's all being watched nervously by Western European banks, which financed much of the boom in these emerging economies and now fear these debts may never be repaid.

In Latvia, people seem genuinely shocked at how quickly the rug was pulled out from under them and how hard their country is falling. But Vanags says Latvia has been through tough times before and will survive this crisis.

"If you take older generation people who lived through the Soviet Union, through the breakup of the Soviet Union, through the Russian financial crisis, I think they're very fatalistic about it."

For them, he says, "it is just another crisis."

"But for younger people, who have never seen this, who have grown up in a market economy in Latvia, I think it is much more of a shock. They thought that wages would go on rising forever. Well, they're not."