The question I’m trying to answer right now is how the final act will be played. At this point I’d guess soaring rates on Italian debt leading to a gigantic bank run, both because of solvency fears about Italian banks given a default and because of fear that Italy will end up leaving the euro. This then leads to emergency bank closing, and once that happens, a decision to drop the euro and install the new lira. Next stop, France.
It all sounds apocalyptic and unreal. But how is this situation supposed to resolve itself? The only route I see to avoid something like this involves the ECB totally changing its spots, fast.
Aside from that, Mr. Draghi, are you enjoying your new job?
Tuesday, November 1, 2011
Krugman Prophesies Doom
Paul Krugman, cheery as always: