Latvian Prime Minister Valdis Dombrovskis said the court's decision could bankrupt the Latvian government after rendering its carefully-negotiated budget asunder.

RIGA — The Constitutional Court’s ruling Monday that the decision by Latvia’s government earlier this year to lower pensions had violated the Satversme will, at the very least, force a new round of talks with international lenders and could trigger a new wave of political instability.

Prime Minister Valdis Dombrovskis suggested the spirit of the decision was erroneous since, as he told LNT television in an interview Wednesday, “We will just go bankrupt if we observe all legal norms.”

Still the prime minister said the government would honor the court’s ruling, which stated that the reduction in pensions earlier this year – 10 percent for all pensioners, and 70 percent for employed pensioners – must be canceled by March 1 of next year.

In financial terms, this boils down to some 183 million lati (€260 million) that the government must cough up in next year’s much maligned budget, though part of this (83 million lats) can be disbursed later, according to reports.

Given the role international lenders are playing in Latvian fiscal policy, the court’s decision also means that the government will first have to sit down with officials from the International Monetary Fund and the European Union and hope that the latter entities empathize with its predicament.

However, after the Constitutional Court also ruled that the government’s agreement with international lenders was also unconstitutional in that it hadn’t been approved by parliament — Latvia, after all, is a parliamentary democracy, some officials are calling for a review of the agreement.

Regional development minister Edgars Zalāns told the Delfi news portal the agreement with the IMF and other lenders can easily be amended given its shaky legal grounds, a position that flows from the People’s Party’s growing criticism of the government’s fiscal policy and the increasing role lenders are playing in it.

Be that as it may, no one is doubting the court’s ruling, and as of Tuesday nearly every minister and lawmakers was trying to figure out how to come up with the funds.

On the bright side, Dombrovskis said Wednesday that Latvia’s slightly lower budget deficit — 7.5 percent of GDP instead of 8.5 percent — would give the government room to move.

Finance minister Einars Repše said any amendments to the budget would have to be made by March 1, and that there would be no new taxes – only expenditure reductions.

One of the most interesting aspects about the discussion was whether to begin reimbursing pensions now or in a few years when Latvia’s economy begins growing again.

Some politicians believe that it is imperative to begin paying back pensions – the 83 million lats (€117 million) – as soon as possible, otherwise electioneers will seize this issue and use it to win vote in next year’s national elections.

“If we did not settle this debt by the next elections, the votes would go to those who will promise to repay [it] before 2015,” said independent lawmaker Aigars Štokenbergs. “Then you’ll have populists in the next Parliament that you’ve never seen even in your dreams.”