The Russian invasion of Georgia has cast a pall over European politics, not least for the Baltic states. As members of the NATO defense alliance and the European Union, they have been looking with alarm at the reckoning that Russia handed out to Georgia for daring to attempt to reclaim its two disputed regions of Abkhazia and South Ossetia.

Russia’s formal declaration of recognition of these two breakaway provinces as newly independent countries is a provocation to all countries on Russia’s borders, may have consequences for other potential breakaway provinces with the Russian Federation itself, and above all is an instruction to the United States and the EU that Russia has its interests and neither America nor Europe can do anything about them. The largely muted responses by Europe (trying always to broker a peace and asking “both sides” to be reasonable) and the empty campaign-related rhetoric of the United States against the invasion point to the difficulty of affecting the situation in any way. While the Baltic states along with all of Eastern Europe condemned the attack, it was not possible to persuade the EU to adopt a stronger response.

Two broad lines of interpretation arise from this situation. The first is that whatever immediate gains militarily and diplomatically Russia may have made, and however quiet the present response from the EU and U.S., this will negatively affect Russian relations with the world in the medium to longer term. It will first of all expunge the last of the fantasy that Russia is, if slowly, becoming a democratic state and that one will be able to deal with it as a “normal” country. Secondly, it will make all Western governments and businesses more wary of economic contacts with Russia. Already there has been a massive withdrawal of Western investment. And thirdly it will make all countries look much more seriously at whatever ways they are dependant on Russia, particularly in energy and specifically gas supplies to Europe, and seek alternatives at an accelerated rate.

A second line is more pessimistic. It points to the strategic strength of Russia in capitalising on U.S. and European weaknesses. The U.S. is overextended in the Middle East and in no position to challenge Russia in the Caucasus. Moreover, the U.S. needs Russian help in its dealing with Iran, Syria and others, or face increasing Russian arms sales and strategic help to these countries. The U.S. needs Russia more than Russia needs the U.S. Europe has too many vulnerabilities. It has dismantled much of its old energy infrastructure in exchange for easy Russian gas. History shows that individual European countries will often try to make friendly deals with Russia rather than oppose them. Germany’s ex-Chancellor Gerhart Schröder’s and Italy’s Silvio Berlusconi’s open love affairs with Russia are telling examples. Recent moves, such as Poland’s hasty signing off on a deal to house strategic NATO units in response to the Georgian invasion, will be an endless bone of contention with Russia. We may not be at the beginning of another cold war.

Meanwhile, there have been hasty reassurances from NATO leaders that security commitments to their new members in Eastern Europe—including the Baltic states—are still sound.

For all its potentially critical consequences, the Georgian situation has arisen at a time when the Latvian government is in continuing deep trouble both politically and economically on the home front. It has been a very active summer in Latvian politics indeed, with two referendums, marked signs of an economic downturn amid still high inflation, and a number of politically sensitive positions to be filled, including the head of the Corruption Prevention and Combating Bureau (Korupcijas novēršanas un apkarošanas birojs).

The Aug. 2 referendum was on a constitutional amendment to give the electorate the power to dismiss the Saeima, and though the referendum did not get the numbers, it was another important warning to a universally unpopular parliament.

The referendum was initiated by the trade union federation, covering mostly educational, medical and transport workers, as an attempt to rectify the situation where currently only the president can move to dismiss the Saeima. This provision has never been used by any president. The trade unions’ proposal was to allow the public the initiative to propose dismissing the parliament.

About 600,000 people voted, but this was short of the required 750,000 votes—half of all eligible voters, a stiff demand for a constitutional change. Yet it does show that more than 600,000 people were motivated enough to vote, maintaining the anger that has characterised Latvian attitudes to the Saeima and government now for over a year.

The second referendum on Aug. 23 was on a change to the state pension law. The referendum required a smaller number of voters to succeed. But it also failed, with about 300,000 people voting where some 450,000 were required. The proposal was to immediately increase pensions, and make adjustments to categories and ratios of entitlements that would better reflect years of work. It was proposed by a number of pensioner groups and the new political association A Different Politics (Savienība citai politikai), formed by breakaway politicians from the People’s Party (Tautas partija). The referendum was bitterly opposed by the government, which accused the proposal of being financial vandalism. The government ran a relentless scare campaign, arguing that the new rates of payment would exhaust the social security budget in a few years.

Seeing off the two referendums no doubt gave the government a brief relief, and in both cases the strategy of encouraging voters not to participate—a more than unusual response in a democratic country—was a seemingly successful strategy. Yet potential disasters loom for the government both economically and politically.

Economically, the “fat years” of former Prime Minister Aigars Kalvītis’ reign have come to a halt, with slower growth figures but still double-digit inflation affecting families and businesses. This has presented the government with a seemingly impossible budget situation, and responses to this have alternated between the comic and the tragic. A freeze on all public sector wages has been proposed, an extremely unpopular move in the light of still rising prices. Meanwhile, examples of rampant spending on luxury items by government departments and ministries (particularly on some handsome furniture) have hardly helped the cause. A proposed 5 percent cut in the budget of every ministry and department led to a symphony of special pleading and excuses.

Politically, after the manipulated dismissal of the former head of the anti-corruption bureau, the position still needs to be filled. This is an issue that has already brought down one prime minister and will be closely watched in Latvia as well as internationally.