John Wyles: The Channel gets wider every day

The euro badly needs a political mandate, but Europe's voters won't provide it. Either way, Britain is further marginalised

Political crises in the European Union are rarely straightforward, but the momentous challenges now tormenting Europe's leaders are remarkable for their simplicity: if the eurozone can be saved, then the union has a certain future. If the single currency fails, then so will the intricate and uniquely integrated regional project so laboriously assembled since 1957.

Saving the euro requires the 17 eurozone countries to make giant strides towards a federal Europe undreamt of by their leaders when most of them took office during the past decade. But neither did they then contemplate presiding over a political and economic catastrophe involving incalculable costs for the union's 27 member states, as well as for the global economy.

We are at a fork in the road which presents difficult dilemmas for all, but most particularly for Britain. Whichever destiny awaits the union, British interests will suffer huge collateral damage. The economic destruction threatened by a eurozone failure is a no-brainer. It is clear from their public warnings last week that the Prime Minister and his Chancellor, George Osborne, are desperate to have this firmly ruled out. But they have yet to acknowledge that a permanent resolution of the crisis will push Britain several notches down the world's political pecking order.

John Major's decision to shun the euro at the Maastricht summit of 1992 may yet prove to be a bigger and more lasting foreign policy disaster than the invasion of Suez in 1956. Not because the British have missed out on a success story – in current circumstances, they cannot be convinced of that – but if the euro is saved and the eurozone goes more federal, London, on the outside, will lose its seat at the European top table.

David Cameron had a first taste of that on Wednesday evening when his partners at dinner were the government leaders of the other nine countries outside the eurozone. Seven of them are bound by signed treaties to adopt the euro when they are ready. Only Britain and Denmark have opted out. Sweden, also out of the eurozone, cannot make up its mind what to do. This is not a coalition that will bend Europe, let alone the world, to the British will.

What will the British do if the long-standing "close to the heart of Europe" aspiration of their foreign policy fades into a dead letter? If the eurozone federates without Britain, will the US still listen attentively to British views and pay lip service to the "special relationship". Will the Chinese give equal weight to London and Brussels in global trade negotiations? Could Britain hang on to its seat at the UN?

This is not now political fantasy, but neither is it yet political fact. The will to resolve the eurozone crisis was evident at last Wednesday's European summit. Less evident are the leadership skills that will be needed.

Greece has to be saved from disorderly default; bankers persuaded to write off more than€€100bn (£88bn) of Greek debt; a financial firewall against contagion has to be built to convince investors to keep lending to Spain and Italy; and, finally, the basis has to be found for a lasting solution that would drastically reduce the threat of the crisis ever repeating itself.

Last week's summit made good progress on hammering out a comprehensive scheme for dealing with the immediate issues. Deadlocks were broken by Chancellor Angela Merkel and President Nicolas Sarkozy successfully bridging their very different views of how to solve the crisis.

All this is necessary, but even with the details successfully worked out, the monumental challenges posed by the eurozone's systemic weaknesses will remain. These are about diverging economies, contrasting political cultures and weak governance. Retrospectively, they call into question the basis on which the euro was launched 12 years ago.

Greece's entry into the eurozone (so bitterly regretted by Mr Sarkozy last Thursday) was carried on the wave of wishful thinking that launched the euro: belief that peer pressure would make governments balance their budgets and avoid running up debts above prescribed levels; confidence that the markets would charge countries more for loans if fiscal policies were too lax; and that the union itself would wade in with sanctions against countries that wilfully ignored the rules of the stability and growth pact. All this was underpinned by the devout hope that very different economies would quickly converge into a competitive, high-growth eurozone unit. In other words, that Greece would become like Germany.

As we can see, the real story is a shocker: no high growth anywhere, reforms buried and bungled, and politicians embracing debt-funded vote-buying policies, especially in southern Europe. Little wonder that Germany now wants to bind the single currency tightly to a single political culture (its own, you might say) which will impose disciplines, penalties and even elements of direct rule from Brussels on countries that step out of line. They may not like the implications but most, if not all, eurozone governments take the point.

That is why the EU must again buckle down to negotiating and ratifying controversial treaty changes that will resemble a federal blueprint ever more closely. The process faces two obstacles: local and general. Locally, the UK is a problem, unless the Cameron coalition seizes the opportunity to trade support for a federal Europe against an opt-out that will, in effect, loosen Britain's ties with the union. The Tories believe they can win a referendum on such a treaty.

The second obstacle is public opinion in many European countries. The last two rewrites of the EU treaties have been voted down by referendums in France and the Netherlands and then in Ireland. There is no greater perceptible appetite for "more Europe" on the Continent than there is in the UK. Rather, nationalist impulses are stronger than at any time since 1945.

In the 1990s, Helmut Kohl and François Mitterrand won the backing of their peoples for the Maastricht Treaty with a fearless conviction that European integration was the only possible vehicle for securing peace and prosperity for their countries in a globalised world. Can the present generation of leaders, above all in France and Germany, find an equivalent conviction to drive success? They need to be fired by belief in a narrative of shared needs and shared destinies for all European countries. Otherwise, the sovereign debt crisis will move into an even more deadly phase.

John Wyles, a former 'Financial Times' correspondent, is based in Brussels