I have to admit that soccer is not part of my normal sports-viewing habit. Yet this year, I am really getting into watching the World Cup. It’s always fascinating to see athletes who are the best at what they do compete for the glory and pride of their respective countries.

One thing the World Cup matches got me thinking about was the state of the global economy, and the horrendous fiscal condition in many of the countries that make up the European Union. Just think of all the debt issues facing Greece, Portugal, Spain, Italy, et al.

Those countries are competing in a virtual World Cup of debt, as each seems to be fighting for top honors as the world’s most fiscally inept nation. Now, I don’t want to make light of the situation in Europe, as this game is no joke -- either for Europe’s citizens or its equity markets. I’m simply using the bailout analogy to highlight to you just how dire the circumstances in Europe have become.

As you can see here by the chart of the iShares MSCI EAFE Index (EFA), a broad-based measure of international equities, the decline in Europe has really taken its toll on global markets. And while it’s true that we’ve seen a nice bounce in international stocks since early June, EFA remains well below both its short- and long-term moving averages.

By comparison, U.S. stocks now have managed to break above the S&P 500’s 200-day moving average, albeit just barely, as can be seen by the chart below. The move higher in domestic equities is a nice sign of hope for the market at large, but so far, we haven’t seen as strong a move higher in international markets.

Moreover, if we look at the performance of a number of international equity exchange-traded funds (ETFs) for the past three months and year to date, we see that all of the major international ETFs have traded decisively lower. The table below shows just how tough things have been for international equities.

As you can see, the past week has seen sharp gains in all of these ETFs. However, for the past several months, and throughout this tough 2010, international stocks have been anything but the place to be.

So, will things continue getting better for international stocks? I suspect that despite the recent gains in the space, Europe’s debt problems will continue plaguing international markets for some time -- and that means if you have significant exposure to international funds, it might be time to sell into strength.