Indeed. As ye sow, so shall ye reap. Soon, very soon, far faster than Merkel thinks (because she's loony enough to think that her government can control the agenda), bond holders are going to be forced to take a massive haircut. The first PIIG to exit the Euro (probably not Ireland -- I'd nominate Portugal, based on government debt to foreigners) will trigger utter panic, because the debts will still be euro-denominated. It may well get to the point where Portugal looks at the 1997 crisis and says "fuck it, we can't be any worse off" and does an Argentina. At that point, all other euro-denominated government debt will take a massive hit, and haircuts are the order of the day.

I can't really see any way round this. Bond trading is going to be fun over the next two years. Bond owning is not.