The EU is doomed if it becomes a bankers' club dominated by Germany

I say that with regret as someone who believed the euro was a great achievement, bringing countries together in peaceful economic cooperation. It was supposed to bring security and prosperity ultimately to 500 million people. But the present masters of the EU have failed to honour the contract by treating Greeks as second class citizens.

There is no way that German citizens would accept 25% wage cuts and 25% unemployment with no hope of recovery. Since the "Troika's" austerity programme was foisted on Greece in 2010, Greek debt has risen from 129% to 175% of GDP as the economy has shrunk by 20%. Internal devaluation doesn't work.

If the Greek finance minister Yanis Varoufakis' attempt to save Europe from itself fails this week, then Greece shouldn't hesitate to look at withdrawal. It is the equivalent of personal bankruptcy, the only rational option for a country or person facing insolvency. David Cameron seems to think so too and convened a meeting of senior Treasury officials yesterday to prepare for the eventuality.

The underlying problem is productivity. Greece's currency is valued at the same as Germany's, meaning this relatively backward economy has to compete on equal terms with the most technologically advanced exporting nation in the world. It can't. The result is a structural trading imbalance.

Normally, what happens in a situation like this is that the Greek currency would be devalued. This would do two things: it would ease the immediate debt burden and would make Greek exports much cheaper. It would also cut the cost of investing in Greece.

Default? Well, in a way yes. But Britain devalued by 20 against the euro in 2010 and in 1992 when we came off the Exchange Rate Mechanism. Most countries ease debt by a combination of inflation and devaluation. Greece can't because its currency is fixed.

The immediate aftermath of Grexit would be traumatic and is certainly not to be taken lightly. There would be inflation, loss of savings and Greek banks would have to be nationalised. But in the longer term it, as Alan Greenspan observed, it would probably be in Greece's interest to bite the bullet.

German bankers would growl, but pretty soon they would all be taking advantage of Greece's cheap money by going on holiday to Greek islands. German companies would be investing in Greece because of its ultra-cheap labour. German cars would become prohibitively expensive even for those corrupt Greek oligarchs.

The cost of Greek sovereign debt would eventually fall, after an initial lock out. It isn't entirely the basket case that has been presented and is running a primary budget surplus at the moment, meaning that it is actually balancing the books. It is the overhang of debt that is unsustainable.

Investors don't look in the rear-view mirror: they look at what the prospects are in future, and once Greece escapes from its debt burden, its prospects are quite promising. No doubt Russia would be happy to help out to attract Greece into its geo-political orbit.

As the moment of crisis approaches this week, both sides are making compromises. The Greeks are no longer demanding a 50% write off. Prof Yanouflakis proposal to link debt repayments to growth look sensible as even the Adam Smith Institute has conceded.

I certainly hope there is a resolution because Gexit would be a political disaster for Europe, even if the financial contagion could be contained. There is supposedly no mechanism for leaving the eurozone but once one country has the spell will be broken.

Italy could be the next to go, followed by Portugal and Spain. The "British" option of remaining aloof from the euro but remaining in the EU might become the default position. Scotland's attitude to the EU might also harden if it sees Greece broken on the wheel of depression.

The EU isn't very popular anywhere as the European election results showed. If it's seen simply as a banker's club dominated by Germany then it is doomed.