It's a pressure relief valve for the banks. When the crisis happens, it will
put a cap on LIBOR and lower the cost of borrowing dollars.
Right now it does not provide immediate help to the banks. Anyway it is an
indicator of central banks are working on something to save the banks from
falling into the abysses. This may in turn boost confidence of the market.
With more confidence the bond buyers may be willing to take a little more
risk. That's why Italy and Spain bond yield drop today.
I don't understand FED's intention. This swap is for ECB to borrow dollars
and add liquidity to the European banks. Not for FED to buy anything in
Europe. It's certainly not going to help the government debts directly.