Huge budget deficits and banking woes of weaker economies in the eurozone have become a snag on the E.U. economy, reports Marcus Walker for The Wall Street Journal. The euro is now at three-month lows and the future doesn’t look bright. News of potential Austrian banking problems, with questionable investments in Eastern Europe, and a nationalization of another Austrian bank at the request of the European Central Bank have agitated markets.

• iShares MSCI Austria Index (NYSEArca: EWO): up 60.5% year-to-date

Portugal, Ireland, Italy, Greece and Spain, also known as “PIIGS” to some, have incurred large budget deficits, and now, the countries have low growth prospects, which translates to a possible rapid rise in future debt. These countries’ wages and costs have been rising, but they are unable to devalue their currency. Diego Iscaro, economist at IHS Global Insight in London, observes that “Europe has a lot of treaties but no clear mechanism for how to deal with such cases.”

• New Ireland Fund (NYSE: IRL): up 55.3% year-to-date
• iShares MSCI Italy Index (NYSEArca: EWI): up 21.8% year-to-date
• iShares MSCI Spain Index (NYSEArca: EWP): up 34.6% year-to-date

Greek Finance Minister George Papaconstantinou expects to have to borrow $73.22 billion from bond markets next year, and anticipates the possibility of having to go to E.U. members or the International Monetary Fund for more loans.

Simon Tilford, chief economist at the Center for European Reform, says that “it’s hard to see how Italy, Spain and Portugal are going to generate enough growth” to reduce debt. Ireland has a younger population to fall back on, but the economy is suffering from a drop in exports to the United Kingdom.

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• CurrencyShares Euro Trust (NYSEArca: FXE): up 4.1% year-to-date

• iShares MSCI EMU Index (NYSEArca:EZU): up 27.4% year-to-date

• SPDR Dow Jones Euro STOXX 50 (NYSEArca:FEZ): up 26.4% year-to-date

• iShares S&P/Citigroup International Treasury Bond Fund (NASDAQ: IGOV): down 1.6% in the last month; holds debt from Italy, Spain and Greece

Read the disclaimer, Tom Lydon is a board member of Rydex Funds.

Max Chen contributed to this article.

After an increase in government spending, Standard & Poor’s downgraded the country’s long-term sovereign credit rating to “AA” on concerns of a costly government bailout of banks. Further downgrades are also possible if the government’s fiscal performance continues to weaken, according to The New York Times. Rival credit rating agencies, Moody’s and Fitch, have also downgraded Ireland’s debt.

The downgrade could translate into higher interest rates for the country as investors would demand more from riskier government bonds.

In a report released by the University of Ulster, economists advised the government on the merits of public investment so as to provide social and economic benefits during a recession, as stated in Belfasttelegraph. It is thought that the potential boost in job creation is justified by the increased investments.

However, there is some good news provided by the Ulster Bank, which said the local economy is shrinking at its slowest rate in a year, which further supports the idea that the worst could be over, reports Symon Ross for Belfasttelegraph. But Northern Ireland’s economy is still under-performing that of the rest of the United Kingdom’s and the weakness seems to be  stemming from the construction sector.

• New Ireland (IRL): up 39.7% year-to-date

Max Chen contributed to this article.