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How Volcano Will Impact Europe ETFs

By Michael Johnston of ETF Database

NEW YORK ( TheStreet) - For the past several months Europe's largest markets have taken their cues from one of their smallest neighbors, as financial turmoil in Greece regularly made headlines throughout the continent. The potential for a fiscal crisis in one of the bloc's smallest economies highlighted the risks of the common currency system, and set off rounds of fierce debate over the obligations of richer European countries to intervene. Now, it is a completely different disaster from another of Europe's relative unknowns that threatens to undermine a still fragile economic recovery.

Last week, an eruption beneath Iceland's Eyjafjallajokull volcano began spewing ash and dust into the atmosphere, creating a potentially dangerous situation for aircraft flying through the region. The eruption has shot glass shards into the air that could cause major mechanical failures if they were to come in contact with an airplane engine. Taking a cautious approach, regulators ground flights to and from Europe. What was initially expected to be only a temporary closure has now dragged into its fifth day, and airlines estimate that more than 60,000 flights have been canceled.

While the impact on the aviation industry is fairly straightforward -- analysts estimate that daily losses are in the neighborhood of $250 million -- the concern now is that the slowdown will reach into other areas of the European economy.

It is still unclear how long the airline blackout will last and how serious the economic ramifications will be, but the impact is already being felt throughout the world. Kenya's Daily Nation newspaper estimates that the Kenyan economy is losing almost $4 million daily as a result of flight cancellations to Europe. Kenyan farmers are reportedly dumping stocks of food and other goods earmarked for Europe, a scenario that could play out across agriculture-intensive economies in Africa and South America. But the biggest impact will likely be felt in Europe, where tourism has already taken a major hit and other industries could be next to feel the pinch.

Europe ETFs In Focus

The fallout from the recent volcanic eruption adds yet another roadblock on a road to recovery already littered with a dire fiscal situation in Greece, record high unemployment in several major economies, and swelling government debt. In the following pages, we profile three Europe ETFs that could be in focus as all of these situations play out.

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