Will America Pay for Europe's Bailout?

In my column for CNN, I discuss what sort of bailout Europe will need when it finally confronts the full scale of its debt crisis:

It's been obvious for some time now what has to be done to avert the bank run: a European Super TARP, a version of the Troubled Asset Relief Program that was used to bail out Wall Street in 2008

The European Union will have to assume responsibility for the debt of southern European countries. In return, the EU will have to take control of the finances of those countries -- cutting their spending and raising their taxes.

The debt assumed by the EU will have to be serviced somehow. That means the EU will need its own revenue stream sufficient to pay for and ultimately retire the southern European debt.

In other words, what we're looking at is:

-- A transfer of Greek and other southern European debt to all the people of Europe.

-- Big government spending cuts especially in southern Europe, but also everywhere else.

-- Higher taxes everywhere to support the southern European debt.

-- All of it imposed by unelected bureaucrats in Brussels.

How'd you like to be the politician who has to explain that to the voters of Bavaria? So now you see why action is so slow.

The trouble is, the longer the action takes, the more expensive it gets -- and the less likely the action is to be successful.

If the action comes early and if it is decisive and orderly, then it may be possible to force creditors to eat some of their losses. But in a panic, governments will not have time or leeway to negotiate. They'll face a starker alternative: pay in full or default, the same stark alternative the United States faced back in the fall of 2008, which led to unappealing actors such as Goldman Sachs being made whole in backroom deals at the expense of the taxpaying public.

And if markets get the idea that the politicians of northern Europe will flinch from the Super TARP, then the bank run could start very fast.

Click here to read the full column.