What's next for Europe? Traders are trying now to connect the dots on two pieces of information:
1) Larry Fink from BlackRock, an advisor to many European governments, said on our air this morning that Europe should consider a TARP-style program;
2) the world's greatest expert on TARP, Timothy Geithner, is going to the Eurozone Finance Ministers this Friday, the first US Treasury Secretary to do so.
The trading community believes it is increasingly likely that the EFSF will morph into a TARP-like program.
What does this mean? First, this will be very difficult to achieve. It's unlikely there will be political support for the EFSF to directly recapitalize European banks. Most traders seem to think that the EFSF (and its successor, the European Stability Mechanism, or ESM, which is supposed to kick in in 2013) instead will give loans to governments, who will then pass on the money to their national banks.
And that's the problem: the EFSF wll need to be greatly expanded in size to deal with the problem, and it's not clear there is the political will to do that.
That's where Geithner comes in: to explain how a TARP-like mechanism worked in the U.S., and that it was successful.
"This Friday's meeting is very important, because Geithner could be the guy who appropriately clarifies the risks, and America's experiences, to these European finance ministers," one trader wrote.
Bookmark CNBC Data Pages:
Want updates whenever a Trader Talk blog is filed? Follow me on Twitter: twitter.com/BobPisani.
Questions? Comments? firstname.lastname@example.org