Germany has a situation...

What are they supposed to do about the national team setup? Boateng, Hummels, Howedes, and Mertesacker for two positions. Schweinsteiger is a sure starter, but then Kroos could take Khediras position, cuz Kroos shouldnt be dropped either. Ozil is off form somewhat but is still too good to be dropped, yet there is Mario Gotze who also must start in my opinion. Then theres Muller, Podolski, Reus, and Klose who are all in form and are hard to drop as well. The only positions that are locked down are Schweinsteiger, Lahm, and Neuer. Would a formation change be better too?

Spain and Italy also have problems with having loads of talent, but Spain in particular has figured out how to fit them all into one team. Italy to a point as well.

Well, maybe we should split into Bavaria and Prussia after all. UK also have several NTs

First world problems and not really new ones at that.......that's why Jogi Loew, VDB and Prandelli get paid the big bucks: To figure out problems like this.

Easy.

Stop caring about what they do for their clubs.

That is the problem I see in NT selections for teams that struggle sometimes. The players are chosen and put in the 11 based on what they do for their clubs.

But they arent playing for their clubs, they are playing for a new team with a different set of players. Whatever works the best, thats the team you need to go for.

If Ozil is inconsistent for Madrid but a boss for Germany, he plays.

If Hummels is dominate for Dortmund but error prone for Germany, he dont.

When you take this approach, often its alot easier to pick a team.

This is the funk we've been in for a while now, and it's still hard as f*ck to judge.

First off, let's make the problem even worse and drop a couple names that Löw has seemingly ignored for the most part:
Kießling, Weidenfeller, Holtby, Gonzalo Castro and Alexander Merkel
Then there's the players who he has called up, but who in the end received little playing time:
Gündogan, Bender, Bender, Höwedes, Höwedes again because he's so good and gets so little playing time, as well as Draxler.

Then there's the up-and-comers like Jung, Rode and Oczipka from Eintracht Frankfurt, for example.

And the generation after them, the now-18'ish super-talents like Can, Weiser, Yesil, Eisfeld, etc.

Okay, now that we've got that headache, we need to decide what we actually want to do.
Do we want to keep our mix of short passing, with a focus on direct attack play and potential for counter-attacks?

In that case, we need to have one really defense-minded DM, a Khedira, or one of the Bender brothers, basically.
That would mean no Kroos or Gündogan at DM as long as Schweinsteiger is still playing.

This means that Kroos, Götze, Holtby and Özil all fight for the #10 slot.
Okay, Götze can potentially play on the wing, but unless he's deployed as a false 9, Reus is set to play on the LM instead of Podolski for the forseeable future.
Müller on the right is set. And he won't get replaced. He's a big-game player and has never really flopped. He provides assists, goals, space, and tracks back. Not even a magician like Götze is going to challenge that.

So on the wings we have 2 slots, and for those we have the ridiculous talents of Götze, Podolski, Reus, Schürrle, Draxler, Müller - and ignored ones like Gonzalo Castro.

So you can switch formations as much as you like, you WILL bench at least one world class player, probably more like 3 or 4.

What about CB?
Hummels is obviously a genius, yet he's been more error prone for Germany than Dortmund, Badstuber has hardly been at fault for anything when playing for Germany, so he deserves his slot once he's fit again, Mertesacker is the most experienced, and if partnered with a pacey CB he is very good. Höwedes is probably the most finished article we got next to Hummels, yet Löw seems to hate him. Boateng has all the talent and physical properties of a WC defender, but his decision making hasn't improved in about 3 seasons.
Then there's a lot of great and talented young defenders coming through.

Let's talk about something easy.

Fullbacks!

As of now, only Lahm is really good enough.
We have a couple of great nominal fullbacks, but I'm mostly thinking of Jansen, who is always injured, and sucks defensively, and Gonzalo Castro - both of which have mostly been converted to wingers.
Schmelzer has sucked hard for Germany, so I'd even be open to try a defensive-minded winger like Großkreutz there.

The most feasible option for the near future is probably to move Lahm to the left and give someone like Jung a shot at RB. I'm pretty sure I'm currently forgetting one good FB, but hoepfully someone will point them out to me.

And what do we do about our striker?
Gomez bangs in goals left and right, yet I don't think he fits our system. We need someone who engages more in offensive interplay, links up, and provides assists. Gomez doesn't do any of that, he just poaches goals.
Klose is perfect for us, but he's old.
What else can we do? Kießling is only marginally more technically gifted than Gomez, other German strikers lack the nerves of steel in front of goal you need for international tournaments.

We can hope that some really young striker like Petersen, Lasogga or Yesil pans out, but that's a long shot.

My preferred option would be Reus as a false 9, with Schürrle/Müller/Götze as backup, and there might even be a chance for that, since Löw has repeatedly suggested playing Reus as a CF.

Anyway, we've got the most wonderful problem of all: too many great players to fit into our team.