Maximum likelihood scenario

In his latest VOX commentary, Charles Wyplosz lucidly maps the way ahead as I see it: a disorderly Greek default, a banking crisis and contagion. This is the key passage:

The political situation in Greece is murky so detailed predictions are implausible. Some basic principles, however, are likely to prevail, as indeed they have done over the last two years.

• It is likely that Greece will be cut out from external funding, so it will default.
• The long feared but unavoidable involuntary and disorderly default will prompt a banking crisis, certainly in Greece but possibly elsewhere as the collapse of MF Global suggests.
• Contagion will soon follow.

Will it be Portugal? Will it be Italy? Probably both will go the IMF and greet the Troika in their respective capitals. More banks will fail in Europe and elsewhere. At that stage, France will come to the front line. This will be a repeat, of worse, of what followed Lehman Brothers, but unlike the Lehman’s debacle, this outcome was clear from the start. Any clearheaded scholar of debt crises could see how this would end. The writing was on the wall all along.
The bright spot is that such a crash may bring us closer to the beginning of the end of the crisis.

I do not agree with him, however, in his assessment of the way the ECB will interrupt the downward spiral:

An ECB backstop does not mean underwriting banks and sovereigns. The ECB guarantee should be partial to protect the ECB and to force a debt restructuring for countries that face unbearably high interest rates.

• Banks will have to be bailed out, possibly with EFSF resources, but in the Bagehot way that minimises moral hazard and maximises taxpayer protection.
• That means wiping out shareholders and, if need be, unsecured bondholders.

This is what Sweden did in the early 1990s; it even hired foreign managers – foreign to the web of cross-interests that link bankers and politicians – to quickly return the nationalized banks to profitability and thus protect the taxpayers.

Personally, it seems naive to think that the financial elites in Europe will be "wiped out" by the ECB when it bails out the European banks following the contagion. Is this what happened in the USA in 2008/2009? I simply do not see a Swedish solution as possible in Europe as a whole. The financial elite is just too old and too strong. Europe invented modern banking.

He also seems to miss the fundamental flaw of the Eurozone:

Then, when the crisis is over, the time will come to fix the Eurozone flaws. This means imposing fiscal self-discipline and getting serious about bank regulation.

The flaw of the Eurozone is its lack of a fiscal union, not fiscal self-discipline. And fiscal union is only viable under political union. For literally thousands of years Europe has tried to politically unify herself, without success. That's what makes her the most culturally rich continent in the world. And that is what makes monetary union an impossible project.