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It can easily lead to contagion, where selling in one market triggers selling in the next.
The fear is that a Greek collapse will lead to contagion to Italy.
"As the last crisis demonstrated, taxpayers can be put at risk if bank failures lead to contagion.
How are we to know if a particular event, like deciding not to bail out a big bank, will lead to contagion that spreads to other financial markets?
"Bad neighborhoods," according to Brown, are created when radicalized politics in a region lead to contagion, diffusion, and spillover effects (external mass-level causes).
François Baroin, the French finance minister, and Didier Reynders, his Belgian counterpart, acted on fears that the problems at Dexia might lead to contagion elsewhere in the financial system and raise additional doubts about other European lenders.
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New financial instruments had been intended to spread risk and insulate individual institutions; in fact it led to contagion.
But that begs the question: why should an involuntary restructuring lead to worse contagion than a voluntary restructuring of comparable depth?
The one argument that seems, at least superficially, to put the public interest first is that an involuntary restructuring might lead to financial contagion, with large eurozone economies such as Italy, Spain, and even France facing a sharp, and perhaps prohibitive, rise in borrowing costs.
But this time round a slump would be unlikely to lead to a broader contagion, since it would be confined to private markets and a few large firms with strong balance-sheets.
The market's lukewarm reaction to the financing package confirms our view that a traditional financing package (Plan A), extended at unsustainable interest rates, will not allay solvency fears but rather lead to disorder and contagion.
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