Finance Ministers Struggle to Solve Eurozone Crisis

Finance ministers from the 17 countries that use the euro as their currency met on Tuesday in yet another effort to avoid a financial collapse that could mean the end of the euro.

The finance ministers are discussing a wide range of possible solutions to the current sovereign debt crisis. The ideas that have been thrown about include jointly issued eurobonds backed by all eurozone members that would lower borrowing costs for troubled countries like Italy, while forcing countries like Germany to pay more to finance their debt. The eurobond is widely unpopular in Germany because the Germans feel that it would reward past bad fiscal planning and also remove the incentive to plan better in the future.

Another idea up for discussion is making changes to existing European Union treaties so that a central European Union authority would have veto power over individual eurozone members' federal budgets. The Germans find this plan more acceptable because it would ensure that troubled countries like Greece and Portugal stick to austerity measures that they agreed to in order to receive bailout funds.

The hope is that the finance ministers can agree to a compromise that would include both solutions and that would send a strong message to the financial markets that the European Union was committed to making substantial reforms. If this were to happen, investor confidence in the eurozone might start moving up and lead to falling borrowing costs across the eurozone before new measures even take effect.

The meeting of eurozone finance ministers took place on the same day that Italy saw its borrowing costs rise dramatically to a yield of nearly 8% for its 3-year bonds. Such borrowing costs are unsustainable and could push Italy towards default but it's unknown if the eurozone could handle an Italian default. The European Union has already stepped in and provided bailouts to Greece, Ireland and Portugal to prevent them from defaulting but Italy's economy dwarfs each of the countries that received earlier bailouts.

ACTION ITEMS:

Bullish:
Traders who believe that the meeting of eurozone finance ministers will lead to a solid plan to address the eurozone's sovereign debt crisis might want to consider the following trade:

• The CurrencyShares Euro Trust (NYSE: FXE) ETF could climb higher if investors stop questioning whether or not the euro will survive.

Bearish:
Traders who believe that the eurozone finance ministers will continue to fumble their way through the ongoing financial crisis may consider an alternate position:

• The ProShares UltraShort Euro (NYSE: EUO) ETF could be a big gainer if the meeting fails to lead to a comprehensive plan to guide the eurozone out of the current financial turmoil.

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