Let's not kid ourselves. Most of EU policy, especially EU monetary policy, is heavily influenced by Germany. There's a reason the ECB is located in Germany; from the get-go Germany had the greatest influence in Europe.
So where does that leave us today? The Portugal crisis is flaring up again with the recent dissolution of its government. It is only a matter of time when Portugal goes to the ECB and IMF.
So the next question is - will Europe converge or diverge? Will the EU evolve into a United States of Europe - closer to the system the US has? Or will it slowly break apart with members leaving the EU as they see debt deflation/depression slowly rip apart their economies? Who wants to sign up for that scenario? I just don't see peripheral countries staying in the EU if the transition to fiscal and political union is that destructive to their economies. Unlike Americans, Europeans have a habit of taking to the streets en masse and reminding their governments of who they serve.
And so, political and fiscal union all depends on the rest of the countries' willingness to belong to the Fourth Reich. Let's not kid ourselves, the EU is a German-run shop.
The so called sovereign "bailouts" are really banking bailouts, and disproportionately, German ones at that. The banks get fed, while the southern sovereigns plus Ireland and their subjects get "disciplined." When the German banks, the highest leveraged in the EU banking system get disciplined, then I'll change my mind. But so far - they are the only ones that are being maintained "as-is" without experiencing any discipline or failure on the horizon.
This is how I see things playing out in Europe. There will be debt deflation/depression in the periphery, followed by fire market sales to the benefit of German companies financed by German banks that enjoy re-capitalization via sovereign "bailouts." France too, will be jumping in on the game.
It is unavoidable. The periphery countries can not cut government spending, belong to an expensive Euro, and expect to somehow manage their ballooning existing debts as their GDP plummets. With a strong Euro, they can not export their way out of debt, and they can not devalue either. The US is playing this game, the smaller EU countries - which soon, by the way, will include Belgium, can not play this game. They gave up their sovereign rights to control their currency.
I fear that Germany has not changed. Dreams of a German Europe only faded away temporarily after WWII. History repeats. Yet if history is any guide, the Germans will once again fail spectacularly in their endeavor to conquer Europe by economic means.
But there is one more recent development that sheds light on a future political union in Europe - it's the Libyan Conflict. What a disaster. France and Germany are at odds with each other on how to handle this crisis. It is a political crisis for the Libyans, and an energy crisis for the Europeans. If Europe can't agree on how to handle the Libyan turmoil, how can it transition to a United States of Europe?
There's no leadership structure. And when there is no leadership structure that looks after Europe as a whole, there is only conflict. What leadership exists is narrow in scope, and one nation needs to have an advantage to use that leadership. Right now, the only leadership in Europe is in the economic/monetary sphere. And that would be Germany.
But is Germany formulating an economic and monetary policy that will benefit all of Europe, or is Germany formulating a policy of Deutschland über alles? The imbalances in Europe need to be addressed, not re-enforced.
Otherwise, the grand EU experiment will end in failure, along with the Euro.