By Stefan Theil 

After months of insisting that they would need no Paulson-style bank bailout, European governments acted swiftly on Monday. Within hours of each other, the leaders of Germany, France, Italy and Spain announced a total of over €1 trillion ($1.35 trillion) in lending guarantees and bank recapitalization funds. In addition, Britain injected $62.5 billion into three of the country's biggest banks in return for large government shareholding stakes. The markets loved it. German stocks alone were up 11.4 percent on the day—the biggest jump in history.

The moves came none too soon. One of the worries that froze bank lending and sent markets crashing last week was whether and when the Europeans would act and do their part to avert a full-blown global meltdown. That worst-case outcome now seems a lot less likely. So far, so good.

Will it work, and is it enough? As of Monday, it was yet unclear how any of the bailout plans – America's TARP included - will resolve the underlying problem of bad debt and toxic assets--the estimated $700 billion still lurking on the balance sheets of US and European banks, according to Bob McKee of London's Independent Strategy. (The estimates vary, but the bad assets are clearly there, or the banks wouldn't be so distrustful of each other.) None of the bailout plans include clear, systematic rules about how these dud assets will be written off -- or whether banks will drag them along for years, Japanese-deflation-style. The unanswered question is how these debts will be unwound – and whether that process leads to a sharp contraction of credit to the "real" economy, i.e. companies and consumers. If so, there may not be a meltdown. But there would be much worse to come beyond just the mild stagnation in economic growth that the current numbers signal.