Behind the cloud of fear that seems to have consumed markets this week, there's actually some pretty good news happening. It's half a world away -- in Europe. But it could end up changing the game for the better for US stocks.

Remember, the financial woes of smaller European countries like Greece, and the threat they represent to the European banking system, has been one of the biggest factors that drove US stocks into the first serious correction since the March 2009 bottom. Things have suddenly improved in Europe. Maybe an improvement in Europe means the correction is near an end.

Here's the story. For European banks --reeling under the weight of collapsing values of Greek, Portuguese and Spanish debt -- this week has long been understood to be a very scary date with destiny. A year ago, the European Central Bank, the equivalent of our Federal Reserve -- loaned European banks 442 billion (call it $560 billion) to see them through the global credit crisis. Those loans came due this week, and the ECB announced it wouldn't renew them for another year. Instead, only three-month loans would be available.

If you're a struggling European bank, that's a big problem. Sure, the ECB wills still loan you the money. But when you can borrow for a whole year, you assure your survival for a long time at a low fixed interest rate. Three months? That's a lot of risk -- who knows when the interest rate will be just three months later when the loan is due, or for that matter, when the ECB will even renew the loan then at all.

Last week saw a lot of politicking about this in Europe, aimed at getting the ECB to change its policy at the last minute and offer more one-year loans. One anonymous Spanish bank official -- and Spain is thought to have the weakest banks of any big European country -- was widely quoted calling the ECB's policy "absurd." The finance minister of Spain was more diplomatic, but nevertheless took the unusual step of saying on the radio "I hope the ECB will be aware of the needs of the Spanish financial system."

It didn't help that the head of France's central bank said publicly, "there are some banks that are in a less good situation that might eventually suffer." That's not exactly the kind of comforting noises a central banker is supposed to make. So it hasn't been hard to find the expression "banking collapse" in the European financial news this week.

But then a funny thing happened on the way to the banking collapse. The loans came due, as scheduled. And amazingly, about half of them were completely repaid. The other half were easily replaced with three-month loans, and other loans of even shorter duration.

At the same time, on Thursday the government of Spain conducted a 3.5 billion auction of 5-year bonds. And it went fine. Remember, Spain is the "S" in PIIGS -- the nickname for the countries that aren't supposed to be able to pay their debts. Well, what do you know. Spain not only isn't going bankrupt, it can borrow an enormous amount of money for 5-years at an interest rate of just 3.6%.

But wait! There's more good news out of Europe.

Germany's chancellor Angela Merkel scored a critical political victory this week. I'll explain why that's important in a moment, but first, here's what happened. In German politics, the chancellor's coalition nominates someone to serve as president. He (or she) is then voted on by a special panel. Merkel's nominee for president was rejected twice -- something that essentially never happens. It was interpreted as a slap in the face for Merkel, and a sign that she is losing her grip on power. The big news is that yesterday her candidate won on the third vote.

Here's why that matters. In order for Europe to stand ready to bail out smaller member nations that get in trouble -- as Greece already has, and the other PIIGS may yet still -- it takes the ongoing cooperation of the two largest and strongest economies, Germany and France. In Germany that's a real reach. Bailing out Greece is about as popular in Germany as bailing out Goldman Sachs is in the US. Merkel has lost a lot of popularity because she's gone alone with France on bail-out policy.

So what happens if another country -- say Spain or Portugal -- suddenly gets in to the kind of crisis that Greece was in during April and May, and Merkel is out, replaced by a hard-liner who says "no bail-outs"? There are plenty of people in Germany who'd love to see Spain and Portugal go down the drain -- after all, they got themselves into trouble all by themselves, so why should the German taxpayer suffer to save them? It just like all the people here at home who would have loved to see Goldman and all the rest blow themselves up like Lehman Brothers did.

But believe me, the world banking system is like a row of dominoes. Push one over, and they all fall. First in Europe, then here. Letting Portugal or Spain fail on their debt would mean pushing the dominoes, because banks hold so much Portuguese and Spanish debt.

So let's review what's happened here. Doomsday at the ECB came and went without any problems. Spain was able to raise 3.5 billion on doomsday. And Angela Merkel, who controls the deepest pockets in Europe and has committed them to bail-outs as necessary, is still in the saddle.

As a result of all this, the value of the euro -- the European common currency -- had its biggest one-day upmove ever against the dollar. Just days ago people were forecasting that it was doomed to extinction in a matter of months.

That symbolizes the very real hope that Europe can pull itself out of its debt problems. That, in turn, takes a huge risk off the table for the world economy, including the US economy.

The economic recovery in the US, and the bull market in stocks, stalled as Europe went into crisis. Now everyone's expecting a "double dip" recession. I don't think that was ever going to happen anyway, but with Europe on the mend I can practically guarantee it.
Since the April top, stocks have corrected more than 15%. At the same time, consensus forward earnings are up 6%. That makes stocks the best value they've been since March, 2009. I've been bearish for a while now, but I'm beginning to think it's time to start buying again.