Use These ETFs to Bet Against Europe Like Paulson (EUO, BUND, EWI)

Fresh off his firm's worst year, legendary hedge fund manager John Paulson is shorting European sovereign bonds on fears the Euro Zone's debt contagion will spread to larger economies such as Spain. According to

a source confirmed Paulson is not only short unidentified European sovereigns, he is also buying credit-default swaps on European debt. In 2011, Paulson's firm, Paulson & Co., suffered staggering losses due to ill-timed bets on the U.S. economic recovery and the Sino-Forest debacle, among other issues. Paulson and his New York-based hedge fund, which manages about $24 billion in client assets, gained notoriety following the credit crisis for his prescient bets on sub-prime mortgage securities. Paulson followed that up with large, and mainly successful positions on bank stocks, but it was financials, among other sectors, that plagues his firm's performance last year. Earlier this year, Paulson said the euro is “structurally flawed,” and will eventually fall apart, according to a letter sent to investors, Bloomberg reported. For those looking to do their best John Paulson impressions from home, here are the ETFs to consider.

ITLY tracks the DB USD BTP Futures index, which features securities with an original term of no longer than 16 years and remaining term to maturity of not less than 8 years and 6 months. The ETN has a leveraged cousin in the form of the PowerShares DB 3x Italian Treasury Bond Futures ETN

and in the past three months, ITLY and ITLT are up 9.4% and almost 30%, respectively. These ETNs go up when Italian bond yields fall, something that hasn't been happening a lot lately and owning either ETN would put one at odds with Paulson. Hey, sometimes he's wrong. Just be advised ITLY and ITLT are thinly traded as neither have traded yet today.

The appropriately named BUND debuted in November 2011 and has been mentioned as a valid play on

. BUND has 50 holdings with an effective duration of just over four years and is home to just $7.8 million in assets under management. Should another Euro Zone member need a bailout and/or default, whether it's Italy, Spain or another country, it probably won't be Germany and German bonds are going to be the flight-to-quality play should that event come to pass.

Some decent results from an auction on Spanish 12-month and 18 month bills earlier today have served to keep Spanish 10-year yields below 10%, for one day at least. Still, the dividend yield on EWP hovers around 10% and there is little reason to believe that situation is going

. EWP will have its one-day bounces here and there, but it's more a short than a long. That same sentiment can be applied to the...

If Paulson were looking to short ETFs rather than sovereign bonds, it wouldn't be out of the realm of possibility that EWI would make the list. The fact that Italy has one of the

in the developed world is reason enough to short EWI or consider the ProShares UltraShort MSCI Europe

. The cold, hard fact is that traders will not be shy about betting against Spain and Italy if bailout concerns ramp up. Just as a long position in ITLY is a bet against Paulson, shorting EWI is akin to betting with him.

The most obvious play is saved for last. Paulson isn't the first person to say the euro is structurally flawed and he won't be the last. Even if the Euro Zone can be held together in its current form, something that doesn't appear likely, the economic woes faced by some of the regions largest economies (Spain, Italy, etc.) make more euro downside seem like a foregone conclusion. For more ETF ideas related to Europe, please click

.