As the first half of 2012 came to a close, European leaders may have finally sown the seeds of a long-term solution to the current fiscal mess. The agreement to use the financial firepower of central banks to snap up the debt of ailing banks should bolster capital positions and buy time for policy makers to implement the right mix of austerity and stimulus that leads to sustainable economic growth.

Investors have been sharply reducing their exposure to Europe, but now might be time to wade back in-particularly if efforts to contain the contagion bear fruit. Indeed, a wide range of European blue chip stocks are now trading well below previous peaks, and increasingly look like compelling bargains. While the S&P 500 has risen roughly flat over the past year, European stocks have slumped 20%.

Go With Strength
The current European sell-off has also dragged down stocks and funds of top economic performers like Germany and the Scandinavian countries, which remain global powerhouses even as neighbors to the south stumble badly. And although European economic troubles will likely keep a lid on economic growth in these countries over the next 18 months, the the region's top companies are still poised to flourish for many years to come.

The Smart Way To Play
Coming out of the current economic slowdown, it might be hard to predict which companies and industries will post the strongest rebound. So the ETF route looks wiser.  For example, the iShares MSCI Germany Index Fund (EWZ) that tracks Europe's strongest economy holds stakes in the top German companies, many of which have a global export focus.

Yet as the fears of a European economic meltdown have risen, investors have been abandoning this fund. In fact, it fell so sharply in this year's second quarter that the aggregate price-to-book ratio for all of the fund's holdings has dropped to just 1.1. It's a rare moment when you can buy Germany's leading blue chip stocks for just above book value.

The Swedish Model
Northern European countries have historically pursued a seemingly contradictory policy of supporting key industries while also providing a fairly extensive social safety net. In many respects, it appears to be a winning formula. Scandinavian countries have largely avoided the boom-time excesses seen in Southern Europe, and have managed to avoid recession when the broader continent has slumped. That's been a solid backdrop for investors, who appreciate the reduced volatility.

For example, the iShares MSCI Sweden Index Fund (EWD), fell less sharply than other European stocks in 2011, and its current 8% year-to-date return in 2012 is roughly twice the gain posted by the rest of Europe, according to Morningstar. Over the past ten years, this fund has sported an impressive 11.8% annualized return, besting the 5.7% gain for the rest of Europe in that time frame and giving the fund an "above average" rating in terms of both returns and risk, according to Morningstar.

Investors may also want to cross Sweden's western border into Norway. That country boasts of one of the strongest investment climates in the world, thanks in part to the billions in profits earned each year from energy exploration in the North Sea. "Norway's management of their finances and their exposure to natural resources makes it a very appealing play," says Alex Ashby, a research analyst with Global X Funds.

The Global X FTSE Norway 30 ETF (NORW) tracks the performance of Norway's 30 largest stocks, with roughly 40% of those assets tied up in oil and gas. The fund has a limited history, as it was launched at the end of 2010. The fund fell roughly 18% in 2011, in line with the drops seen in many other European indices, though its 6% year-to-date return in 2012 is roughly double the gains seen by other European indices. The fact that roughly half of this fund's assets are tied to energy stocks means that performance will be much more highly correlated with oil prices than to European economic activity.

Another option in that vein, the Global X FTSE Nordic Region ETF (GXF), owns a basket of companies across Scandinavia. It's a bigger region than you think-the Scandinavian bloc of countries generated $1.6 trillion in economic activity in 2011, according to the World Bank. That ranks it higher than Spain, Australia, Mexico, South Korea or Turkey.

The GXF fund also has a short track record-less than three years-but has thus far solidly outperformed most major European indices. While the average European index fund has been flat over the past three years, this fund is up roughly 15%.

A 28% weighting in financial services, along with another 20% tied up in Scandinavian industrial firms, implies a fairly high degree of correlation with economic activity in the Nordic region. Economists expect the Nordic economies to grow less than 1% in 2012, though that's still better than the negative-to-flat growth expected elsewhere in Europe. As the rest of the Continent move out of recession, perhaps in 2013, the IMF expects the Nordic countries to see economic growth rates move back towards the 2% to 3% rate seen during much of the past decade.