John Lichfield: Saving Europe will leave Britain on the edges, but the alternative is grim

Some of us remember when Europe was boring.

We once sat through all-night ministerial meetings on Monetary Compensatory Amounts or haddock quotas in Sea Area 6(a). In those days, we used to say, tee hee, Europe could never work because it was too technical for the politicians and too political for the technicians. Yet, in its stumbling, frustrating, inefficient way, that rather limited Europe did work.

I was never a full-on European federalist. I came to believe a quasi-federal union was the best way – maybe the only way – for European nations to solve problems they would have to solve anyway. A Europe with central, but limited, decision-making was needed to sustain prosperity. It was the only way to subdue the ancestral jealousies and hatreds which led to the slaughter of millions in two world wars.

Now Europe is no longer boring. It used to be like an instruction manual for a fridge-freezer in 20 languages. It is now like a Bunuel movie or a Dostoyevsky novel, compelling but bewildering. And scary. Even the main characters no longer understand the plot. There was an endearing, but terrifying, moment at one of the recent summits when Angela Merkel told journalists: "No one has ever tried anything like this before. Even the greatest experts don't know if it will work. But it's the best thing we can come up with."

Uh, oh, I thought. We are all doomed. Europe has become too technical for the technicians and too political for the politicians. Watching the eurozone countries trying to resolve their debt crisis has been like watching 17 people in oven gloves manipulating a Rubik's cube. Last week the Greek Prime Minister, George Papandreou, decided it would be a good idea to ask another 11,000,000 people to join in.

The Eurosceptic punditry in Britain (but also in France) said a Greek referendum was a marvellous idea. The people of Greece had a democratic right, they said, to defy the bullying elite and reject crippling EU-inspired austerity measures even if they were receiving hundreds of billions of euros in aid and debt-forgiveness.

Presumably the same pundits would approve of a referendum in Britain on the crippling austerity measures for which Britons did not vote last year. Presumably they are cheering on Greek default because they hope it will start a chain reaction which will destroy the euro and even the EU. Tipping the world into a deep recession is a small price to pay.

Hypocrisy is not just a Greek word. Nor is chaos. Please let us remember that, up to 2007, debt was the foundation of Western prosperity. The sub-prime crisis was caused by sophisticated mega-bets on private debt greedily approved by the "markets". Much of that private debt was converted into increased state debt which the same "markets" are now betting against.

But it is foolish to blame banks and markets alone. The crisis (another Greek word) has starkly exposed, as crises do, stupid old faults and dangerous new fault lines. For 30 years, at least, Greece has lived in a cloud cuckoo land in which it pretended to be a modern, democratic state but almost everyone avoided paying taxes.

Italy, France, Britain and the US lived in a cloud cuckoo land in which governments bought popularity with debt. The euro project itself was founded on the cloud cuckoo basis that countries could share a currency without harmonising economic policies. The disciplinary rules were ignored by everyone, including Germany. (Cloud cuckoo land, by the way, is a Greek notion, invented by Aristophanes in his play Birds.)

The financial crisis has fast-forwarded us into an unsettling future. Who would have imagined that Europe would be reduced to holding out a debt begging bowl to China, India and Brazil? But a dangerous fault line has also been exposed within Europe itself. The 17 eurozone countries are talking of creating one economic government with a single tax policy. Since the early 1950s Britain has resisted deeper European integration, not just for ourselves but for all the rest. David Cameron has abandoned that. He cheered on the idea of a fiscal breakaway by the 17, hoping to win a looser British relationship with Europe by default.

Rather belatedly, the PM realised that this could leave Britain marginalised, obliged, like Norway, to follow EU policy without influencing it. But, er, Mr Cameron, isn't that what Eurosceptic Tories have wanted all along? The idea of a "federal" core of 17 eurozone members of the EU raises other scary issues. If taxes and economic policies are to be adopted at eurozone level, who will vote on them? The euro has brought the EU closer to the radioactive central core of democratic sovereignty than ever before. Its members, especially the Germans, thought they could run a single currency on the same muddle-through, quasi-federal rules as the rest of the EU. The crisis proved them wrong.

Is there a genuine popular appetite for a more federal system? No. The crisis has exposed a new nationalism, which should unsettle even the readers of the Daily Mail. I'm not just talking about the increasing strength of quasi-fascist movements. I am talking about the vicious exchanges of insults in the mainstream, popular press. Bild Zeitung vs "lazy" Greece; Greek newspapers vs "Nazi" Merkel. Almost everyone against Italy, and the Berlusconi-run media in Italy against almost everyone.

The limits of the halfway-house-muddle-through Europe I once championed have been exposed. Europe is paying the price for years of ambiguous, late-night consensus deals and the cynical appointment of mediocre politicians to top jobs in Brussels.

So, we should scrap the whole European idea. Yes, if you want to plunge Europe into a long economic winter. Yes, if you want beggar-my-neighbour, populist nationalism to take charge of the asylum. OK, then let's bring back boredom. In other words, muddle on with policies which don't quite succeed but don't quite fail but at least keep the euro and the single market alive. Despite the big talk of a "federal core" for 17 nations, this is probably what the Germans, French and others have in mind. An even more elaborate halfway house is all that their electorates will stand for. If the Euro-17 idea succeeds, Britain, as Mr Cameron has now realised, will be elbowed towards the margins. If it fails, prospects for a prosperous and peaceful Europe are grim. From now on, cloud cuckoo land is for the birds.