A plan of "overwhelming force to let the markets know that once and for all you’re putting out the fire" in Europe, should start with letting Greece, Portugal and Ireland default, Pimco's Neel Kashkari told CNBC Monday.
The Pimco managing director's "shock and awe" plan would require coordination among the euro-zone governments, which he admitted is easier said than done. Such a default plan would have to protect the rest of the euro-zone countries, while being "palatable to the German taxpayer" helping to pay for it.
"Imagine if Germany, France, the ECB and the IMF came out and announced a massive new bailout package, 1 trillion euros or more, and they declare it is available" to every euro-zone country except Greece, Ireland and Portugal, Kashkari said, referring to the European Central Bank and the International Monetary Fund.
"They’d be putting all their capital behind creating a firewall to protect Spain and Italy while allowing those other three countries to go through a restructuring," he explained. "That’s a lot easier to ask the German taxpayers...than to ask the German taxpayers to continue funding Greece."
Kashkari likened a European "shock and awe" plan to what happened in the U.S. during the 2008 financial crisis, "when we went from Bandaid to Bandaid" before the Treasury Department's Troubled Asset Relief Program, or TARP, was finally enacted "to draw the line in the sand and tell the markets that it’s not going to go any further."
As for the U.S. debt talks, with no compromise plan in sight and an Aug. 2 deadline looming, Kashkari pointed out the Dow Jones Industrial Average dropped 777 points when Congress voted TARP down the first time.
"Then [Congress] had the political courage and the political cover to cast those unpopular votes," Kashari said. "I hope it doesn’t come to that this time."