Spain's economic difficulties has a knock-on effect.
One of the more unusual stories of the week is Monday's announcement that the French government sold €6 billion of three-month and six-month treasury bonds at negative interest rates. This means that people are actually paying the French state to lend it money.
While the Germans and the Dutch have been selling bonds at negative interest rates for some time, it's surprising to see France join them given the loss of its triple-A credit rating in January and that the winner of May's French Presidential election, François Hollande, had promised massive increases in public spending which had spooked the markets.
It turns out that other factors are at work, in particular investors' concerns about the Spanish economy and President Hollande seemingly backtracking upon some of his promises, and this has increased the attraction of French bonds to many investors.
Spanish short-term rates have soared
Spain's problems, which have pushed up the interest rates on Spanish debt, are helping France to sell its own debt. Last month an issue of six-month Spanish government bonds was sold at an interest rate of 3.24% compared with just 1.74% in May, and over the same period the rate on three-month debt rose from 0.85% to 2.36%.
Many European financial institutions need to own euro-denominated debt because they have euro-denominated liabilities. The near-tripling of Spanish short-term interest rates has made French debt more attractive to risk-averse investors and this has allowed France to issue debt at negative interest rates.
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The investment angle
The rush of money into French bonds is telling us that Spain's economic difficulties may be a bit more serious than previously thought. If my tolerance for risk today was anything like as high as it was 10 years ago I would now be looking for bargains in the Spanish stock market. That's because a crisis will often cause riskier assets (shares) to become oversold as investors flee into the security offered by government bonds.
Britain's Prime Minister David Cameron recently suggested that any French citizens who were thinking of fleeing Hollande's 75% income tax rate would be welcome to join the French expat community in London. If they do this in large numbers, joining the many wealthy foreigners who use London as a safe haven, this should push up house prices.
Aside from buying a house or flat, it's difficult to directly invest in the London residential property market. One option that springs to mind is Capital & Counties (LSE: CPAC) with its mixture of commercial and residential property and developments in central London.
Other alternatives
If I were going to invest in Europe I'd probably use an investment trust like Henderson Eurotrust (LSE: HNE), whose portfolio is packed with European-based multinationals. Though I'm waiting for the day when Pernod Ricard shares trade at a price-to-earnings ratio that's a couple of points below that of its larger rival Diageo (LSE: DGE) so I can buy some to expand my portfolio of distillers.
But if you want a British company with lots of exposure to Europe, Imperial Tobacco (LSE: IMT) fits the bill because it has a very strong presence there. Especially in France as it owns the two most famous French cigarette brands; Gitanes and Gauloises.
Investing is by no means easy in today's uncertain economy. That's why we've published "Top Sectors Of 2012" -- our guide to three favourable industries. This free report will be dispatched immediately to your inbox.
Further investment opportunities:
> Tony owns shares in Diageo but he does not own shares in any of the other companies mentioned in this article.
