Germany is under more pressure than ever to save the eurozone from what the Polish foreign minister has called “a crisis of apocalyptic proportions.” Germany is among the strongest nations in the Eurozone and its stupendous economic performance in recent years has put it in a better position than any of its EU brethren to support the eurozone as it approaches a massive potential collapse. Uncomfortable with taking on so much of the burden though, Germany has continually attempted to avoid taking too much of a stake in the current debacle, continuing the threaten the survival of the euro and state of the broader regions economy.
Germany insists that a “stability union” is among the only possible solutions to helping to reverse the massive recession taking place in the European sovereign debt markets, and while investors across the globe were heartened by news that a plan in this vein might be close, others remain concerned. The alarm has spread far beyond European borders as U.S. banks with a stake in Europe shudder at the thought of another series of downgrades or a collapse. President Barack Obama called the European crisis a "huge issue" for the U.S. economy after a meeting with top Euro officials and urged them to reach a decisive conclusion. Many believe that even with the potential of the I.M.F. stepping in, which they seem to be brushing off, the problems in the eurozone simply run too deep.
The I.M.F. possesses roughly $390 billion in lending funds, too small an amount to save Italy, which is thought to require around $900 in bailout funds. At seven times the size of Greece the possibility of an equally successful bailout seems unlikely. Still, the eurozone continues to hint at a potential resolution to the crisis, giving hope to global investors. The ongoing waffling regarding how this could end has has massive impact on U.S. equity markets as anxiety and relief seem to
For those betting against the recent whispers surrounding a potential bailout for Italy, it may be wise to know which parts of a portfolio are most in danger.
Emerging Market ETFs: The decline of consumer confidence in the eurozone would dramatically lessen demand for the goods produced in emerging nations, weakening growth rates and the colossal returns many investors have become used to. Emerging nations like brazil and China have both indicated willingness to lend to the fund as so much of their exporting business relies on a captivated consumer in the Eurozone. The iShares MSCI Emerging Markets (EEM) has fallen in excess of 10 percent this past month while SPDR S&P 500 ETF (SPY) has declined more than 6 percent. Emerging market ETFS have a reputation of being highly volatility in the face of global economic unrest.
Financial Firms: Shares of Deutsche Bank (DB) and Barclay’s Plc (BCS) both climbed more than 9 and 10 percent yesterday on the basis of a potential resolution to the debt crisis. The high exposure of both the firms would naturally cause those gains to erase. Deutsche Bank has $3.2 billion in exposure to the Eurozone, down from nearly $8 billion at the close of 2010. Domestic companies from Goldman Sachs (GS) to J.P. Morgan (JPM) have already suffered after disclosure of their own exposure levels in recent trading and while they will experience increased tightness as a result of their ties with the global economy, these firms are likely better conditioned than those companies with larger direct exposure.
Retail Companies with More than 20 percent of sales in Europe: Companies with high exposure to Europe in terms of their sales have been hard hit in recent months and could continue to decline in the event of a collapse. Apple (AAPL), Johnson & Johnson (JNJ), Philip Morris Intl (PMI), Royal Dutch Shell (RDS.A) and Cisco Systems (CSCO) all fall into this category according to a recent Reuters article.
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