The nearly trillion-dollar stabilization program delivered by European Union finance ministers is an utterly spectacular show of solidarity.
It's a rescue plan so large that the loans are equivalent to 24 per cent of GDP for the "PIIGS" (Portugal, Italy, Ireland, Greece and Spain) and it basically covers the funding needs for Portugal and Spain for the next three years (as last week's package did for Greece).
If credible, this package is big enough to quash contagion sovereign default risks that had been overhanging the markets for the past few weeks, but there are caveats.
On top of the loans, the European Central Bank (ECB) also signalled a willingness to step into the debt market and embark on a soft form of qualitative easing (something that would surely cause a huge rally in Greek bonds).
Emergency dollar liquidity swap lines with the Fed are also being reactivated and the ECB reactivated unlimited offerings of three-month loans - unlimited liquidity for the regional banks.
These measures should go a very long way toward avoiding a credit crunch if euro zone money markets seize up.
So what can we expect next?
A relief rally in risk assets - although at the lightning speed that markets operate in today's world, this short squeeze could already be over. Equities, commodities (and commodity currencies), credit and lower-tiered sovereign bonds should all improve markedly - and did Monday. Credit default swaps should come in from their lofty levels and London interbank offered rate (Libor) pressures will ease.
The U.S. dollar, yen, gold and high-quality bonds will give up a good part of their flight-to-safety gains at the expense of the likes of oil and copper and spread product. Bank paper will undoubtedly soar over the very near term.
Whether this is all sustained will depend on the details of how these facilities will be operational, who makes the allocations and how they are made.
Recall the initial reaction to the TARP program - shoot first, ask questions later and buy some time. But, it is one thing to announce a big and bold rescue package, and quite another task to establish its credibility and actually initiate the plan with no wrinkles. Good luck.
With TARP, a huge immediate relief rally of 11 per cent gave way to a 30 per cent slide to the lows - the bottom was only reached more than four months later when the kinks were worked out and the specifics of the bank stress tests were revealed. Keep this in mind if anyone decides to extrapolate Monday's rally into the future.
And there are still issues on the table.
The emergency measures do buy some time and should take some of the fear and illiquidity out of the market. However, they do not address the intense structural fiscal problems plaguing much of the euro zone.
If the EU lends money to Greece or to any other problem country in the zone, debt ratios (including contingent liabilities) in the region will only rise further.
It will be interesting to see how the rating agencies handle this. It cannot be lost on them, or the global investment community, that while loans, guarantees and central bank provisioning can deal effectively with liquidity issues, they are ineffective in addressing what's really at stake here, which are the structural fiscal issues.
The deal over the weekend is only going to be successful insofar as it is backed up by meaningful reforms. The rescue package critically hinges on the Club Med countries accepting deep budgetary retrenchment notwithstanding their weak economic structures.
At the moment, Portugal and Spain are in need of credible packages to cut their deficits.
It will certainly be interesting to see how Spain can manage to meet the European Monetary Union's deficit requirements at a time when the unemployment rate is currently at 20 per cent.
And the issue of whether the austerity package for Greece will be accepted by the public (almost half do not approve) is still very much up in the air.
In any case, the region, especially the Club Med partners, will be in for a long period of extremely weak economic growth.
Even just heading in the right direction is sure to exert an enormous fiscal squeeze on wide swaths of the euro zone and demand a weaker euro as an antidote.
There is more to feed that trend. Since the ECB has come out and said that it will buy both government and corporate bonds, then what is clear is that any rally in the euro should fade because the lines between fiscal and monetary policy have just become blurred.
The cost of the ECB helping drive long-term yields in the periphery countries lower is jeopardizing the sanctity of the central bank's balance sheet. Just as the Fed stopped expanding its balance sheet, the ECB is set to grow its balance sheet - this is euro-negative. Of all the knee-jerk bounces right now, the euro is the one most vulnerable to reversal.
With this as the backdrop to Europe's current drama, the threat of default and concerns over the future of the euro will not dissipate entirely.
David Rosenberg is chief economist and strategist for Gluskin Sheff + Associates Inc. and a guest columnist for Report on Business
David Rosenberg