Uncertainty continued to roil markets through Wednesday, although Italian stocks and bonds rebounded on reports that the two anti-establishment parties were renewing efforts to form a government, potentially staving off the prospect of a snap election.
Still, fears loom large over potential contagion, which refers to the spread of market disturbances from one region to others and is normally associated with a financial meltdown. The spread of an Italian financial and debt crisis to other countries could cripple their ability to repay government debt without third-party help.
The closest example of this would be Greece, whose debt crisis over the past several years brought chaos onto Europe and still remains a major problem for the continent today, although European safeguards largely prevented contagion.
Latvia adopted the shared European currency in 2014 and in 2017 saw robust growth of 4.5 percent, aided by EU funds like the European Social Fund, and European Regional Development Fund and the Cohesion Fund.
While the market panic seems to corroborate Reizniece-Ozola’s views, many analysts see the risk of contagion as small, and the risk of a euro departure even smaller. Former IMF Chief Economist Olivier Blanchard told CNBC this week that he believed Europe would be OK, but he was “very worried about Italy.”