If those talks succeed, it will mean that every major country in Western Europe except Spain will be governed by a party of the right. The potential Tory restoration is part of a global pattern. The socialist left is moribund and the center-left is in retreat — not least in the United States, where President Obama has moved well to the right on many issues, from healthcare to deficit reduction, where progressive senators and members of Congress are retiring to avoid defeat, and where the increasingly hard-right Republicans are expected to make gains in this fall’s elections.

To those accustomed to thinking of the left-right spectrum in economic terms, the success of the recession-era right might seem peculiar. After all, you would think that the collapse of the deregulated financial system that helped cause the great recession would have discredited the market-worshiping right. And you would think that there would be a comeback by the economic left, which has traditionally distrusted Utopian claims about free markets.

This is not happening for two reasons. One is the success of the Third Way. The Third Way was the transatlantic project that united Clinton Democrats, Blair Labourites, and many European and Latin American parties of the left in a common enterprise of reinvention. The transatlantic center-left distanced itself from statism, turned its back on organized labor and embraced the financiers of Wall Street and the City of London, who showered them with campaign donations. With the zeal of converts, the leaders of center-left parties like Blair and Brown and Clinton and Obama sang the praises of free markets, free trade, privatization and deregulation. These so-called neoliberals abandoned working-class voters who looked to government and unions to protect them against economic upheaval, and sought a new constituency among the liberal rich and upscale members of the professional class who combined free-market conservatism with tolerant social views and support for means-tested government charity for the poor.

The other reason is bad timing. The neoliberals adopted a modified version of libertarianism just a few years before the Crash of 2008 exposed the fallacies that justified it. Most politicians, however, are influenced by the worldview of their formative years, not their mature years, so that when they assume power they are usually a decade or a generation out of date. Barack Obama, for example, was shaped by the experience of the Reagan and Clinton years, when Democrats were on the defensive and sought to distance themselves from mid-century New Deal liberalism, as Bill Clinton did when he declared: “The era of big government is over.” Expecting the Blairites and Clintonites who have populated the cabinets of Gordon Brown and Barack Obama to rethink their obsolete 1990s neoliberalism in the 2010s in response to real-world events is like expecting an oil tanker to turn on a dime.

The decision in the last generation of the Third Way “progressives” to be more pro-banker and pro-business than the right is one reason that the center-left in the U.S. and Europe is incapable of rising to the challenge of the economic crisis. Having mortgaged their parties to donors in Wall Street and the City of London, the Democratic and Labour Parties cannot engage in more than token reform of the bloated and dangerous financial sector without biting the hands that feed them.

Another factor is the evolution of the right. In Europe, as in the U.S., the native working classes that Clinton and Blair abandoned are being cultivated by parties of the right. The success of far-right populist parties in the European parliamentary elections and in some countries like Hungary has forced mainstream conservative policies to shift rightward on restricting the mass immigration that working-class voters find threatening to national identity as well as jobs and neighborhoods. Anti-immigrant sentiment is much stronger in Europe than it is in the U.S. because of anxieties about Muslim immigration. In a few decades, North Africans alone might outnumber Europeans.

Human beings cannot commit suicide twice, but political movements can. At the same time that former parties of the left in Europe and the U.S. were abandoning social democratic statism for celebrations of free-market globalization, progressivism was redefined on both sides of the Atlantic to mean celebration of immigration-increased diversity and the stigmatization of national patriotism as such, and not merely its perverted forms, as racist and fascist. Inasmuch as social democracy in Europe and New Deal liberalism in the U.S. were inherently left-nationalist projects, progressive anti-nationalism marked the final rejection of the mid-century center-left by the progressive champions of the global market of the 1990s and 2000s. But there was a certain logic to the neoliberal position, which is increasingly difficult to distinguish from pure libertarianism: If finance should be deregulated, and trade deregulated, why not deregulate the flow of labor across borders as well? If people are mere factors of production, not members of a cultural nation or citizens of a republic, then patriotism is pointless.

The right has not hesitated to pick up national flags that post-national progressives have tossed aside. In Italy, Silvio Berlusconi’s party is “Sforza Italia” — “Go, Italy!” The new generation of Germans, for whom World War II is history, is increasingly confident in appealing to national interest, as are young Japanese. In China, nationalism has replaced Marxism as the legitimating principle of the authoritarian regime.

Law enforcement is another theme that benefits the right. In Britain, Cameron played on concerns about social decline, emulating Richard Nixon’s appeal to the “silent majority” when high crime rates and dread of black militancy helped create Republican presidential hegemony in the U.S. for a generation. Prolonged economic stagnation may lead to a higher crime rate, to the benefit of tough-on-crime conservatives.

If history is any guide, an era of global economic stagnation will help the nationalist and populist right, at the expense of the neoliberal and cosmopolitan/multicultural left. During the Long Depression of the late 19th century, which some historians claim lasted from 1873 to 1896, the nations of the West adopted protectionist measures to promote their industries. Beginning with Bismarck’s Germany, many countries also adopted social reforms like government pensions and health insurance. These reforms were often favored by the nationalist right, as a way of luring the working class away from the temptations of Marxism and left-liberalism. By and large the strategy worked. When World War I broke out, the working classes and farmers in most countries rallied enthusiastically around their respective flags.

The Great Depression of the 1930s similarly led to the rise of one or another version of the authoritarian, nationalist right in Europe. Only in a few societies with deeply established liberal traditions, like the English-speaking countries and Scandinavia, did liberals or liberal conservatives hold on. And Franklin Delano Roosevelt’s New Deal Democratic Party, a coalition that included racist Southerners and traditionalist Catholic immigrants, was not particularly liberal by today’s standards.

In both eras of depression, great-power rivalry for resources and markets intensified and ultimately led to a world war. Following World War II, the U.S. sought to avert a repetition of that pattern, by creating a global market secured by a global great-power concert in the form of the Security Council. But the project of economic disarmament and security cooperation broke down almost immediately after 1945 and the split between the Soviets and the Anglo-Americans produced the Cold War. The second attempt at a global market that began after the Cold War may be breaking down now, as the most important economic powers pursue their conflicting national interests.

A functioning global market system can work only if its members abandon mercantilism — the policy of trying to enjoy perpetual trade surpluses, by fair means or foul. However, the nations with the three largest economies after the U.S. — China, Japan and Germany — all want to enjoy never-ending merchandise trade surpluses. All three have used “currency mercantilism” to help their export industries, to the detriment of the global economic system. China and Japan, by different methods, have deliberately undervalued their currencies, to help their exports and keep imports out of their markets. Germany accomplished something similar, by persuading its trade partners to give up independent currencies that they were able to revalue for the crippling straitjacket of the euro.

The system worked only as long as Americans borrowed to pay for imports from Japan and China, while southern Europeans borrowed to pay for imports from Germany. But the consumers are tapped out and neither Americans nor southern Europeans are in a mood for austerity measures in the middle of a near-depression. Unless the Chinese, Japanese and Germans turn into credit-happy consumer societies the global economy may be in for prolonged stagnation. Instead of changing their ways, however, the surplus countries are denouncing their own customers for their profligacy in buying their goods and insisting that the same customers be penalized by austerity programs. This will not end happily.

As the oversold promise of free-market globalization fades, countries large and small may turn increasingly toward state capitalism. At home, this would mean permanent state support of troubled industries like banking and the automobile industries, which all of the major industrial countries have bailed out. In trade, this would mean a retreat from global trade areas toward regional blocs and bilateral deals. Examples include agreements between energy-hungry governments like those of China and Japan and the state-owned oil or natural gas companies of Saudi Arabia and Russia. In a world of diplomatic rivalries among great powers to win contracts with state-owned corporations, the distinctions between geoeconomics and geopolitics would erode, with potentially dangerous consequences. Direct war between great powers seems unlikely, but if the Cold War was World War III, then a cold World War IV resembling Orwell’s shifting coalitions of Eurasia, Eastasia and Oceania in 1984 is all too easy to imagine.

These trends are clear but the transatlantic establishment refuses to confront them. Instead, elites on both sides of the Atlantic hope that the great recession will turn out to have been merely a particularly nasty business cycle downturn. They pray that soon we can return to something like the illusory prosperity of the late 1990s and 2000s without having to engage in any radical rethinking or reform. Our political and opinion leaders think they are leading us back home. They haven’t noticed, or refuse to admit, that what used to be home is now a large, smoking crater. 

Michael Lind is policy director of the Economic Growth Program at the New America Foundation and author of “The American Way of Strategy.”

People may think that the beneficiaries of this EU largess are the poorer countries of Europe and their people, who have suffered through high unemployment and domestic economies weakened by the crisis. But if the banks lending to countries such as Greece, Portugal, Ireland, Spain and Italy are going to be repaid in full from the proceeds of these EU and IMF programs, then maybe we need to rethink who actually is benefiting from these programs. This is not lost on the people of Greece, 100,000 of whom took to the streets last week to protest cuts in their government’s budget, which was part of the Greek bailout plan. Nor is it lost on Wall Street: on Monday, European bank stocks shot up an average of 20 percent — a sign that traders are well aware of who the primary beneficiaries of the bailout plan will be.

At first blush, it does appear that some of these poorer European nations have significant amounts of government debt and are running fairly large annual budget deficits. Following are the levels of government debt for a selection of countries, mostly of the Organisation for Economic Cooperation and Development (OECD), expressed as a percentage of each country’s GDP:

Government debt as a percentage of GDP

Japan    195
Greece   133
Belgium   124
Italy   116
Portugal    78
Austria    74
France     70
Denmark    60
Netherlands   60
India   60
United Kingdom    56
United States       53
Hungary      52
Finland     49
Sweden     49
Brazil      47
Germany    46
Iceland      45
Ireland     38
Spain       35
Switzerland 32
Canada     29
Poland     29
Turkey     25
Czech Republic     25
Slovak Republic     21
Slovenia    19
Luxembourg     11
Australia 7

Investors become concerned when government debt exceeds 100 percent of GDP, which explains Greece’s and Italy’s predicaments. Portugal is right behind them. But based solely on current debt levels, it’s not clear what the investors’ concerns are about Ireland and Spain. I also can’t explain Japan’s poor debt ranking, other than to say that it looks completely unsustainable.

Of course, current country debt levels do not tell the full story as to which countries are most at risk of defaulting. Annual government budget deficits are also important because they can add annually to the country’s debt burden. Similarly, expected growth rates of GDP are very important because as troubled countries’ economies shrink, their debt loads become ever more burdensome.

Europe’s problems are not limited solely to Greece, Portugal, Ireland, Spain and Italy. These five countries in total owe $1 trillion to France and their banks, they owe Germany $700 billion, and they owe Britain $400 billion — not to mention the money they owe the Swiss and U.S. banks. If these five countries were to default, the problem would quickly shift to the richest nations of Europe. This is the real reason for the announced bailouts. And it is not just the wealthier countries’ banks that are being bailed out here; the governments of some wealthier European countries would themselves come under great financial pressure if these loans were not repaid, since they would then have to deal with enormous losses in their own banking sectors.

If the banks in these wealthier European nations were to suffer substantial losses from their sovereign debt investments, you can be sure that their governments would try to bail them out and make them whole. But this may not be as easy as it seems. It turns out that the size of the banking systems in many wealthier European countries far exceeds the total GDP of the country. Here is some summary data for the countries (most of them OECD members) in which the total of all bank assets exceed 100 percent of GDP.

Bank assets as a percentage of GDP

Luxembourg   2,461
Ireland   872
Switzerland   723
Denmark    477
Iceland   458
Netherlands   432
United Kingdom   389
Belgium   380
Sweden   340
France   338
Austria   299
Spain   251
Germany   246
Finland   205
Australia   205
Portugal    188
Canada   157
Italy   151
Greece   141

(For comparison, total banking assets in the U.S. are equal to approximately 82 percent of GDP.)

It’s now obvious why Ireland is included in the troubled country category: Its banks assets are close to nine times as big as its total GDP, and all banks across Europe face substantial losses to their loan portfolios. Certainly real estate investments and sovereign credit investing will remain trouble for the banks, but as the recession and unemployment linger, consumer and corporate lending will also become problematic to the banks.

Switzerland has banks with assets of more than seven times its GDP. For the United Kingdom, banks have close to four times as much in assets as the GDP. And in France, Austria, Sweden, Belgium, the Netherlands and Denmark, the ratios are all between 3- and 5-to-1. Certainly, one can see that if the troubled nations of Europe, like Greece, fail to repay their loans to these banks in full, not only would the banks get in trouble, but these very large wealthy nations could quickly find themselves with an insurmountable problem on their books.

This situation is all very similar to the subprime mortgage crisis that started in the United States in 2007. In both cases, European banks bought what they thought were AAA assets, CDO tranches and sovereign debt, only to find out that the ratings were terribly overstated. AAA tranches of some CDOs are now experiencing 93 percent default rates.

In each case, the rating agencies played an important and conspiratorial role in labeling many CDO securities and most sovereign credits as AAA. This is important because banks in Europe are now able to hold such AAA securities on their balance sheets with little to no capital reserves held against them. In essence, this means that the banks can hold these AAA assets with infinite leverage. And that is pretty much what they’ve done: the leverage of these European banks sometimes exceeds 35- or 40-to-1.

So in both the subprime crisis and now the sovereign debt crisis, the banks loaned too much money to inferior debtors with too much bank leverage based solely on the opinion of a rating agency. Clearly, the bank that over-lent was more at fault than either the homeowner or the borrowing country. In both cases, the homeowner and the government of the sovereign nation may have done stupid things with the money, but the real stupidity was the banks lending in the first place. Clearly, if anyone should be blamed for these crises, it’s the banks that over-lent — and therefore it is the banks that should suffer most of the pain in restructuring. If I were advising Greece, I would tell it to default on its debts and force its creditors to take an 85 percent haircut. This would put the true cost of the crisis on those most responsible — the banks, not the people of Greece.

If you want to predict which countries of Europe face possible default risk in the future, it’s not enough to just look at current levels of government debt. I have created a forecast of how bad things might get for the countries of Europe by looking at a hypothetical future in which the governments are forced to make their own banks whole on losses equal to 10 percent of total bank assets by country. This might seem like an extreme loss scenario until you realize that Citibank has already been made whole on 15 percent of its assets by guarantees from the U.S. government and that people are expecting Fannie Mae and Freddie Mac to realize losses of more than 20 percent of their total assets before their restructuring is complete.

In addition, I assumed very little real growth for these countries in the future, which is reasonable because they have to deal with this banking and government crisis and because their citizens are aging rapidly and they are losing valuable members of their labor force to retirement. To account for increases in future debt loads due to ongoing government deficits, I took each country’s current annual deficit, multiplied by seven, and added it to the country’s total debt. The following table is an estimate of how bad things might get in the near future for the countries that end up with more than 100 percent of their GDP in government debt under this formulation.

Possible future government debt loads as a percentage of GDP with 10 percent bank asset losses assumed

Luxembourg   287
Japan   262
Greece    215
Ireland   210
Belgium   201
United Kingdom   188
Italy    169
France    164
Iceland   162
Portugal    150
Denmark   146
Netherlands    145
Austria   142
United States   136
India   133
Spain    120
Switzerland   114
Germany    108
Sweden   104
Finland   103

It is apparent that Greece, Ireland, Italy and Portugal are all troubled and face real default risks. Spain, less so. But it is also apparent that some of the largest countries of the world will also face very severe consequences in trying to repair their banks’ balance sheets. I don’t see how Japan can escape this fate given that its debt, seen here, will be close to triple the size of its GDP. Similarly, Luxembourg, the United Kingdom, France, Iceland, Denmark, the Netherlands, Austria and the United States are at severe risk of getting into financial trouble as a direct result of these banking crises.

In 2008, I wrote a book titled “Contagion,” in which I warned that the subprime mortgage crisis that started in the U.S. would spread to prime mortgages, infect the financial stability of the largest city and state governments in the U.S., and eventually spread to impact most of the nations of the world, especially in Europe. This latest sovereign debt crisis adds fuel to that fire. The solution cannot continue to be the bailouts of banks at 100 cents on the dollar at the expense of taxpayers and citizens. A debt crisis cannot be solved with more debt. We must find a way to reduce the debt levels of all banks, corporations, citizens and countries so that we are better poised for real growth and prosperity in the future.

John R. Talbott is a best-selling author whose 2003 book, “The Coming Crash in the Housing Market,” predicted much of the recent financial crisis. He is currently working to eliminate the power of corporate and banking lobbyists in Washington. Those interested in helping can reach Mr. Talbott at johntalbs@gmail.com

So far, the aggressive response must be deemed a smashing, stunning success, at least insofar as one can tell less than 24 hours after its debut. Stock markets across the globe surged — the Dow retained its astonishing morning boost and finished up 400 points, its biggest one-day gain of the year. Bond yields for debt issued by the southern European nations viewed as most likely to default dropped sharply, indicating a greater willingness on the part of investors to accept risk. A worried world heaved a huge sigh of relief: the “wolf pack” of bond vigilantes that threatened to cull Europe’s weaker members from the herd has been brought to bay.

Longer term, the outcome is anyone’s guess. Nothing has been solved by the bailout plan. The most common framing of the bailout is to suggest that it has merely “bought some time” — a year or perhaps two — for countries like Greece and Portugal and Spain and Italy and Ireland to make real progress toward balancing their budgets, and for the eurozone as a whole to figure out how to evolve into a meaningful fiscal unit, rather than a hodgepodge of rich and poor nations straitjacketed together by a single currency.

But trouble looms. Ass the riots and protests last week in Greece proved, the citizens of bailed-out countries are unlikely to submit eagerly to the imposition of required austerity regimes, knowing full well the inevitable vicious recessions that will come in their wake. Nor will the citizens of countries that are paying the largest share of the bill — Germany, France — happily subsidize their ne’er-do-well neighbors. The potential for political upheaval is huge.

But it is the longest-term perspective that must have historians eagerly sharpening their pencils and outlining their next tomes. The significance of this past weekend’s events cannot be overstated in the context of European history. The roots of the entire project of European economic integration can be traced back to an attempt to figure out a way for the Germans and the French to stop killing each other. The goal was to bind longtime antagonists so tightly together, economically, that war would simply not be feasible. In 1951, six European countries, Germany, France, Italy, the Netherlands, Belgium and Luxembourg, signed a treaty to run their heavy industries — coal and steel — under a supra-national management. “In this way, none can on its own make the weapons of war to turn against the other, as in the past,” as proudly declared by the EU’s own history of itself. Ever since, the linkages, both political and fiscal, have grown steadily.

Amazingly, so far, it’s worked, beyond all expectations. Sixty-five years without a major war in Western Europe is a remarkable and unprecedented thing, historically speaking, with the one exception being the 40-year stretch of peace that followed the Congress of Vienna in 1815. Nations that have waged repeated bloody wars against each other for centuries have now lived in peace for decades. Sixteen nations even share a common currency — the euro.

The bailout plan has been billed as an effort to “rescue the euro.” But whether leaders like Germany’s Angela Merkel or France’s Nicolas Sarkozy know it or not, it’s really a desperate, risky attempt to rescue the idea of a peaceful Europe. And there’s a huge contradiction built into the project: The very things necessary to make the rescue work may end up tearing Europe apart.

Details are sketchy at the moment, but the loans that the European Commission and the IMF will offer to eurozone members in danger of defaulting on their obligations are contingent on those nations’ making real progress on fixing their finances. How these contingencies will be enforced is a puzzler — one theory is that it can only be achieved through tighter political integration, implying that a country like Greece or Portugal will lose some degree of control over their own finances to the New European Order. But however it is supposed to work, the process of managing this transition will be extremely difficult, for the very simple fact that in return for giving up sovereignty and getting bailed out, the countries at issue will have to make economic decisions that undoubtedly lower their citizenry’s standard of living. Greece is looking at a potential 12 percent contraction of its economy. Spain already has 20 percent unemployment; for Spain to cut government spending in the face of such labor misery is to guarantee even more hardship. And so on. It seems unthinkable that voters will accept this bargain. It’s certainly not hard to imagine grass-roots anti-EU Tea Party-style rebellions breaking out all over Europe, and, in the worst scenario, the accession to power of fiercely nationalist parties who base their appeal on their rejection of “European” priorities.

In that scenario, the prospect of government default, withdrawal from the eurozone, and the reintroduction and consequent radical devaluation of local currencies will lead to tremendous economic upheaval — bank failures, surging unemployment, possibly another global depression. All of which combine to form a new recipe for war.

The roots of National Socialism’s rise to power in Germany go back to the punitive economic conditions imposed by the victors in World War I via the Treaty of Versailles. What new horror gets born in Greece or Spain or Italy when a massive recession is catalyzed by government spending cuts necessary to appease foreign bond-holders? What does a German Tea Party — fueled by the resentments of Germans who don’t want to pay the bill for Greece to avoid default — look like?

I have no idea how many of the finance ministers who huddled together working out their rescue plan Sunday night were thinking about the greater historical consequences of screwing up the march to European political and economic integration. By all accounts, they were more likely focused on the imminent opening of Asian stock markets.

Via Felix Salmon, Ultima Barbararum fears the worst — that the current crop of European leaders just doesn’t get the stakes at issue.

The euro is at more risk than it has ever been. And for the new generation of politicians in France and Germany the compromises of the 1990s may not mean so much. We don’t know how much they are prepared to risk to defend the status quo. They don’t have direct memories of firebombed cities, of fathers not returning home, of mothers and sisters raped by the Red Army. I don’t think we’d have the same worry if Kohl and Mitterand were still around. We would trust them more not to fuck about.

Those words were published before news of the bailout broke — and proved, at least for the moment, that Merkel and Sarkozy do have the will to meet the current challenge. For now. But pledging a willingness to bail out Europe’s weaklings is the easy part. It will get a lot tougher, here on out.

It’s not every day that you see the Dow Jones Industrial Average jump up 300 points right after the opening bell — and then keep going. 45 minutes later, the Dow was up 411 and other indices were following suit. The market euphoria can be taken not only as a sign of just how ambitious the bailout plan is, but also of how dire the European fiscal situation has become.

The bailout plan includes a commitment by the European Central Bank to start buying distressed eurozone and private bonds, ” to ensure depth and liquidity” in markets — something that the ECB’s president, Jean-Claude Trichet, had dismissed as a possibility just last Thursday. According to the Wall Street Journal the plan also employs “novel interpretations” of European Union treaties to get around various “no-bailout” clauses and prohibitions against member states assuming the debt of other member states.

But while market participants may be delighted, the populations of the nations that will assume most of the financial burden funding the bailout may not be so ecstatic. By making their commitment this weekend, European leaders made a clear statement that they intend to save the euro and preserve the unity of the eurozone. In the years — and elections — to come, we’ll find out if German and French and Greek and Spanish citizens support such “audaciousness” or decide to throw the bailout bums out.

“Default risk has been quashed and the market reaction has been euphoric,” said Jane Foley, research director at Forex.com.

In Britain, investors put aside any concerns about last week’s inconclusive election, from which a government has yet to be formed, and sent the FTSE 100 index of leading shares up 240.98 points, or 4.7 percent, higher at 5,364.

In Germany, uncertainty related to defeat in a regional election for Chancellor Angela Merkel were similarly downplayed — the DAX index spiked 267.85 points, or 4.7 percent, higher at 5,982.94.

France’s CAC-40 was the best-performing major index in Europe, surging 280.94 points, or 8.3 percent, to 3,673.53.

Some of the biggest gains were recorded on the stock exchanges of the countries that have been in the markets’ line of fire over the last few weeks and months — Athens’ main index was up 9 percent at 1,777.59 while Lisbon’s PSI 20 spiked 9.5 percent to 7,255.79.

Crucially, borrowing costs for the debt-laden countries plummeted amid reports that the European Central Bank was buying up bonds — for example, the difference between yields on Greek 10-year bonds and their benchmark German equivalents was at 5.03 percentage points, down around 5 percentage points.

The euphoria was replicated on Wall Street — the Dow Jones industrial average was up 438.87 points, or 4.2 percent, at 10,819.30 soon after the open while the broader Standard & Poor’s 500 index spiked 51.76 points, or 4.7 percent, at 1,162.64.

Monday’s dramatic market moves were spurred by news that the European Commission will make euro60 billion ($75 billion) available for loans and guarantees to indebted European countries.

Beyond that, the eurozone promised backing for another euro440 billion ($570 billion), should it be necessary, and the International Monetary Fund would contribute an additional sum of at least half of the EU’s total contribution, or euro250 billion.

In addition, the European Central Bank announced what many analysts called its “nuclear option” — buying public and private bonds to lower borrowing costs and increase liquidity.

Meanwhile, the U.S. Federal Reserve restarted its dollar swap operations, in which it offers billions of dollars overseas to boost banks’ cash positions in return for foreign currency. Central banks around the world were also involved.

“This is shock and awe, Part II and in 3-D, with a much bigger budget and a more impressive array of special effects,” said Marco Annunziata, chief economist at UniCredit Group in London.

“This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion,” he said.

Market sentiment turned sour last week as a euro110 billion ($142 billion) loan package for Greece failed to calm investors, who feared Europe’s response was too little and too late to keep confidence in the euro from deteriorating and potentially collapsing.

Markets realized that the draconion austerity measures demanded by Greece’s bailout are likely to keep the country in recession, if not depression, for years and complicate paying down heavy debt loads. The images of violent protests in Athens and the prospect that such mayhem could spread to other European countries — such as Portugal and Spain, where borrowing costs were rising ominously — and derail the global recovery caused investors to fear the worst.

On Thursday, a combination of fear and technical glitches contributed to a temporary 1,000-point drop in the Dow, a reminder of the fragility of international markets.

Fears of an imminent collapse in the euro have been answered but the currency is not out of the woods yet, analysts say.

“The audacious stabilization fund unveiled has provided a short in the arm for the euro,” said Simon Derrick, senior currency strategist at Bank of New York Mellon.

“As awesome a ‘shock and awe’ display as yesterday’s announcement from the EU was, the true cost and just how it plans to pay the bill remains to be seen,” he added.

Earlier, Asian investors applauded the EU’s moves, even though the debt crisis is a particularly European concern at the moment. Japan’s Nikkei 225 stock average ended 1.6 percent higher at 10,530.71 while Hong Kong’s Hang Seng index jumped 2.5 percent to 20,426.64.

Benchmark crude for June delivery was up $2.20 to $77.31 a barrel in electronic trading on the New York Mercantile Exchange. The June contract fell $2 to settle at $75.11 on Friday.

——

Associated Press writers Carlo Piovano in London and Alex Kennedy in Singapore contributed to this report.