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Cramer: A Real European Crisis Plan, Finally

Stocks in this article: C FNM FRE

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NEW YORK ( RealMoney) -- Why are the European markets acting a bit better of late?

I think there are two reasons. The first is that the reign of financial bungling by Jean-Claude Trichet is at last over. That means the obsession with inflation is over. That means the new central banker has a chance to cut rates, repealing what Trichet wrought, and recognize that doing nothing -- Trichet's way -- will bring a collapse of the banking system and radical deflation, which is more pernicious than the inflation that Trichet so feared. In other words, the 1930s deflation was the real worry here, not 1920s hyperinflation, and Trichet just didn't get it. He was wrong. Let's move on.

Second though, is Dexia. This sudden collapse of a bank that passed two stress tests with flying colors -- a gigantic bank with $750 billion in assets -- can be considered a true wakeup call. The value of its equity was so diminished that any finance minister had to recognize that the future is now, and if you want to save all the other banks, you need to act now.

The solution that Europe is using, the good bank and the bad bank, is reminiscent of the Northern Rock solution, which worked -- meaning that the two entities, the good bank with earnings power, and the bad bank with bad loans, didn't take down the whole system and the government ended up getting some of its money back. Most important, the U.K. lived to play again.

Dexia has plenty of bad loans. But it also has bad sovereign debt. The Dexia solution takes into account both, and while it is plenty ugly, it is a solution. Remember, there are no good outcomes here. Just less bad ones.

The more bad one, the systemic risk, goes off the table with a Dexia plan. It should make you feel better about the U.S. fundamentals, even though it will almost certainly help push Europe into a recession.

I know people will ask how a good bank/bad bank regimen for so many banks can be paid for. I think the answer is that France and Germany will take care of their banks in similar fashion, and they do have the money to do so. Think a combination of TARP, Citigroup (C) and Dexia. The banks of the weaker countries will need a combination of EU and IMF help and will be brain-dead, maybe a la Fannie Mae (FNMA) and Freddie Mac, but they won't bring down the system.

My friend Michael Cembalest, who has been the biggest and most correct bear about Europe in his always amazing Eye on the Market piece from JPMorgan (JPM), actually gives this plan a ray of hope. A plan that eliminates systemic risk -- meaning one that eliminates Lehman, as Treasury Secretary Tim Geithner said would happen -- but gives us a bunch of Dexias allows us to think about a world without endless crisis, even if it means Greece defaults. Which it most certainly does.

So, now we have a roadmap, and a central banker who is not placing a roadblock in front of it. Perhaps it is the beginning of the end of the crisis. That doesn't mean Europe's a great place to be. It does mean the world isn't ending, which is pretty different from where we were before the Dexia blowup and under the outrageously terrible stewardship of Jean-Claude Trichet.

At the time of publication, Cramer had no positions in the stocks mentioned, though positions can change at any time.

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