European Banks: What's Going On?

[KukriKhan]

German Chancellor Angela Merkel has reportedly set her government behind all savings deposits (following Ireland and Greece). The UK wants to do something less (if I read correctly)?

Guardian Article

Have European banks bought US "bad paper" (so-called "credit default swaps") too?

There seems to be quite a bit of scrambling around among banks, governments, and insurance companies over there. Is it directly attributable to US financial policy, or merely a slight ripple effect that will settle, after a few tweaks to your system(s)?

Finally, would a unified "European Solution" help or hurt individual nation's economies, in your opinion?