“Europe’s monetary system is a textbook example of contagion. By virtue of the fact that they use the same currency, each of the 16 member nations are so intertwined with each other that their financial victories and failures are essentially shared. If you think it’s a difficult feat trying to get one country to correctly fire on all economic cylinders, you ought to try 16,” Ronald L. DeLegge Reports From ETF Guide.

Here’s what ETFguide’s Weekly Pick/Pan wrote on January 20th:  “FXE shares closed at $140.78 and financial contagion is a huge factor for the euro because one country’s financial woes become the problem of other Union members.”

DeLegge goes on to say, “So far in 2010, the stock market doesn’t like what it sees. After recording a handsome 32.04% return last year, the Vanguard European ETF (NYSEArca: VGK) is already down 6.79% year-to-date. Single country ETFs within the region like France (NYSEArca: EWQ), Germany (NYSEArca: EWG) and Spain (NYSEArca: EWP) are performing even worse. What about bonds? Currently, there aren’t any U.S. listed ETFs that focus specifically on bonds from troubled countries like Greece or Spain. But the SPDR Barclays Capital International Treasury Bond ETF (NYSEArca: BWX) has around 50% of its exposure to European Union countries. Greece and Spain represent a small slice of total exposure. Thus far, BWX is down just 1.22% for the year.”

“While sovereign debt defaults are indeed problematic, bailing out troubled euro-zone countries isn’t far behind. The fragile state of the global economy makes either scenario quite dangerous, but what are the alternatives? Don’t underestimate the significance of Europe’s financial problems on the rest of the world. The eurois the second largest reserve currency and is used daily by some 325 million Europeans. According to IMF 2008 GDP estimates, the Euro-zone is the second largest economy in the world. What would a total collapse of the euro dollar mean to the rest of the world? Will it be contained? Or will it ignite a global currency crisis,” DeLegge Reports.

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Here is a detailed look at the ETFs mentioned in the article below:

The investment (VGK) seeks to track the performance of the MSCI Europe index. The fund seeks to replicate the performance of the index, a market-cap-weighted index of approximately 513 common stocks in 16 European countries, through portfolio optimization, a statistical sampling technique. It intends to remain fully invested in common stocks.

The investment (EWQ) seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the French market, as measured by the MSCI France index. The fund normally invests at least 95% of assets in the securities of the underlying index and in ADRs based on the securities in the underlying index. It uses a representative sampling strategy to try to track the index. The index consists of stocks traded primarily on the Paris Stock Exchange. It is nondiversified.

The investment (EWG) seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the German market, as measured by the MSCI Germany index. The fund normally invests at least 95% of assets in the securities of the underlying index and in ADRs based on the securities in the underlying index. It uses a representative sampling strategy to try to track the index. The index consists of stocks traded primarily on the Frankfurt Stock Exchange. It is nondiversified.

The investment (EWP) seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the Spanish markets, as measured by the MSCI Spain index. The fund generally invests at least 90% of assets in the securities of the underlying index and in depositary receipts representing securities in the underlying index. It invests at least 80% of assets in the securities of the underlying index or in DRs representing securities in the underlying index. The index consists of stocks traded primarily on the Madrid Stock Exchange. It is nondiversified.

The investment (BWX) seeks to replicate as closely as possible, before fees and expenses, the price yield performance of its benchmark index, the Barclays Capital Global Treasury Ex-US Capped index. The fund normally invests at least 80% of assets in fixed income securities that comprise its benchmark index. It may also invest in securities not included in benchmark, but which the adviser believes will help the fund track the index, options, swap contracts and other derivatives. It is nondiversified.

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BWX, ETF BASIC NEWS, EWG, EWP, EWQ, VGK