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Wolfgang Münchau of the Financial Times has restated his pessimistic view about the eurozone. In his latest blast, "The Break-up of the Eurozone Edges Even Closer," he returns to his past claims, beginning in 2006, that the eurozone would not make it.

"It is 2013, the euro is still there, Italy is still in it (the eurozone)-and I am still making forecasts."

His closing words include: "The prediction I made in November 2011, and which I am repeating today, is that it (the eurozone) will probably end one day, though that day may still be a long way off." Then he adds, "I cannot exclude the possibility that the various governments will do the right thing, but three years of crisis management suggest otherwise." And, what does Mr. Münchau feel is the "right thing"?

For one, there is the political problem. "It is impossible for Germany, Finland, and the Netherlands to be in a monetary union with Cyprus, Greece, and Portugal." The basic concern is that you have such divergent political systems and philosophies that it is impossible for some kind of fiscal sense to be made out of such a union.

Our author has argued for a long time that without a fiscal union, there really cannot be much hope for a monetary union over the longer run. More on this below. In addition, there must be "an operational banking union that comprises supervision, resolutions, and deposit insurance …" If this had been in place, it would have been a "minimally sufficient condition to make a divergent monetary system work against the odds."

But, Münchau agues, the eurozone "will not have such a banking union in five years." The banking crisis will, therefore, continue to occur.

What has happened in Cyprus over the past several weeks "is a perfect illustration of the eurozone's collective action problem." And, will continue to be the model of future crises.

And, as with other country situations over the past three years, the officials of the eurozone will just keep kicking the can down the road. The structural problems that need to be resolved within the eurozone will just not get resolved in the current climate.

Maybe, however, just maybe, things are going the way certain parties want them to go. Maybe, just maybe, this is what needs to happen for Europe to be re-made … to be re-structured.

"After the Cyprus crisis, it looks increasingly like this is a German Europe-because the direction of a continent in crisis is being shaped, above all, by the ideas and preferences of politicians and officials in Berlin."

Gideon Rachman continues to write in the Financial Times: "It is true that the European Commission, the IMF, and the European Central Bank took the lead in the Cyprus negotiations, but it was always clear that no deal could go through without the German government's input and assent."

I have written before about the possibility that this is the German strategy. Europe dislikes the Germans … especially if the Germans turn out to be right and successful. This is captured by the fact that "Newspapers in Cyprus have portrayed Angela Merkel, as a Hun-and accused Wolfgang Schäuble, her finance minister, of talking like a 'fascist'. They are echoing the anti-German sentiment that has become commonplace in Greece and Italy."

So, how does Germany construct a policy to operate within sun a European environment with these kinds of sentiments either just under the surface, or when people feel pressed upon they break out in loud shouts? Germany cannot just ride in on a White Horse to save the continent. Neither can they press their case too forcefully. They operate behind the panic of the crisis. "Behind all the shouting and the wrangling, German taxpayers will once again be funding the biggest single share of yet another eurozone bailout."

But, the times they are a changin'. Rachman writes, "Germany can no longer be shy about asserting its national interests. The survival of the European single currency is in question and German taxpayers have had to contribute hugely to various bailout funds." The German presence is growing, whether or not people like it. "However, the most remarkable feature of the crisis is the almost complete absence of a powerful France …"

France has always been seen as the counterweight to the power of Germany. Right now, France has disappeared. President François Hollande has totally failed as a leader. As a consequence, French presence, along with the fact that French officials are no longer playing a crucial role in discussions, is absent from the decisions currently being made.

De facto, Germany, more and more, is coming to dominate the eurozone. However, "The eurozone crisis is far from being over and it is not clear what new European Union structures will emerge at the end of it-or whether they would dilute or strengthen German power ... That leaves Germany holding the ring: writing the checks, enforcing the rules, and increasingly making them up, as well."

This begs the questions, however, of what rules will Germany "make up" and what rules will it "enforce."

Will the new rules and enforcement be anything like Münchau suggests -- a fiscal union within the eurozone coupled with a banking union that includes universal rules, supervision, and deposit insurance? Germany has not been that supportive of these things in the past, but if they are more and more in the lead, more and more capable of controlling just how these institutions are formed and run, maybe, just maybe, Germany will move toward fiscal union in the eurozone along with a banking union.

The catch twenty-two to all this seems to be that a resolution of the turmoil in Europe cannot be achieved without Germany playing "the" major role in the solution, but that Germany cannot be too aggressive in claiming this major role.

Consequently, the financial dislocation in Europe will continue until this "catch twenty-two" is overcome … with Germany in the driver's seat!

Source: Where Is Europe Going? Is This The German Plan?