Last week Europe marked 62 years since the Schuman Declaration which proposed an organised Europe, happy Europe Day. These 62 years have seen one of the largest periods of prosperity and peace that Europe (certainly Western Europe) has ever seen and this is because of the unique way in which Member States come together to compromise and solve problems. It is a fantastic system and does, in some areas, work very well. The fact that, against all the odds and the cynics, 27 (soon to be 28) countries are able to work together to create solutions that make Europe stronger than the sum of its parts, is well worth celebrating.

According to the EU's website: "Europe Day is the occasion for activities and festivities that bring Europe closer to its citizens and peoples of the Union closer to one another."

We would object to one element of this statement Europe Day should allow citizens to bring their European Institutions closer to them. We are not Europe's citizens, the European Institutions are ours. This fundamental difference is often forgotten in Brussels, where turnout in European Parliamentary elections and no media scrutiny robs MEPs of any real democratic legitimacy and unelected, and unaccountable Commission staff make politically loaded decisions behind closed doors.

Even the European Citizens Initiative, a right for European Citizens to participate in EU decision making has been rigged so that participation is extremely unlikely.

Look at all that Europeans, including Brits and the UK, have achieved together in the past 62 years. We need to create a smarter Europe though. The UK can and should lead institutional reform to recapture the EU's institutions to make them simultaneously more transparent, pliable to public opinion and more efficient. If this happened many European initiatives that would benefit the UK would more legitimacy and support from the British public. It would be harder for national politicians to blame the EU for legislation if the population regarded the EU as legit. The last 62 years have been years of radical change across the continent. We, Brits and Europeans, should make sure this reform does not stop and that any change is to our interests. We can only do that by leading in Europe.

As the Eurozone crisis hogs the headlines again, BBC's Newsnight's take last night on "Austerity" highlighted how important language is in persuading the people to back or sack their governments. Only last week Cameron's government starkly replaced the word 'austerity' with 'efficiency' not because of any policy change but because some words are simply too difficult for the demos.

A couple of weeks ago, Arnon Grunberg, a brilliant Dutch novelist with a column in 'De Volkskrant', said "Austerity" would be relegated to a footnote in history, just like "Glasnost" in order to please the people. He said: "Politicians should have known that, like love, capitalism lives by the grace of desire only. A desire that feeds acutely on instant satisfaction. In other words: by continuously spending money that isn't there."

Pleasing the people is the issue troubling Michael Portillo in his take on the Euro crisis. He ended his last programme two days ago on the BBC (May 14th 2012) saying: "What Democracy has ultimately come to is that politicians outbid each other with promises that have to be paid for in the future."

Nothing is new

What happened quite often during early Athenian democracy was that votes inspired by the moment were reversed 24 hours later on several occasions in the 5th century BC, because only when it was too late did the Athenian Assembly repent of its harshness (and rather hypocritically accused the main speakers of 'forcing' the people to act the way they did).

It's a dangerous game of chicken: the fear and loathing in Europe is driving stock markets down, forcing bond yields on Italian and Spanish debt up to pre-"easy money from the ECB" levels and even President Hollande can't get to Berlin without his plane being hit by lightning. Götterdämmerung in der Eurozone.

The chaos resembles last night's battle on the terraces at the Bundesliga relegation play-off between Fortuna Düsseldorf and Hertha Berlin (incidentally, grabbing the headlines from the awkward Merkel-Hollande first date). Amidst it all, Greeks are taking fright at this high-stakes series of bluffs and heading for the ATMs – withdrawing €800m-plus in a foretaste of what would happen if Grexit really took place or were even about to happen.

A run on Greek and, maybe, other banks would be one consequence of a Greek pull-out/throw-out of the single currency. Bondholders of more than €400bn in Greek sovereign debt would suffer horrendous losses if Athens were forced/chose to move back to the drachma. Hans-Werner Sinn, head of the Ifo economic think tank in Munich and a proponent of Grexit, has calculated the cost to the German state at €80bn (though he thinks Greece staying in would cost it more). A team at the IESEG School of Management in Lille says it would cost Germany around €90bn and France €67bn: see Evans-Pritchard's Telegraph blog.

What's more likely is that Grexit, especially if it could not be contained and, instead, provoked further assaults on the currency, would cause untold damage throughout Europe and elsewhere. Greeks, who have already suffered between 25% and 40% cuts in living standards, seen national output decline by a fifth, watched their young people flee a 54% jobless rate to northern Europe, would face inflation of 50% or more, unpaid pensions and salaries... The country, one minister has warned, would be engulfed in civil war...

The Eurozone crisis changes everything. If by the end of the year, the Eurozone is left limbless and the economy sits in deep freeze, the binary in/out argument for continuing EU membership will no longer be left just to Nigel Farage and the Tory Bufton Tufton's out in the shires. If enough Tories don't see that Margaret Thatcher's continent-wide single market baby is worth protecting, which they don't, then it won't be long before they ask the people to foster it to the evil uncles in Brussels.

Such is the increasingly slippery slope to the final reckoning. First we had the Mandelson referendum speech last Friday, then we had the Spectator's James Forsyth suggesting the Tories would hold a post-renegotiation referendum as a 'certainty'. Today the UK media again focus on a possible referendum. The FT, Guardian, Daily Mail and Sun all report that Shadow Chancellor Ed Balls has promised to consider holding a referendum on UK membership of the European Union, claiming that:

"Whether there could be a case for there being a referendum more widely on Britain's relationship with Europe as a new settlement evolves...that might be an issue whose time comes, but I don't think that that is now."

But the time may come quicker than anyone thinks. There are three things to consider here. The first is that all parties understand that Britain's relationship with Europe is being fundamentally changed by the eurozone crisis, since it is both destroying the pro-Europeans hope that pragmatic Brits would always vote to be in a successful single market and it is underpinning eurosceptics' predictions that the single currency members will forge a much closer political union with the UK on the outside. The squeezed eurorealist centre ground is losing out because the chief winner from the single market – business – is too frightened to be pushed above the parapet to say the unsayable: yes, Britain must stay in Europe to finish the job we started. We must forge the biggest single market in the world and we have allies who want and need us to do this job. But fair enough. It should be the politicians who make the case. They don't because they are utterly clueless about how to respond to the relentless incoming artillery fire of EU fraud, waste, red tape and superstate pomposity from the papers their Bufton Tufton's read. They are not given practical ammunition by anyone – not even the EU itself which would rather talk big than fight dirty.

The second fact to consider is that neither the PM or the Labour leader want a referendum. The last thing they want is to demolish the flawed but essential structure that enables them to win friends and influence people in the places that matter. The British people are of course never told that London is far from the surly runt in the European pack. Awkward, churlish and relentlessly suspicious of big ideas (like the euro), the UK can still command the agenda and build alliances. There would be nothing that Germany would like less than for Britain to abandon Europe to Latin backsliders and nothing France would like less than for Britain to abandon France to Germany. Surrounding this troika are allies for the picking. A referendum that says no ends 56 years of British foreign policy. So, since there is no Plan B, the status quo is always best. But referendum talk may become a self-fulfilling prophesy because politics will always trump policy. The Tories see a way to dish the kippers and Labour sees a way to get back their lost white working classes. In the tussle for power in 2015, diplomacy can go hang.

The third thing to realise is that this is a genuine tragedy. Not for the Eurozone which (but for the Germans) has the solution to their problems if only they had the courage to accept the logical inevitability of the currency union – fiscal union. But for Britain. The Times today reports the view of the former US Ambassador to NATO in which he lambasts Britain's foreign policy as incoherent...