Monday, May 14, 2012

Krugman Gets the EZ Collapse

It's right smack in front of him but he gets it. Paul Krugmanwrites:
A brief blast from the past. What I hadn’t realized when I wrote that two years ago was the extent to which eurozone banks could float through a slow-motion bank run by borrowing from the ECB. So the real moment of truth comes if and when the ECB — or more accurately the Bundesbank, which may ultimately be on the hook — decides to pull the plug. 
The point, of course, is that this moment may not be far off.
On Friday, I talked to a very senior former U.S. official, who was in contact with very senior eurozone people and he tells me that in the short-term the ECB will keep things afloat.  So Krugman's timing may be off a bit, but he is on the right side of the ultimate result. Crisis will come and could mean the end of the EZ, but first more ECB will be done. The ECB has not run out of ink or toilet paper, yet, and it does not yet fear price inflation enough..

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