I think you are right, letting them run into that knife is probably the best way. However, the counterargument also holds some sway: Switzerland is free-riding

I think you are right, letting them run into that knife is probably the best way. However, the counterargument also holds some sway: Switzerland is free-riding already, having many of the common market benefits of the EU without giving he loss of sovereignty that EU membership entails. The whole EFTA agreement only works because Swizerland etc. are relatively small compared to the rest of the EU. If everybody had the EFTA deal and there was no EU, the whole thing would go to shambles within a few decades.