Last week in the Krynica Economic Forum in deep Poland, a highlight was the exchange between former German President (and former IMF Director) Horst Köhler and Polish Finance Minister Jan Vincent-Rostowski.

In essence, Kohler argued that the time had come to stop throwing good money after bad in the Eurozone – countries should accept responsibility for their own performance in racking up unsustainable sovereign debt. Rostowski insisted that that was all very well – in the meantime the Eurozone could face drastic problems if the ECB did not respond to a ‘classic Keynesian moment’ by printing Euros on a vigorous scale.

As I understood their respective points, Germany was offering the ailing Eurozone patient some stern medicine – Poland retorting that medicine of that strength would be good in other circumstances, but now would kill the patient.

After this presentation a senior European expert told me that the Eurozone was on the ‘verge of disaster’. If it struck and confidence crashed, great swathes of EU economic life would simply grind to a halt, including many German exporters. Germany knew this but did not want to accept it. I asked him how close to the Verge of Doom the system now was. "About two inches".

During his presentation the erudite and impassioned Rostowski quoted Tarquinius and the Sybil, helpfully reminding the large audience what that story was about. Basically:

The story of the acquisition of the Sibylline Books by Tarquinius is one of the famous mythic elements of Roman history. The Cumaean Sibyl offered to Tarquinius nine books of these prophecies; and as the king declined to purchase them, owing to the exorbitant price she demanded, she burned three and offered the remaining six to Tarquinius at the same stiff price, which he again refused, whereupon she burned three more and repeated her offer.

Tarquinius then relented and purchased the last three at the full original price and had them preserved in a vault beneath the Capitoline temple of Jupiter.

Rostowski’s argument was that at each stage the EU had ducked the tough but correct option for tackling the Eurozone crisis, so that the cost of fixing it now was massive. 

Where do things stand now?

The real crisis, as we know, is not Greece but the EU banking system which has lent EU governments unsustainable sums to fund inefficient state spending. So, in the inevitable mess, where should the losses fall and be distributed?

Has Germany decided that if colossal sums must be spent to salvage something from the Eurozone rubble, it is better to invest that money in sorting out the big EU banks most in danger and let those national governments who are unable to keep up go their own sorrowful way? Agonising, but character-forming. See this hard-core analysis by Hussman Funds:

As for any public funds approved for use by various European governments to stabilize the financial system, IMF chief Christine LaGarde is right – those funds would be better used to recapitalise banks (ideally, restructured banks) rather than using those funds as a transfer to Greece in hopes of making bad debt good.

What is particularly unfortunate is that all of this is unfolding in a very predictable way, but the constant attempts to ignore reality and defer the inevitable restructuring is imposing enormous costs on the public. 

The misery and disruption to lives round the planet caused by hubristic European political elites are going to be incalculable.

Basically, the European Union has run out of policy manoeuvre-room. Its taxes are already too high, its populations too old, its bureaucratic dead weight too heavy. The existing Treaty structure does not work, and the latest German Constitutional Court ruling effectively (and wisely) reduces even more the scope for German leaders to dump debts on the German public.

Undaunted, the Euro-elites realise that they need a new Kardelj-like attempt to cure the sick cow, this time by changing the rules to give themselves even wider powers. In other words, EU treaty change.

This forces to the fore the UK dilemma. How to avoid a Euro-federalist concentration of power among Eurozone members directly affecting in substance everything the EU does? Euro-federalists have a problem too – how to get accepted such far-reaching national sovereignty-surrendering Treaty changes without referenda in the UK and (probably) elsewhere? 

This is impossible. The sheer intensity of the integrative forces required to make Eurozone 2 work will affect the EU as a whole, not least in the reach of Eurozone authority as upheld by European Law. 

The issues are already clear:

German Chancellor Angela Merkel said on Friday that the European Union must enact treaty changes in order to strengthen cooperation during the debt crisis…

Osborne said it was an "absolute requirement" that any EU-wide treaty would safeguard Britain’s interests in key areas.

"It is crucial that Britain’s interests on financial services, on the single market, on competition are protected, that we’re not outvoted by the euro zone, that there is not an in-built euro zone caucus into the system … that we are able to continue to have a decisive say on things that affect us."

Asked about opting out of other parts of the EU, Hague said: "It’s true of the euro, it could be true of more areas in future. In fact we may get ahead as a result of being outside."

Luckily the key speech the Prime Minister needs when the crunch finally arrives has already been drafted…