Montreal, Canada

Increasingly, government bonds that were once perceived as super-safe investments are turning out to be risky securities. Sovereign debt markets in Ireland, Greece, Portugal and Spain are hemorrhaging again this month with Ireland the latest casualty.

The Irish economy is basically bust. Portugal isn’t far behind. And Spain, which should escape a debt restructuring and ranked as Europe’s fourth largest economy, is now coming undone as credit spreads blow wide open.

The next phase of the credit crisis has arrived and it will probably be a multi-year affair taking many previous safe-havens to the cleaners before the curtains come down. The only government bond markets in Europe worth holding at this point are Switzerland, Germany, Holland, Sweden and Norway. Everyone else is a risk. And even then, I would only hold short-term paper.

The Germans, I believe, will eventually kiss the eurozone goodbye. Why should the Europeans, including German taxpayers, pay for bailouts? Why should Germans, Austrians or the French pay for Greek, Portuguese or Irish retirement entitlement programs?

There’s absolutely no reason to blame Germany for this round of protracted selling in Irish debt markets. The Germans want bondholders to take a haircut or share the bailout burden; investors naturally aren’t interested and are running for the exits.

It should, therefore, come as no surprise that gold prices measured in EUR terms are approaching their all-time highs recorded earlier this spring. At €1,029 per ounce now, gold prices in EUR are 1.6% below previous all-time highs or €1,046 an ounce.

The Spaniards are running for cover this week. Reports in the Spanish financial press describe a panic developing as locals scramble for gold. This is already happening across the eurozone with German and Austrian banks almost running out of bullion since last summer because of heavy demand.

The smart citizen, and the savvy investor, knows that paper money is now in an accelerated decline amid a deluge of questionable debt issuance by governments – some probably unable to repay that debt within the confines of a monetary union.

Just what will break the camel’s back in Europe, triggering a German exit? I suspect another bailout, possibly Portugal or, perhaps, one that’s far costlier, such as Spain. The Germans are right. They should not have to shoulder this burden. This is not what they signed up for in 1999.