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Cut the peppers into strips.
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Peel and slice the onions into rings.
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Heat the oil in a skillet and sauté the onions until transparent.
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Add the peppers and sauté until they start to soften.
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Add the paprika, oregano, thyme, and water.
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Cover and simmer over low heat for 40 minutes until softened.
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Stir in the crème fraiche.
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Season with salt, pepper, sugar, and cayenne pepper to taste.to taste.
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Cook, stirring for another 2-3 minutes.
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Transfer to a serving dish, arrange the bread knödel on top, and serve.