Europe's Dilemma: When to cut Greece out of the Eurozone

Finally, Greece default is no longer a taboo, but in the last days it has been finally given real consideration with plans being devised to try and make it as soft as possible.
Europe should have let Greece default 1 years ago and it would have been much less costly to the EU and maybe would have prevented a Domino effect.  The reality now is that Europe needs to abandon the existing perimeter and fall back to a more defensible position.  Europe doesn’t need to collapse, but it does need to retreat to a core, stronger position, where it can dig in its heels and defend itself, how deep the retreat will be is going to be defined by events in the following weeks.
Contagion was a concern back then in regards to Ireland and Portugal, now it is a reality.  Only the darkest of the doom and gloom crowd believed that contagion could really spread to Spain and Italy, yet now we have reached that point.

Italy and Spain are now trading almost where Portugal was a year ago before being bailed-out. Italy is the biggest loser in the recent turmoil and it is leading stock market losses with an incredible -33%.  How much easier would it have been for Italy to withstand a Greek default when it’s 5 year bonds were trading at Bunds + 134 instead of Bunds + 407. 
Let’s just admit it is gangrene and that it has already spread farther than is safe, but it is still better to cut off an arm to save the body.  If we keep waiting it may not be possible to save the patient.  The patient is getting weaker by the day, and being blind to that is just as big and just as dangerous as letting Greece default now.