I told you last week that I was working on my Europe forecast for 2017, and – as it turns out – it’s not a very rosy one.

The truth is, we may be much closer to the end of the current form of the European Union than most people – and markets – assume.

Investors treated Brexit and rejection of the Italian constitutional referendum as reasons to rally in 2016, a reaction I did not expect and believe is misguided (perhaps the negative reaction will be delayed until later in 2017). The current structure of the European Union and the monetary policies of the European Central Bank (ECB) are anti-growth.  The ECB is pursuing the same policies that failed to stimulate sustainable economic growth in the United States and Japan – ZIRP and QE.Rising economic and political pressures may hasten a new governance model in which individual nations could regain control of their own economies and currencies, but such a process will engender serious economic and market instability.

With important elections on the horizon in Germany, France and Italy, the future of the European Union may be rewritten by voters before the end of 2017.

As I’ve been explaining for a long time, that instability will create ripple effects that are felt round the world.

And it could start a lot sooner than we think.

Here’s where Europe is headed in the near future – and how to profit.

My Europe Outlook for 2017 And Beyond

The European bond markets, along with global bond markets, are already casting their votes and suffering losses that are only small down payments on the epic central bank-induced bond market bubble that is starting to unwind.  January was the worst month for European bonds in years.The recent decision by the ECB to extend its QE program by 9 months to the end of 2017 but to reduce monthly bond repurchases by €20 billion is likely a last bite at a rotten apple. Or at least we can hope so.

Particularly toxic are long-dated investment grade European and Japanese sovereign and corporate bonds that face both rising interest rates and a weakening currency.Unfortunately, shorting these securities, one of the most compelling trades in today’s market, is difficult outside the derivatives markets.Investors can short international bonds through the Vanguard Total Return International Bond ETF (Nasdaq:BNDX) or European banks via iShares MSCI European Financials ETF (Nasdaq:EUFN). Wide swathes of the European banking system remain in distress (such as the insolvent Italian banking system, several UK banks, and serial lawbreaker Deutsche Bank).