Hedge fund managers both large and small know that Europe’s debt crisis could be their next “Paulson-esque” play.

The housing crisis and credit crunch afforded to us courtesy of Government Sponsored Entities (read: Fannie and Freddie) and Lehaman Brothers truly put hedge funds in the spotlight after some portfolio managers had the foresight to bet against the housing market and failing investment banks.

Funds like Paulson & Co, Greenlight Capital and Hayman Capital profited because they were able to place cheap bets against a failing market. That opportunity is presenting itself again in the form of the European debt crisis.

And as such, players like Hayman Capital’s Kyle Bass and BlueCrest’s Michael Platt are gearing up to reap a fortune on the collapse of Europe.

In early 2010, Kyle Bass spoke at length about how Europe and Greece were on an unsustainable path of spending and debt accumulation. His position proved to be spot on as virtually all of Europe scrambles to formulate a rescue plan. After Europe, Bass predicts that Japan will go next, followed sadly by the United States.

And while that works out just fine for Bass, others are more concerned about what Europe’s downfall could mean for other countries. BlueCrest’s Platt recently told Bloomberg TV that he believes that the European debt crisis will be worse than the 2008 financial crisis.

What’s interesting is that fears over Europe have been priced into the market. Despite a deteriorating situation, the CBOE Volatility Index (VIX) remains well below the key 30 point mark at 24.5. It appears that fear has dissipated or has yet to come to fruition.