Unemployment has now hit 20 per cent and the economy contracted by 18 per cent last year.

The People's Party quit after its action plan failed to get the backing of Valdis Dombrovskis, the Latvian prime minister, who labelled it "populist".

Mr Dombrovskis warned the People's Party's departure could cause yet further economic instability.

"Any contradictions in the government are immediately reflected in the financial markets, and they directly affect the fiscal stability our country... a policy that is truly responsible for the country cannot be self-centred," he said.