The Swedish banks have acted "carelessly" in the Baltic States, Sweden’s Prime Minister Fredrik Reinfeldt said.

Swedish banks are heading for massive losses as their investments and lending in the crisis-hit Baltic States are threatened to diminish. As a result of the turbulence in the Baltics, where a devaluation of the Latvian currency is running nearer, the Swedish banks have tumbled on the Stockholm stock exchange and the krona has dived against the euro and the dollar.

Last quarter the Latvian economy shrank 18 percent, the steepest slump in the European Union. As recently as 2007 Latvia boasted double-digit economic growth. The Swedish banks Swedbank and SEB are Latvia's largest lenders.

Sweden’s Prime Minister Fredrik Reinfeldt says in an intervjuew with the TT news wire that the Swedish banks have acted "carelessly" and with lack of responsibility-taking in the Baltic market.

“The lending has been far to aggressive in good times, which they made a lot of money from”, he said. “But there’s to much choppiness when times are not as good, with totally different prices and by pulling away from responsibility”.

Finance Minister Anders Borg said in an interview with Swedish state television, SVT, that the government can handle a possible bank collapse due to the Baltic crisis.

"We will be very clear with banks which are not solvent and cannot live up to what the law stipulates, that they can count on (government) funding to be in the form of state ownership”, Anders Borg said.

Some 40 percent of Latvia’s population of 2.3 million people are customers with Swedbank, according to Bloomberg. The bank controls about a quarter of the lending market in Latvia and has lent 65 billion kronor (€6.2 billion). SEB has total lending of 39 billion kronor in Latvia.

Budget reinforcements have put difficult strains on the Latvian people as the government has begun work on restoring long-term sustainable public finances.

“The situation in Latvia is a cause for concern, with production falling and unemployment rising” Anders Borg writes in a comment about the current situation. “The deficit in the public finances has, however, increased and the original goals no longer appear attainable”.

Despite growing concern that Latvia will be forced to devalue its currency, the country’s central bank pledged on Thursday to defend its currency’s peg to the euro, something that puts extra pressure on the governments budget.

“I take note that the authorities want to control government debt and maintain their exchange rate peg. It is urgent to underline the importance of continuing to manage the deficit in the public finances”, Anders Borg said.