The European Union just announced what amounts to a $930 billion bailout fund for European countries. Of that, the IMF will back up to $285 billion. Since about 17% of IMF funding comes from the U.S., that means the American taxpayer is now on the hook for about $48.5 billion to rescue Europe. That appears to be above and beyond the $7 billion that we're on the hook for Greece.

The results of the weekend European emergency meetings are reported to be as follows:

Spain's Finance Minister says an agreement has been reached on a defense package of up to euro720 billion for the embattled euro involving the EU and the International Monetary Fund.

Elena Salgado said early Monday that under the aid plan, the EU Commission make euro60 billion ($75 billion) available while countries from the 16-nation eurozone would promise bilateral backing for euro440 billion ($570 billion). The IMF would contribute an additional sum of up to 220 billion euros.

That's about $930 billion. Combined with Greece's bailout, that totals about $1.06 trillion. Wow, that's a lot of money.

And about $53 billion of it is ours.

European leaders apparently realized the same thing many others did, myself included: "If the permanent EuroBail fund is funded with just about anything less than the anticipated bailout amount needed for Portugal and Spain, I don't think the markets will be impressed for very long." The $930 billion bailout fund is impressive. They're obviously going for the same "shock and awe" as the U.S. was going for with its $700 billion TARP bailout.

Of course, this isn't real money yet. This appears to be a promise of "bilateral backing" for $570 billion and another $285 from the IMF. In other words, there's not a pool of $930 billion ready to be tapped. If the Euro continues to be attacked, Europe will have to raise about $600 billion--either borrowing it or printing it.

Is a "promise" from the European Union enough to reassure credit markets? Europe battled for months to agree to fund a $130 billion Greek bailout, and they almost didn't do it. So since this money hasn't actually been raised, will these countries live up to their promise to raise the money if/when it's needed? That's far from a settled question.

Another problem is that with the $700 billion TARP bailout in the U.S., the government was backing financial institutions. Financial institutions were teetering so the idea was to put $700 billion of the "full faith and credit" of the U.S. behind those financial institutions. But now, in Europe, the governments are essentially promising to back themselves. If the problem is precisely that the credit market doesn't trust Europe, is a European promise to back Europe really that reassuring?

After all, the credit markets are increasingly skeptical of Europe, but now Europe has promised it's good for at least a trillion. Is that helpful? Because to be honest, I'd hope that Europe isn't just good for a trillion. I'd hope it's good for two trillion... or three trillion. Or whatever amount its member states owe!

I'll have to admit the Europeans definitely achieved their "shock and awe" factor. This is an almost trillion-dollar promise to defend the Euro. But the Europeans, after a weekend of consultations, have basically issued a promise. A letter of intent. Words.

So the question is: How much (and for how long) do the markets value a European promise? We'll find out in the days, weeks, and months ahead.

My guess? I bet we see the value of the Euro increase for awhile (after all, it's a shocking amount of money they just promised), and then decline once again as specific Euro countries continue to be tested by the bond market. Once the shock and awe wears off, Europe will be back where it started and we'll see if they live up to their promises.

But if the Euro doesn't increase in value over the next few days in response to this promise, Europe is in trouble--because that would mean the credit markets don't really put much faith in Europe's promise.

And that would be a bit of "shock and awe" that would truly rattle the markets of the world.

Update 5/9/2010 9:45pm: Absolutely amazing, though in retrospect not surprising. As I said above, the problem is that Europe was promising to back itself up which really isn't all that confidence-inspiring if you don't trust Europe.

Well, now the United States Federal Reserve is backing up Europe!

The Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent.

Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan also are involved in the dollar swap effort.

The move comes after the European Union and International Monetary Fund pledged a nearly $1 trillion defense package for the embattled euro, hoping to calm jittery markets and halt attacks on the eurozone's weakest members. The ECB also jumped into the bond market Sunday night, saying it is ready to buy eurozone bonds to shore up liquidity in "dysfunctional" markets...

So the European Central Bank (ECB) is now ready to buy more eurozone bonds (i.e. print Euros) and, meanwhile, the Federal Reserve will effectively accept toxic assets from Europe in return for dollars.

This is a mind-numbing disaster! We're now bailing out other countries, and potentially printing dollars to save Europe, and we don't have any money ourselves. We're tens of trillions of dollars in debt.

The earlier trillion-dollar European bailout had, in my opinion, the possibility of temporarily calming markets. But if the markets respond positively to the news that the Federal Reserve is now backstopping Europe, I'll be surprised. To the contrary, this demonstrates just how critical the situation is. If the markets are at all sane, any confidence that the trillion-dollar European bailout could have provided will be completely undermined by the news that the Federal Reserve has to save Europe.

The Federal Reserve can't even save the United States!