NEW YORK ( TheStreet) -- Not much was decided during the meeting of EU finance ministers this week, where a discussion of stricter regulation of U.S. hedge funds took center stage and pushed the Greek crisis to the side. The president of the EU said that although nations would be willing to help Greece when necessary, now is not the time. Eventually, something will need to be done about the situation and whatever is decided, Germany will be the country that makes the final decision. Earlier this week, in my 5 ETFs to Watch, I noted that the German press has been widely critical of bailouts for Greece. Front-page magazine headlines included words such as "lies" and "deception." In an editorial, Frankfurter Allgemeine Zeitung made the most succinct argument to date when it asked whether Germans should work two more years, to age 69, to pay for a bailout, while the Greeks are in the streets protesting an increase in their retirement age from 61 to 63. This recent outpouring of opinion is not new. German economists warned that this day would come if the less competitive southern European economies were added to the currency union. Edmund Stoiber, formerly the President of Bavaria, said in the late 1990s that Bavaria would sooner have a famine than that Germany would bailout other countries. And although there is no way for a euro country to exit the currency union under current law, Germany's finance minister wrote this week that such an option be added as part of a proposal for a European Monetary Fund. The sentiment in Germany is extremely important because Chancellor Angela Merkel is facing a close regional election in May, and she could lose control of the upper house of parliament if her party loses the election. Unfortunately, Greece must roll over about $30 billion in debt in April and May, and that could force matters to a head. Aside from public opinion, there is a legal question. Ambrose Evans-Pritchard reports that a bailout violates German constitutional law and that legal challenges are already being prepared in the event the government violates the law.
Bailout hopes also received some bad news yesterday, when the EU warned five countries, including Germany, France and the Netherlands, three of the strongest economies on the continent, that they are relying too much on optimistic GDP forecasts to close their budget gaps. Weaker finances in these countries reduce the chance of a bailout for Greece. After a nice rally below the $1.35 level, the U.S. dollar has consolidated its gains and the euro has strengthened to $1.37. Since Feb. 23, CurrencyShares Euro ( FXE) is up about 1.9%. iShares MSCI EMU Index ( EZU) gained about 9%, while the worst performing Europe country ETF during the decline, iShares Spain ( EWP), is up 11%. On the other side of the trade, PowerShares DB U.S. Dollar Index Bullish Fund ( UUP) fell about 1.8% and ProShares UltraShort Euro ( EUO) slid 4%. Year to date through Feb. 16, FXE is down 3.8%, EZU is down 3.3% and EWP is down 8.4%. UUP still has a gain of 1.3% and EUO is up 6.9%. What does it all mean? In the next few weeks, continued strength for the euro is possible. In the absence of news, the currency trend is likely to continue, and that trend is for the euro to creep higher against the U.S. dollar. In the longer term, this could build into a larger rally in the euro if the economy cooperates and the Europeans find a solution acceptable to Germany. Looming in the background is German opposition to bailouts, including constitutional legal barriers. Germany will be willing to accept a lot more pain for the euro before it starts to soften its position and investors who have factored political intervention into their calculations should adjust their euro targets downward. -- Written by Don Dion in Williamstown, Mass.