How to Profit From Slovakia's No Vote
Slovakia put the future of the euro in jeopardy yesterday when the tiny, poor European country voted against enhanced powers for the European Union that are needed in order to prevent a financial meltdown. Slovakia's ruling party failed to get enough votes to give the European Financial Stability Facility (EFSF) more firepower to fight the eurozone's economic woes.
Slovakia is the only eurozone member to vote against a beefed up EFSF that would have access to 440 billion euros ($600 billion) that could be used to buy the debt of troubled eurozone members, provide credit lines to troubled governments and recapitalize eurozone banks that are having difficulty finding short term funding.
Although the Slovakian government failed to approve the enhanced European Financial Stability Facility, lawmakers there and throughout Europe said that they were confident that the country would find a way to pass the measure soon. The vote was also a referendum on Prime Minister Iveta Radicova's government, so the no vote was more about domestic Slovakian politics than the EFSF. Radicova is in talks with the opposition and a deal is expected soon that will allow the measure to pass.
Although Slovakia is expected to approve the measure soon, the no vote is also a sign of growing grassroots disapproval within the eurozone. Citizens of countries like Slovakia, Germany and France are becoming disillusioned with the fact that they are expected to bailout other eurozone countries that mismanaged their finances for years. On the other hand, citizens of troubled countries like Greece, Italy and Spain are upset over austerity measures that they feel have been forced upon them by international bankers. The austerity measures are supposed to improve the countries' finances but the most noticeable effects are higher taxes and climbing unemployment rates.
Although European leaders like German Chancellor Angela Merkel, French President Nicolas Sarkozy and Prime Minister George Papandreou seem to be doing their best to keep the eurozone intact, there policies are becoming increasingly unpopular. While focusing their attention on preventing a Geek default, they have failed to convince voters that the bailouts and austerity measures are truly in their best interests.
There's widespread belief that Greece will eventually default, which could cause a domino effect and lead to other troubled eurozone countries like Portugal and Italy following suit. If this happens, the euro could be finished.
Investors who feel that Slovakia's no vote is a sign of things to come might want to bet against the euro by purchasing the ProShares UltraShort Euro (NYSE: EUO), the CurrencyShares Swiss Franc Trust (NYSE: FXF) or the CurrencyShares Japanese Yen Trust (NYSE: FXY). If the euro falls, both the Swiss franc and the Japanese yen could climb higher because they are seen as safe haven currencies.
Investors who feel that there's too much at stake for a eurozone collapse might want to buy the SPDR EURO STOXX 50 (NYSE: FEZ) or the iShares S&P Europe 350 Index Fund (NYSE: IEV) ETFs. Although Europe's leaders have been slow to act, there does seem to be momentum building to find a way to deal with the financial problems currently plaguing the eurozone. If the situation in Europe starts to improve, these ETFs could see significant gains.
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