European leaders have convened for a two-day summit to address Europe’s growing debt problem. While the outcome is uncertain at this point, exchange traded funds (ETFs) could give clues about how it’s going.

Thing to Watch 1: Spain. The PIIGS are widely acknowledged to be the biggest trouble spots, and the E.U. will be focusing on them. After all, Moody’s warned that it may downgrade the Spain’s debt, citing that the country is too big to be handled like other smaller member states, writes Gabriele Steinhauser for Yahoo! Finance. Many economists caution that weak growth and further banking problems could make debt loads in smaller countries like Greece, Portugal and Ireland unsustainable. It could be make or break time for iShares MSCI Spain (NYSEArca: EWP), which has lost 23.3% in the last year. SPDR Barclays Capital Intl Treasury Bond (NYSEArca: BWX) holds 4.6% of Spanish debt; beleaguered Italy is 10.7%. If there are downgrades, look out. [Spain ETF Emerging from Pain…But Will It Stick?]

Thing to Watch 2: Ireland. In Ireland, lawmakers voted to accept $90.4 billion in loans from the E.U. and International Monetary Fund to bolster banks and public finances, report Jason Douglas and Quentin Fottrell for The Wall Street Journal. Critics claim that the deal will destroy the country’s creditworthiness and puts unfair pressure on Irish citizens. Meanwhile, the government is continuing its unpopular austerity goal of reducing budget deficits to under 3% of GDP by 2014 by increasing taxes, reducing minimum wage and decreasing aid to the poor and the blind.  iShares MSCI Ireland (NYSEArca: EIRL) could go either way; is Ireland in big trouble, or are the lifelines plenty?

Thing to Watch 3: Europe and the Euro. All eyes are on this summit. That’s because what does or doesn’t come out of it could have big implications not just for troubled countries, but the rest of the region – if not the world. Bearish on Europe? Check out ProShares UltraShort MSCI Europe (NYSEArca: EPV). The euro is down on day one, but if leaders come up with a plan, that may not be the trend for long. Both sides can be played: CurrencyShares Euro Trust (NYSEArca: FXE) or Market Vectors Double Short Euro ETN (NYSEArca: DRR).

Thing to Watch 4: Other Countries. Not all of Europe is in pain. There are many countries – particularly those not on the euro – that are doing quite well these days. If you’d rather not bank on a PIIGS recovery, consider other more solidly positions economies such as:

  • iShares MSCI Sweden Index (NYSEArca: EWD)
  • iShares MSCI Switzerland Index (NYSEArca: EWL)
  • iShares MSCI Poland Investable Mkt Index (NYSEArca: EPOL)
  • SPDR S&P Emerging Europe (NYSEArca: GUR)

For more information on Europe, visit our Europe category.

Read the disclaimer; Tom Lydon is a board member of Rydex|SGI.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.