A couple of things, first, I'm not convinced this is an alpha lactone reaction, though I don't know the mechanism. I'm guessing a clue may be found in the second reaction. I'm guessing dehydration to the acrylate. This is an interesting question though.
just a wild guess, as I was facing the same mechanistic doubts with respect to [itex]\alpha[/itex]-lactone formation under these conditions:
maybe we have a case of [itex]\alpha[/itex] elimination here (the conditions seem rough enough to me) from HO-CH
2-COOK or even KO-CH
2-COOK , leading to :CH-COOK
this carben would insert in the indole ring (maybe with a cyclopropane-intermediate, which due to the harsh conditions would undergo ringopening / hydride shift to the title compound)
would love to hear your comments on this
regards
Ingo