- - - - 7/20/12

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http://krugman.blogs.nytimes.com/2012/07/20/dornbuschs-law-and-the-euro/

Dornbusch’s Law And The Euro

"The Spanish bailout was agreed, but with so many restrictions and indications that it isn’t the start of something bigger that the markets were, to say the least, not happy:

I think it’s especially interesting to see just how much the recent rally in Irish bonds reflected hopes that the country’s bank rescue could be “Europeanized”; once those hopes were dashed, it all went away.
So when does the full-blown crisis start? Hard to say; at least some indicators say that the market expects the worst, but not right away.
It really does seem as if we’re looking at Dornbusch’s Law in action:

The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought, and that’s sort of exactly the Mexican story. It took forever and then it took a night.

And God, do I wish Rudi were still with us. He would have been in his element, and would have been a really important voice for sanity."

Interesting event.  Greek paper is no longer accepted at the ECB.

"ATHENS (Reuters) - Greek Prime Minister Antonis Samaras spoke on the phone to European Central Bank President Mario Draghi and IMF chief Christine Lagarde earlier on Friday and has agreed to meet them in the coming weeks, his office said.

"(Samaras and Draghi) had an initial discussion on economic developments in Greece and Europe and they agreed to meet immediately after August," Samaras's office said in a statement sent by a text message.

Earlier on Friday, the ECB said it would stop accepting as collateral Greek sovereign bonds and other assets backed by the country's government from July 25, though it would review the situation once the country's lenders had completed a visit.

Greece relies on funding from the so-called troika of ECB, IMF and European Union lenders to avoid bankruptcy. Samaras has been unable to travel to meet European counterparts and officials since being elected due to eye surgery last month."

I have called the Greek exit more often than even I can believe.

Good luck.
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