05/18/2012 04:52 pm ET Updated Jul 18, 2012

Let Greece Do Debt Cold Turkey

This weekend's G8 summit at Camp David, Maryland, will be unlikely to find a real solution to Greece's mounting problems.

The last time Greece faced a crisis of this magnitude was in 490 BC when the armies and fleets of the Persian Empire were converging on Athens.

The great Athenian leader Themistocles rallied his countrymen and defeated the Persians.

Alas, this time Greece has no Themistocles to save the embattled nation. Unlike the incompetent Persian Emperor Darius, the Greeks now face Germany's very tough, stern and able Frau Doktor Angela Merkel who has vowed to impose zucht und ordnung (order and discipline) on the unruly Greeks. "Get a government," she is telling them.

A potentially fatal run on Greece's banks is underway, with over 800 million euros withdrawn in one day this week. The sky is indeed falling. Greek banks are entwined with banks across Eastern Europe and Cyprus. So if they go down, the tsunami waves will spread far and wide.

Who can blame Greek depositors for running? Default and an exit from the eurozone appear likely, meaning their money in Greece's wobbly banks could end up being converted into re-born drachma, worth only 30-50 percent of the euro.

Greece's recent political turmoil and inability to form a government shows its voters want the benefits of staying in the eurozone, but don't want to pay their dues through taxes and slashing deficits.

New elections scheduled for June 17 are unlikely to resolve this Greek drama. Leftist parties that stoutly reject the austerity program agreed upon by the last government in Athens are leading the polls.

On top of this, Greeks, who look way down on their neighbors, the Turks and Albanians, have to suffer through watching these nations grow and manage their finances pretty well. Maybe Turkish financial advisors for Greece?

Angela Merkel insists Greece will stay in the euro. But that's more hope than fact. German voters are in no mood to bail out the happy-go-lucky Greeks or swallow more austerity, judging from last week's important regional vote in North Rhine-Westphalia. French voters said the same thing last week when they elected moderate Socialist Francois Hollande over Monsieur Austerity, Nicholas Sarkozy, who was last seen jogging in the park.

What would happen to Greece if it quit the euro? Financial chaos, capital flight, riots and bank failures... maybe. But after the apocalypse, Greece would eventually revert to its 1960's status: a poor but proud nation living off tourism, shipping, agriculture and fishing.

Devaluing a new drachma won't do much for a nation whose main export is olives and feta cheese. Besides, the Greeks have severely damaged their tourist industry by endless strikes and surly service.

Angela Merkel is rightly concerned that Greece's exit from the euro would be a blow to Europe's political unity. This aspect of the crisis is as important as the economic/financial dimension.

But Merkel should also recall the timeless dictum of Prussia's king and renowned general Frederick the Great: "He who defends everything, defends nothing."

Greece should never have been admitted to the euro. It snuck into the currency union by hiring those miscreants at Goldman Sachs to falsify its financial books.

Admitting Greece to the eurozone was a bridge too far. Euro membership should be limited to those nations that have solid finances and honest reporting. In short, a club of northern European nations that follow Germanic good government. Unprepared nations, like Greece, Romania, Bulgaria, Serbia, Moldova or Ukraine, do not belong in the eurozone. Most have no business in the EU either.

The European Union and eurozone expanded too far, too fast. Retrenchment is now in order. As the French say, "Fall back to better leap forward."

Amidst this crisis, what many forget is that it was caused by politicians borrowing too much to buy votes and shady bankers lending recklessly to boost their own bonuses.

If there is one thing we learn from the Euromess it is the Golden Rule: governments must raise any and all funds they spend.

Borrowing from the money lenders is poison. More empires and nations have been ruined by unsustainable borrowing than by wars. Politicians should not be allowed to borrow except for well-defined, long-term projects, likes roads or bridges, in which revenue streams and repayment schedules are clearly defined.

There's not much the western leaders can do right now to save Greece. More important, Spain's banks, who loaned vastly too much to property developers, are threatening to go down like dominos. Portugal and Italy are showing severe strains. The debt chickens are homing to roost.

President Barack Obama keeps urging more debt creation in a vain effort to resolve the crisis originally brought on by too much debt in the first place. The real answer is that nations that erected a house of financial cards must go through a long, painful, cathartic period of rehabilitation and fiscal dieting to break debt addiction.