These extracts from the German Bundesbank August Outlook (via Guido) capture something as basic as basic can be in the way Germany looks at the Eurozone’s problems.

The Bundesbank says almost in so many words that if EU member states want the benefit of the full weight of German financial discipline , they can have it. But at a price. Namely an extensive surrender of sovereignty.

In other words, it makes no sense for Germany to put Germany’s top financial reputation reputation at risk without maintaining a systemic and enforceable level of German discipline to support that reputation:

The recent resolutions transfer sizeable additional risks to the countries providing assistance and their taxpayers, and go a long way towards communitising risks caused by unsound public finances and misguided macroeconomic policies in individual euro-area countries.

This weakens the foundations of monetary union, which is based on the principles of national fiscal responsibility and the disciplining effect of capital markets, without noticeably increasing the influence and control over individual national fiscal policies as a quid pro quo.

Putting it another way :

While fiscal policy will continue to be determined by democratically elected parliaments at national level, the resultant risks and burdens will increasingly be borne by the Community in general and the financially sound countries in particular, without this being offset by any concrete powers to intervene in the sovereignty of national fiscal policies.

No comprehensive change in the European treaties is currently envisaged that would democratically empower a central entity to exert some (sic) control over national budgetary policies. This means there is a danger that the euro-area countries’ propensity to incur debt may increase even further, and the euro area’s single monetary policy will be increasingly susceptible to the temptation to adopt an accommodating stance.

Unless and until a fundamental change of regime occurs involving an extensive surrender of national fiscal sovereignty, it is imperative that the no bail-out rule that is still enshrined in the treaties and the associated disciplining function of the capital markets be strengthened, and not fatally weakened.

So, question. What does Germany want? Does it mean what this says? Or is this merely a way to lay down a strong bargaining position in advance of any decisive negotiation, to help ensure transfer of sufficient additional ‘sovereignty’ to a new central authority on German terms?

The problem for the Eurozone now is that it is not easy to see how any new centralised system can work unless EU member states more or less abolish themselves and agree to be run by unsentimental ruthless Germans for the next few decades until they all learn how to behave properly. Relying on stern rules alone does not work, since the whole mess arises from the fact that the existing supposedly stern rules have been fatally broken, allowing some states to overborrow and then send other states the bill.

The other point is that the Bundesbank appears to be warning that there is nothing much more to be done to help the Eurozone within the existing EU treaty framework.

This is a huge point: any attempt to draft new treaties would open up a can full of wriggly referendum worms, including (but not only) in the UK, and could not be guaranteed to get past all EU member states in any meaningful timetable.

Which leaves the struggling EU member states in a tricky and deteriorating position. While they mull over these existential problems, they urgently (says the Bundesbank) need to ‘strengthen the no bail-out rule’. And change the habits of a thousand years or so by starting to behave like good Germans, more or less overnight.

The UK position amounts to projecting a pseudo-helpful willingness to accept anything the Eurozone does, as long as no substantive Treaty changes are required: such changes would lead to a UK referendum (as now required thanks to the Coalition government’s ‘referendum lock’ legislation and a deafening NO to anything looking like more integration. So, given that Whitehall can see the bind the Eurozone is in (ie fast running out of options to help struggling member states within existing treaty structures) it’s not especially helpful at all.

Conclusion? Germany: "It’s our way – or the highway", the latter translated thusly: