NEW YORK ( TheStreet) -- There's not much argument out there about whether or not the situation in Europe constitutes desperate times.

The big questions now are when will the eurocrats step up and take the desperate measures that such times call for, and will it be too late? It's a good bet U.S. stocks are in for more of the roller-coaster action we've seen so far this week until those answers materialize.

Deutsche Bank sees cause for hope in the overall strength of the global economy but it's still keeping a sharp eye on the day-to-day headlines, most importantly the general elections in Greece. This latest trip to the polls will be interpreted as a referendum on whether the populace will ultimately be able to accept the austerity measures necessary to keep the country as part of the single-currency bloc.

"We remain concerned that markets are in danger of repeating the events of September last year when losses on European bank share prices triggered widespread contagion across FX, equity and commodity markets," the firm said earlier on Tuesday. "An optimist might suggest that the losses on European bank share prices so far in this cycle has surpassed the losses in Japanese bank share prices in the early 1990s and so support should start to appear at some point. We are in the optimistic camp given our still robust world growth outlook but near term sentiment remains focused on the outcome of the Greek elections."

Spain's $125 billion bank bailout plan also came under scrutiny by Deutsche Bank, which sees issues with the potential for displacing private credit holders in the current capital structure as well as the country's overall debt load. The firm paints a grim picture, saying the Spanish government now stands at "the edge of insolvency" and that Europe is "only half way through resolving the crisis."

"If a third of the excess private sector leverage goes onto the government balance sheet, then Spanish government debt to GDP rises to 106% by 2014, requiring fiscal tightening of 9% of GDP just to stabilize the government debt to GDP ratio," Deutsche Bank explained. "Furthermore, the vicious circle between weak banks and weak sovereigns remains in place (Spanish banks have 8% of their assets in government bonds). At some point it is critical to have banks being bailed out directly by the ESM European Stability Mechanism (not via the sovereign, as it the case now). This solution is still some way off."

On the domestic front, Tuesday's rally was in part driven by fresh hope that more stimulus is on the way from the Federal Reserve. And while investors seem to be on board with the idea, Paul Dales, senior U.S. economist at Capital Economics, still doesn't think QE3 is in the cards.

"If hopes of QE3 are to become a reality, either the economy would need to lose a lot more momentum, core inflation would need to fall well below the 2% target, or the downside risks to growth from the crisis in Europe and the looming fiscal cliff at home would need to rise significantly," he wrote on Tuesday.

More likely, according to Dales, is a short extension of Operation Twist, the Fed's current $400 billion Treasury-buying program that involves selling short-term bonds and buying long-term ones. Operation Twist is slated to expire this month and Dales thinks the central bank could opt for an extension at its next policy meeting on June 19-20 but he notes the continuation would be hard pressed to run longer than six months since there are only $180 billion worth of short-term bonds left to sell.

Dales also laid out a scenario of what QE3 might look like if it did come to pass.

"If the Fed did launch QE3, it may buy a mix of mortgage-backed securities and Treasuries, perhaps worth $500bn in total," he said. "And in a new twist it may decide to 'sterilise' its purchases, by conducting reverse repo operations and/or by creating a term deposit facility where banks can park their excess reserves. The rise in the liabilities side of the Fed's balance sheet would then not involve a rise in the monetary base. This would limit the inflationary risk and make QE3 more politically palatable."

As for whether more stimulus would be the panacea the economy needs, Dales doesn't expect the script to vary much from what occurred after QE1 and QE2 -- a boost for the financial markets but a mixed bag for the economy.

"An extension to Operation Twist would probably just help to keep Treasury yields at current levels," he wrote. "QE3 would be more significant as it would probably boost the prices of riskier assets, such as commodities and equities. As long as the so-called wealth effect from the rise in asset prices more than offset any dampening effect from higher commodity prices, then QE3 should boost the real economy."

As for Wednesday's scheduled news, JPMorgan Chase ( JPM) CEO Jamie Dimon is set to testify before the Senate's Banking Committee about the shocking $2 billion (and counting) trading loss resulting from credit derivative hedging within its synthetic portfolio.

The debacle has been a severe blow to Dimon's image as Wall Street's teflon CEO and brought mockery down on the bank's so-called fortress balance sheet strategy. The hearing is slated to run from 10 a.m.-12 p.m. ET and the stated subject: A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase? provides a pretty clear idea of what line the questioning is going to take.

Whether this blunder ends up being enough to fire a serious debate about breaking up the big banks again remains to be seen but how Dimon handles this grilling and another before a House committee next week could go a long way toward determining whether he remains in the C-suite long term. Reports late Tuesday are saying Dimon is going to argue the loss, which could ultimately run as high as $5 billion, should be viewed as an "isolated event". Good luck with that.

Meantime, it's another slow earnings day with Crown Crafts ( CRWS), Culp ( CFI), Korn/Ferry International ( KFY), and Luby's ( LUB) among the few companies opening their books.

The economic calendar picks up some of the slack with the Mortgage Bankers Association's weekly application index at 7 a.m. ET; retail sales for May at 8:30 a.m. ET; the producer price index for May at 8:30 a.m. ET; business inventories for April at 10 a.m. ET; and weekly crude inventories data at 10:30 a.m. ET.

And finally, it was a fairly busy after-hours session. Dell ( DELL) made the biggest splash. The PC maker, which is holding its annual analyst meeting on Wednesday, announced plans to start paying dividends. The company expects to kick things off with a quarterly payment of 8 cents a share starting in its fiscal third quarter.

The annual rate of 32 cents a share translates to a 2.7% yield based on Monday's closing price of $11.86. The stock was last quoted at $12.27, up 2.5%, on after-hours volume of nearly 700,000, according to Nasdaq.com.

A big loser on Wednesday is likely to be Scotts Miracle-Gro ( SMG), which said it expects fiscal 2012 results to fall short of its previously disclosed financial outlook because of weak sales and an unfavorable product mix. The provider of grass seed and soil products had forecast adjusted earnings of $2.65 to $2.85 a share, but it didn't provide an updated view.

The stock was down more than 14% at $36.98 in the extended session on volume of nearly 90,000. The company said consumer demand during gardening season failed to meet its expectations and that "poor weather and challenging economic conditions" were hurting business in Europe.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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