To use the words of F. v. Hayek "The Road to Serfdom"

Britain should pity those still trapped in the euro nightmare

Angela Merkel and Nicolas Sarkozy are engaged in something that has little to do with democracy.

So we are isolated, are we? Cut off, locked out of the room, left on the sidelines, cast out of the inner core – and any other baleful metaphors you can think of. Well, Britain has stood alone before, as I recall, and we defended the idea of democracy in Europe then, too. But we need not get romantically heroic about it. We just have to ask ourselves: what is it exactly that we are outside of? A burning building? With only our triple-A credit rating and our competitive financial industry to console us?

What just happened, after all? We jumped off a bus that was hurtling toward a brick wall. When it eventually crashes, the driver(s) of the bus – who will survive, this being a metaphorical bus – will probably blame us, claiming that if it had not been for our failure to co-operate, the wall might have evaporated. The crash, when it comes, will be truly dreadful, and all the more tragic because a delusional European elite refused to accept its inevitability.

Before the mythology that David Cameron’s envious political rivals are desperately constructing becomes received wisdom, let us consider what that splendid new solution to the euro problem (from which we are so piteously excluded) entails – or would entail if all the member countries that are proposing to sign up actually comply with it.

This putative treaty (if it really is a new treaty, it will need ratification, which will require referendums in some states) so triumphantly proclaimed by Merk and Sark is very much a work in progress. According to the German Chancellor, what there is at the moment is an agreement to “work towards” a number of goals intended to have the effect of stabilising the euro and preventing forever the recurrence of the sort of sovereign debt crisis in which we are now mired.

The three most significant objectives are: 1) a golden rule on deficit limits for all member states, 2) automatic penalties (presumably in the form of sanctions) for countries that break that rule, and 3) a requirement that member states submit their budgets to the EU authorities for approval before they can be considered by their own national parliaments. That is what Mrs Merkel calls stabilisation. You may call it something else.

Just as a matter of interest, is this what those eastern European countries that have so recently been liberated from Soviet domination dream of: the freedom to submit their tax and spending plans to a claque of unelected commissars in Brussels? And what did Merk and Sark have to offer the bankrupt countries of the south in return for this surrender of their self-determination and democratic legitimacy? Not a lot.

Would there be, to put it bluntly, more money made available from their richer European partners, or a promise to purchase more of their debt? Well, yes and no. Mrs Merkel spoke of an increased fund to come “from the eurozone countries” – a promise that may or may not wash with German taxpayers. But more significantly, she spoke only of the European Central Bank giving its “expertise” to the European Stability Fund. Expertise? So no hard cash, then. (This is hardly surprising: the ECB made it clear only last week that it may bail out banks, but it is not in the business of bailing out countries.)

Yes indeed, Britain is on the outside: left out of this idyll of anti-competitive regulation and tax harmonisation. I can remember when the greatest Eurosceptic nightmare was a “United States of Europe”. They should be so lucky. The United States of America has nothing like this ferociously imposed central control over the budgets of its member states. Nor does it require tax harmonisation among them. The states of the American union have independent tax systems: apart from federal income tax, the taxes that US citizens pay are determined by the states they are in. Some of those states have high property and death taxes – others (like Nevada, where the revenue from gambling pays for almost everything) have low ones. Some have sales taxes and specific duties which others do not. Hence the great American tradition of driving across state lines in order to buy cheaper alcohol.

Those states which have competition on their immediate borders from others with, say, lower retail taxes, lose custom. But most importantly, some state governments impose much lower business taxes than others. By lowering their corporation taxes, once-poor states have managed to encourage inward investment and become not-poor. This internal competition increases prosperity in the private sector and incentivises efficiency in the public sector. Which is precisely the opposite of what tax harmonisation will do to EU member states. If Ireland, for example, is forced to give up its lower rate of corporation tax (because the EU regards that as an “unfair” competitive advantage), it will lose the capacity that it might have had to recover under its own steam.

Without being able to devalue their currencies, or to slash their taxes in order to attract investment and commercial activity, the poor countries of Europe will be locked permanently into disadvantage and dependence. They will be forced to accept austerity programmes while being deprived of any of the fiscal mechanisms for improving their own economic condition. And if they behave in what the EU decides are incorrigibly delinquent ways, they may even have their elected governments replaced – so the democratic mechanisms for political change will go, too.

If Britain is at all culpable for the nightmare implosion that is to come, it is only that we did not argue hard enough against it, and on behalf of the principles in which we believe: the integrity of democratic nationhood and the value of free markets.

What Europe needs to hear is the case for a managed, systematic winding-down of the machinery: there may still be enough time, before the bus hits the wall, to persuade the less vainglorious forces that this idea of security through uniformity is not only doomed but sinister. It will not lead to permanent peace, but to endless conflict and patent injustice.

Behind the scenes, there are functionaries who are, even now, working on the contingency plans. Somebody has to face the reality of what will happen when it all blows up. It is a pity that it cannot be the people we elected, rather than faceless minions who are accountable to no one.

For the moment, Britain has been given an opportunity to frame a rational future for itself. Those who say that this is just a short-term reprieve are missing the point. To adapt Maynard Keynes, in the long term, the whole euro project is dead.