Enter "Greece" and "debt" on Google and you get over 11 million hits-nearly 10,000 in the News section alone. In late June, two months after Standard & Poor's reduced the Greek debt rating to junk status, you could still find articles reporting on the severity of the crisis and the reaction to proposed remedies.

Now Greece has great historical significance for Western civilization, but the country is hardly crucial to the global economy. It ranks 27th in gross domestic product (GDP) and 33rd in purchasing power, right behind Ukraine on the World Bank's list in the latter category. Nevertheless, Greece's woes have prompted a huge bailout by the International Monetary Fund and the European Union, sending stocks down around the world.

In particular, European stock markets have suffered heavily. The plunge can be seen in the trading price of iShares S&P Europe 350 Index Fund, which fell by 25% from mid-April to mid-June, and in Vanguard European ETF (which tracks the MSCI Europe Index), off 20% in that time period. For both exchange-traded funds, which reflect broad European equity indexes, the two-month drop virtually erased the gains from last year's rebound.

Some observers believe the problems evident in Greece are likely to spread to other European nations, starting with the other "PIIGS" (Portugal, Ireland, Italy, Spain) but eventually moving to larger markets. Lavish social welfare programs and borrowing to meet those obligations are by no means confined to the western shore of the Aegean Sea. Thus, the outlook for investing anywhere in Europe may be daunting, or so this line of thinking goes.

Others believe that Europe has already started to address some of those issues and that many European stocks are attractive, especially at current prices. "The drop in European stock prices is water over the damn," says Martin Jansen, a senior vice president with ING Investment Management in New York. "It's too late to get out." Jansen, who calls the spring stock stumble an investor overreaction, says that European stocks may offer good value now. "Going by price-earnings ratios, they sell at a 20%-25% discount to the U.S. market," he asserts.

STAYING AWAY

Although most of the people interviewed for this article agreed that investors have overreacted, not everyone regards European equity weakness as a buying opportunity. "We've taken our European exposure down quite a bit," says Nathan Rowader, director of investments at Forward Funds. "We have about 10% of our equities there, which is an underweight position. Even a 0% allocation to Europe might be appropriate."

Why is Rowader so negative on Europe? "We see low growth there for the next 10 years, perhaps 2% a year," he says, adding that many European countries have high budget deficits and leveraged economies-high debt in relation to GDP. "We believe there is systemic risk in European stocks." Forward Funds has reported that the short-term problems stemming from Greece may be resolved, but the medium term might bring "contagion" of debt problems to other European nations.

Rowader forecasts slightly higher annual GDP growth in the United States (3% a year) and much higher growth in the emerging markets (6% a year), compared with Europe. At the same time, European stocks are now 90% correlated to the U.S. stock market, he says. Why take on the risks of Europe when you get no real diversification benefit and higher growth potential elsewhere in the world?

It is true that European investments have done well recently. European stock funds gained over 47% in 2009, on average, bringing the 10-year return (through May 2010) to more than 3% a year, a couple of points higher than U.S. stock funds in the last decade. But Rowader chalks that up to a high tide raising all ships.

"Some European problems were masked by the recovery of 2009," Rowader says. "Stocks rode higher as the U.S. pumped money into the global economy. Now the United States is becoming more judicious in its spending, so the issues facing Europe may become more apparent."

According to Rowader, advisors and money managers who prefer indexing to active management can avoid Europe altogether, without any great performance loss. Instead of an international index, which would have a substantial exposure to Europe, you might use an Asia ex-Japan index, he says. That would exclude Europe and also Japan, which Rowader views as having similar slow-growth and high-debt drawbacks.

His firm is an active manager, so Rowader advocates some selective investments to make up its 10%-of-equity allocation. "Scandinavian economies are more energy based, so we have some holdings in those countries," he says, adding that there will be strong demand for commodities from the emerging markets, so energy-based economies may do well. "We also like some European consumer and industrial companies with a great deal of exposure to the emerging markets."