Legendary hedge fund manager, John Paulson, who became famous after his short of subprime mortgages back in 2008, has just announced his fund will be shorting German government bonds. Paulson obviously believes that the European debt crisis will spread and worsen in the coming months.

German bonds are considered to be one of the safest bets when it comes to government bonds, so the fact that Paulson is short them means he is very bearish on the European recovery. Recently, the hedge fund manager said that he believes Spain’s crisis will spill over and affect other parts of Europe.

John Paulson is the manager of Paulson & Co, a New York based hedge fund that currently has assets of $24 billion. Currently, Paulson has credit default swaps on German debt, which he has had for quite a few months.

Paulson is not the only big name hedge fund manager to have very bearish views on the European debt crisis. Ray Dalio of Bridgewater Associates recently indicated to his investors that he believes Spain is much worse than it was last year and that the country’s problems could spread to the rest of Europe.

Personally, I do not know if I would go as far to say that Germany will fall into the debt crisis but I certainly do have a bearish forecast for Spain, Italy and Portugal because it appears that conditions are deteriorating but no one is doing anything to stop it. If you share the same opinions as John Paulson and Ray Dalio, I would suggest that you take a look at a couple of ETFs that will profit from a declining Europe. As always, this is not investment advice just several ideas, which investors could consider. It is recommended that you do the proper research to determine if these strategies work for your investment goals.

Obviously, if Europe falls deeper into the debt crisis the Euro will dive along with it. That is why you should look at ProShares UltraShort Euro index (EUO). Another possible strategy is shorting individual countries that are being effected the greatest. For instance, a possible short in iShares MSCI Spain index (NYSE:EWP) or iShares MSCI Italy index (NYSE:EWI) would make sense if you are bearish on these counties. It is recommended that you do the proper research to determine if these strategies work for your investment goals.

Regardless, Europe is in a very dangerous situation and it doesn’t appear that it will be coming to end soon. The threat of a double dip seems to be closer and closer every day. Keep an eye on any government or central bank intervention.