Editor’s Note: Please be on the lookout next week for this e-letter to arrive under its new name, ETF Investment Insider. Although the name is changing, I’ll continue to offer the same global economic commentary and coverage of new ETFs that you’ve come to expect. –Benjamin Shepherd

Last year, the Arab Spring blossomed as civil unrest ousted autocrats in Tunisia, Yemen, Egypt and finally Libya. Fed up with generations of oppression, corruption and economic mismanagement, the citizens of the Arab world had finally had enough.

After the elections in France and Greece this past weekend, we may now be entering a similar period in Europe.

In France, Socialist candidate Francois Hollande won the French presidency from Nicolas Sarkozy with 51.6 percent of the vote. Earlier this year, Sarkozy was instrumental in developing an agreement that committed European Union countries to reducing national spending to less than 3 percent of national output in order to stabilize the region’s sovereign-debt crisis.

But French voters clearly weren’t in favor of austerity, and Hollande can credit his victory to his declaration that the solution to Europe’s debt crisis is more spending, not less. Immediately following the election results, Hollande informed German Chancellor Angela Merkel that he intends to force a renegotiation of the EU spending pledge.

In Greece, the country’s New Democracy party and the Coalition of the Radical Left won the largest number of seats in parliamentary elections there. Despite being at opposite ends of the country’s political spectrum, both parties ran on platforms that included strong opposition to austerity measures. While it remains to be seen whether the two parties will actually be able to form the coalition necessary to govern, the Greek electorate has clearly spoken.

Unfortunately, those are only the two most recent examples of European voter backlash against austerity. Last month, the Dutch government fell after attempting to cut its budget to meet the new EU spending targets.

While conditions in Europe are nothing like the near-anarchy experienced in the Middle East and North Africa last year, this latest political turmoil significantly alters the calculus for a European recovery.

Although austerity makes sense to economists since overleveraged economies were a primary driver of Europe’s debt crisis, it’s a tough sell to a European populace already coping with high unemployment and stagnant wages. In Spain, unemployment is running in excess of 23 percent, while Greece is grappling with 21 percent unemployment. In France, the unemployment rate is running at 10 percent, slightly below the 10.2 percent average for the EU as a whole.

Given the shift in political winds, the European Commission has now said that more pro-growth policies should figure into Europe’s recovery plan, including a boost in the amount of capital available for use by the EU’s investment bank and guarantees for European bonds. That makes it increasingly likely that the ultimate resolution of the crisis will likely involve a Euro bond issue that will essentially shift debt from national governments to the supranational EU. But can a debt crisis really be solved with more debt?

Needless to say, the recent events in Europe bear watching and could signal a shift in the region’s strategy for addressing its debt crisis.

What’s New

PIMCO Global Advantage Inflation-Linked Bond Strategy Fund (NYSE: ILB) was the only new exchange-traded fund (ETF) to launch last week.

In an attempt to shield investors from global inflation, the fund invests in inflation-protected (IP) bonds issued by a number of global governments. While that’s hardly a unique strategy–a handful of inflation-protected bond products are already on the market–PIMCO will take a rather novel approach to portfolio construction.

Whereas most international IP bond products use a market-weighted approach, which means the largest global issuers of IP bonds receive the biggest weightings in the portfolio, PIMCO will weight its portfolio based on gross domestic product (GDP) growth. That methodology will lead to higher allocations to countries that are driving the greatest share of global growth and are also likely to be the most sensitive to inflation.

Additionally, such an approach will result in a portfolio that has consistently higher allocations to emerging market securities as opposed to developed market securities. However, IP bonds from the US and the UK will still figure prominently in the portfolio.

The fund is actively managed, rather than employing the passive strategies of its competitors.

The ETF charges a 0.60 percent annual expense ratio, making it one of the pricier products available in its niche. Still, it will be interesting to see how its GDP-weighted strategy fares in the coming months.

Portfolio Roundup

Please see this month’s issue of Global ETF Profits.