How to Profit From German Decision to Support the Euro

The government of German Chancellor Angela Merkel won a victory on Thursday when the German parliament passed a vote expanding the powers of the institution charged with saving troubled eurozone members like Greece, Ireland and Italy from default. The German Parliament overwhelmingly approved a plan to increase the borrowing power of the European Financial Stability Facility (EFSF) and give it new powers to deal with the financial crisis that has plagued the eurozone. The vote raised Germany's guaranteed contribution to the EFSF to 211 billion euros, up from the previous guaranteed amount of 123 billion euros. It also granted the fund more powers, such as the ability to increase purchases of bonds from troubled eurozone members, conduct bank recapitalizations and to grant precautionary credit lines. The German Parliament's vote should give a boost to European financial stocks. Many companies in this sector have seen their share prices drop because of concerns over their exposure to Greek debt. The German decision to increase the powers of the eurozone rescue fund should benefit European financial institutions like Credit Suisse Group CS and National Bank of Greece NBG. Investors who would prefer to invest in a broad range of European financial stocks can do so through the iShares MSCI Europe Financials EUFN ETF. The iShares MSCI Europe Financials ETF provides investors with much of the upside potential of European financial institutions, while reducing the risk involved in buying individual securities. Investors who are skeptical of many of the efforts to shore up sagging eurozone countries might see the German decision as a move that only postpones the inevitable. Creditors of troubled eurozone members like Greece, Italy and Portugal could just be throwing more good money after bad. Remember that the Chinese recently said that the troubled eurozone countries would have to improve their financial standing before China would consider buying more of their bonds, not after. The Chinese are strategic investors and with no sentimental attachments to the failing eurozone experiment. It might be wise for investors to follow the Chinese lead and wait for the situation in Europe to improve before investing there. Even if countries like Greece are able to avoid default, the hash austerity measures they have enacted will hurt their economies for years to come. Greece has fallen deeper into recession because of the very measures that are being implemented in order to keep it from falling further into debt. With increased funding from the eurozone rescue fund, the likelihood of defaults goes down but it also means that the governments of eurozone members like Greece, Italy and Spain will be more likely to stick with austerity measures that have been widely unpopular. This might be good for the countries' balance sheets but could put a damper on economic growth. Investors who feel that the German decision won't save the eurozone could see this news as an opportunity to short the euro by buying the ProShares UltraShort Euro EUO ETF. Another option is to move funds into safe haven currencies like the Japanese yen or the Swiss franc through the CurrencyShares Japanese Yen Trust FXY or the CurrencyShares Swiss Franc Trust FXF ETFs. Investors who prefer stocks, might want to consider moving funds into the stocks from countries with much higher growth rates than the eurozone members. The iShares MSCI South Korea Index EWY, the iShares FTSE China 25 Index Fund FXI and the iShares MSCI Singapore Index EWS ETFs are a few of the investment options available to investors who want exposure to a wide variety of stocks from countries that have much better balance sheets and growth prospects than countries in the eurozone.