The markets have seen much of this movie before: a heavily indebted country finds itself in crisis, the currency plunges and talk quickly turns to contagion and, ultimately, an expensive globally financed bailout.
In Turkey's case, the plot line is a little different, however. Where the other debt crises generally involved government borrowing, Turkey's is mostly a corporate story, making the bailout mechanics more complicated and thus raising fears that what started in a small country with only marginal systemic importance on its face could quickly escalate.
"How can a country where the entire market cap of Turkish equities traded on the Istanbul Stock exchange is less than the market cap of Netflix wreak such havoc? It is all about the direct and indirect impacts," wrote Katie Nixon, chief investment officer for wealth management at Northern Trust. "There are certain emerging market countries with relatively weak currencies and a heavy reliance on external (predominately dollar based) financing. The fear is that what happens in Turkey won't stay in Turkey."
Nixon said that while the crisis does not appear to have major global implications, a strong U.S. dollar coupled with weakening emerging market currencies could fuel the problem.
To date, the debt emergencies in Greece, Cyprus, Italy and other euro zone countries — not to mention Argentina, Malaysia and perhaps Pakistan before long — have had limited global spillovers. Several required bailout loans from the International Monetary Fund, an organization that gets 17.5 percent of its funding from the U.S.
But none have been accompanied by global financial panic.
Yet investors continue to worry which country will trigger the next calamity along the lines of the 1997 Asian financial crisis that looked contained on the surface but soon turned contagious.