The market has been in full-on panic about Greece for a while now — hence the parabolic spike in short-term rates — and now it seems the wise men of the market are fully on board.
El-Erian, in so many words, says Greece will default. Krugman is talking about the real possibility of unwinding the euro and ends his piece with: “I think I’ll go hide under the table now.”
That’s some seriously gloomy language from arguably the most influential public economist in America.
What’s amazing is that we seem to have a full-on financial crisis in Europe. Yes, Greece itself is small, but Portugal, Spain, and Italy are not small at all. And the the interconnected European banking system isn’t small, and yet for the most part, domestic markets in the US don’t seem all the concerned, which is pretty astounding.
Meanwhile, the New York Times has a good piece on the political pressures mounting on Angela Merkel. The world wants her to act, but big elections are coming up next month that could upset her coalition, and a Greece bailout will prove toxic.
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