There is no doubt that the changed environment has increased the potential risk of contagion even though it is sometimes difficult to draw the dividing line between contagion and political shortcomings. The reassessment of a country’s opportunities and risks, of its potential and weaknesses by the international financial markets, can result in a sudden reversal of international capital flows.
Market participants all around the world react to events with lightning speed – they pump money into a country and then withdraw it again just as quickly. Under the conditions of open capital markets and a high degree of capital mobility the punishment for unsound policies is more rapid and severe than has been the case in the past.