Exchange traded funds tracking Italy, Spain and other European countries have taken a beating this week with the region plagued by worries over banks and the growing debt crisis.

The iShares MSCI Italy Index (NYSEArca: EWI) and the iShares MSCI Spain Index (NYSEArca: EWP) were both down more than 1% on Friday and were close to setting new 52-week lows.

The European Central Bank has bought some time for Italy and Spain by buying some of their debt. European leaders are still wrestling with the sovereign debt crisis. The overall outlook for Italy and Spain, the third and fifth largest EU economies, has come into question. [Italian Bond ETFs reverse Losses]

“There are the ones that probably can make it through, even though it will be very unpleasant, as long as there isn’t a panic, and those would be Spain and Italy,” said Paul Krugman in an interview in Stockholm, on Bloomberg. “There are the ones that are probably fundamentally insolvent where there is going to have to be a debt writedown, and those would be Greece, Portugal and Ireland.” [European ETFs recover on Talk of Short Sale Ban]

“Economic integration” has been the argument that leaders in the Euro zone are looking for. The ECB has helped restore some calm in the Euro nations with their purchase of Spanish and Italian bonds. Spain’s 10-year yield advanced 4 basis points to 4.95%, while Italian bonds are yielding 5%, reports Johan Carlstrom for Bloomberg. [European Stock ETFs Pressured by Banks]