A major world economy faces a fiscal cliff. Piecemeal efforts at ameliorating the crisis exacerbate the economic uncertainty, which deepens the decline. Increasing calls for a "grand bargain" to address the systemic nature of the problem are met with partisan paralysis. Stock markets, not confident that rigid ideologies will eventually yield to reasoned compromise, tank.
Europe? Well, sure. But the same scenario could also play out in the United States.
For now, the crisis is worse across the Atlantic. A week ago Spain was granted a $125 billion banking bailout.
Spain's woes have sparked concerns that Italy may need a similar bailout or, worse, that either or both governments will need to be rescued. On Sunday, Greek voters will hold a national vote that may determine that country's political and fiscal future.
The outlines of a possible eurozone grand bargain are relatively clear: a version of the Federal Deposit Insurance Corp. system, and an even closer political, fiscal and monetary alignment.
But that would mean that Brussels could have more say on a nation's budget than leaders of those countries. Not surprisingly, there aren't many citizens who will willingly cede sovereignty, even if their elected leaders will.
Greeks aren't the only Europeans pushing back against austerity measures imposed from the outside. That's why the biggest gainer in Greece's previous election was a leftist, anti-austerity party. And for their part, German voters aren't likely to reflexively re-elect leaders who keep bailing out their Southern European neighbors.
The United States has more flexibility than eurozone countries because it controls its own currency and has the capacity to borrow at near-record low levels. And despite all of our fiscal challenges, many global investors still look at America as a relatively safe haven.
But we don't have long until we're in a similar fix as Europe, which is why we need our version of a grand bargain. Such a strategy needs to bolster our current anemic recovery with smart, strategic spending while also creating a mechanism for long-term debt reduction.
By definition, such a deal would require painful spending cuts and some kind of new revenues, either through expiration of tax cuts, higher taxes or, preferably, a more sensible, competitive tax code with fewer loopholes.
Many say that's impossible during an election year. Maybe. But not if politicians put country, not party, first.
And leadership from the United States would help Europe, too, said Tim Kehoe, professor of economics at the University of Minnesota and adviser to the Federal Reserve Bank of Minneapolis.
Reached while traveling in Spain, Kehoe said that given the deficits the United States is running, it's "a matter of luck" that we're not having the same problems. Like many experts, Kehoe is looking for clarity from the November election.
"I'm hoping that once November happens and the uncertainty there is resolved, we can just have some sensible U.S. policy. And that will help stabilize the world economy, and that in itself will be good for Europe."
There are a few signs, however faint, that Washington might be ready to lead -- at home and abroad. Last week Sen. Lindsey Graham, R-S.C., said he had "crossed the Rubicon" and was willing to shed Grover Norquist's anti-tax straitjacket. Graham said he'd be willing to accept a 4-1 spending cut-to-revenue ratio if entitlement reform was part of the bargain.
While that's promising, Graham's colleagues in Congress need to recognize that globalism is permanent, the financial system is interconnected, and it may be impossible to avoid the economic impact from a feckless Europe. But if this country serves as a world leader by building a serious and effective economic response, we still have a chance to avoid an even larger global meltdown.
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