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Why This Was a Pivotal Week for Europe

As the week closes out, Spanish and Italian leaders are worried that the market may once again be turning on them.

It's the worst week in a long time for both countries' bond markets as each saw their yields climb above 5 percent.

(Read More: Spanish and Italian Bond Yields Reach for the Skies on Political Woes)

The increased investor fear is driven by political uncertainty.

In Spain, Prime Minister Mariano Rajoy is embroiled in a corruption scandal leading some to question whether or not he can remain in office.

(Read More: Spain's Mariano Rajoy Denies Corruption Charges)

In Italy, former Prime Minister Silvio Berlusconi, a never ending scandal himself, is rising in the polls again ahead of the February 24 election.

In fact, he's closed the gap between him and the front runner to only 5 percent. Berlusconi was essentially pushed out of office by the markets in 2012. The country's yields rose to 7 percent when investors began abandoning the country's debt because it seemed Berlusconi didn't have the political ability to reform the Italian economy.

Technocratic leader Mario Monti was asked to step in. Now, that Monti's stepped down, the Italians have the option of bringing him back.

Berlusconi has recently made some politically astute moves, including a promise to repeal a controversial property tax, and the hiring of a star soccer player Mario Balotelli to his Milan soccer team.

(Read More: Berlusconi Offers Big Tax Cuts in 'Last Great Battle')

Twice this week the selloffs in Europe were strong enough to drive the US markets sharply lower.

(Read More: Monte dei Paschi Harbored Bank Within a Bank)

The rally-skeptics say this is a sign of more to come.

—By CNBC's Michelle Caruso-Cabrera; Follow her on Twitter @MCaruso_Cabrera

Contact World Economy

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