Europe's Next Shoe To Drop? Perhaps Belgium

One of the most popular questions to ask during times of peril is "What is the next shoe to drop?" Such has been the case in the wake of Greece's financial crisis. Of course, many fingers have pointed to Spain and Italy and that has led many pundits to recommend shorting those country-specific ETFs.

Well, the ETF Professor alerted readers to the fact that shorting the iShares MSCI Spain Index (NYSE: EWP) was a good idea on November 18. Following that advice would have you up 22%.

And then on December 8, the Professor advised shorting the iShares MSCI Italy Index (NYSE: EWI). That pearl of wisdom would have you up 10%.

Last month, the Professor wondered why the iShares MSCI Belgium Investable Market Index (NYSE: EWK) didn't get more attention and made a good case for why investors should ignore it.

That wasn't necessarily a short call and since then, a couple of folks have issued bullish reports on EWK. Fair enough, but there might be more than meets the eye when it comes to Belgium's financial health.

You see, the country has fair amount of its GDP (say north of 25%) tied up in risky loans to Eastern European countries that are in the midst of severe economic doldrums.

Public debt is about 80% of Belgium's GDP and throw in contracting GDP and rising unemployment and you have a Greece/Italy/Spain-esque kind of scenario. Oh yes, Belgium is running a fiscal deficit north of 20 billion Euros.

The biggest risk in shorting EWK comes in the form of a potential spike that may occur if Greece is actually bailed out. Still, that is short-term for mask for what appear to be some lingering problems for Belgium.