Europe’s exchange traded funds (ETFs) are breathing a sigh of relief as the credit markets show further signs of becoming unstuck.

One very positive sign is that the interbank lending rates between the United States and Europe have dropped to the lowest levels in more than a month, reports the Associated Press. Interbank rates affect the cost of loans to businesses and individuals, which have skyrocketed as worries about the solvency of financial institutions spread.

The International Monetary Fund (IMF) had some bad news for the European economies this morning, though: all of the major ones will enter a recession in the coming months. This is despite steps the region has taken to ease the financial crisis, reports Adam Cohen for the Wall Street Journal.

For the euro zone, the forecast for the United Kingdom, Sweden and Denmark is an average growth of 1.3% this year and 0.2% next year. Emerging European economies will average slower growth than the initial 4.3% predicted earlier. In emerging Europe, large levels of debt are worrying institutional investors. Hungary has struggled, in particular.

The euroe has fallen to $1.32, down from a $1.60 high this summer. Even at its lower level, the IMF says that the euro is still overvalued.

The iShares S&P Europe 350 (IEV) is down 40.5% year-to-date.

SPDR S&P Emerging Europe (GUR) is down 62.3% year-to-date.

Tags: Emerging Markets, Euro, Europe, GUR, IEV, Sweden, United Kingdom