Just as you thought the crisis mode in Europe was over and markets seem to be enjoying confidence and stability, along comes another curve ball, served up by Italian politicians.
Center-right leader Silvio Berlusconi pulled his ministers out of the cabinet on Saturday, effectively bringing down the government of Prime Minister Enrico Letta and leaving the euro zone's third-largest economy in chaos.
According to Nicholas Spiro, managing director of Spiro Sovereign Strategy, while markets have grown accustomed to "Italy's dysfunctional politics," there's a sense that things are now spinning out of control, with potentially dangerous consequences for both Italy and the euro zone.
"(Saturday's) resignations of the five ministers from Silvio Berlusconi's Forza Italia party from the conflict-ridden government of Premier Enrico Letta sounds the death knell for the five-month-old 'grand coalition,'" Spiro wrote in a note Sunday.
"Mr. Letta's cabinet is unable to govern—indeed it's questionable whether it ever did," he said.
Italy, which is the world's third-largest bond market, matters more than any other euro zone peripheral economy, Spiro noted.
"In the minds of investors, the euro zone crisis has always been about two countries: Italy and Spain," he said. "If either one suffers a major crisis, markets are more likely to take fright."
"The big difference now is that the (European Central Bank's) bond-buying program continues to suppress Italian and Spanish borrowing costs, while markets have chosen to focus on signs of an economic recovery in the euro zone," Spiro added.
On Sunday, Italy's economy minister tried to play down the potential market impact of the latest developments, saying investors have already factored in the country's political instability.