The late George Younger was a wise and good man. He had a favourite phrase, which he would appply to persons and to situations: "getting over-cooked". There was a lot of over-cooking in Europe last week. One expects that of foreigners, most of whom cannot help being exciteable – though President Sarkozy is a bit much, even by French standards. But there were a lot of cinders under the grill in the Tory party as well. So it is fortunate that we have a Prime Minister with ice in his veins. It is time for sensible Tories to follow his example and revert to those traditional Conservative virtues, realism and hard thinking. We should do our best to emulate the cleverest of our leaders, Salisbury. He had a mind like a clear, cold, blue winter day. Everything was in its proper perspective, with no heat-hazes of illusion or egotism. In that spirit, let us work out what we want in the EU and how to achieve it.

The first, obvious, point is that the Brussels summit solved nothing, as the markets will surely agree. If you want to understand the Eurozone, what better guide than T S Eliot, the Virgil of the European Inferno? As he almost wrote, Eurokind cannot bear very much reality. No-one should be surprised that The Hollow Men is the best account of last week's events. "Between the idea and the reality… falls the shadow". The poem's ending is so appropriate for another paraphrase: "That is the way the Euro ends/ Not with a whimper but a bang".

If only. Although the collapse of the Euro would be chaotic, it is easier to recover from chaos than from a long, slow, ill-tempered, chronic decline, which will eventually end in chaos. Homo Faber needs a currency in which he can work, earn, spend, save and invest. It is difficult to achieve this, for it is never simple to reconcile a currency's twin purposes: a means of exchange and a store of value. But the Euro converts the difficult into the impossible. It cannot function, unless there were fiscal and political union. How is that to be achieved? Paddy Ashdown and Leon Brittan seem to think that there is a way, although they have not told us what it is. This is the time of year when small children are taken to the pantomime, which depends on a suspension of disbelief. No four year old, delighted by Peter Pan, will be more credulous than my Lords Ashdown and Brittan. They resemble nothing so much as a pair of Japanese soldiers, discovered in the jungles of Borneo in the 1970s, still waiting to rejoin the Emperor's forces.

The Euro is not a currency. It is a stiletto of economic sabotage. Italy and Spain should start the process of dealing with the threat by announcing that they were issuing new currencies, devalued by twenty per cent against the Euro. All their Euro liabilities – government, corporate and domestic – would now be converted to the new Peseta and new Lira, at a parity of one to one. If this rendered other European banks insolvent, profuse apologies, and the banks concerned should ask their own governments to recapitalise them. All other Eurozone governments could then decide whether to try to stay in the Euro, or follow Madrid and Rome. If something approximating to that were to happen, the short-term consequences would indeed be chaotic. There would be undeserving losers, and no doubt undeserving winners as well. But there is no sensible alternative. Last week's afflatus will not create a single job in Spain, a single fraction of a per cent of growth in Italy. The peoples of Spain and Italy – and others – deserve better than a Europe founded on their economic sufferings: a Euro-nomenklatura contemptuous of their hopes for themselves and their children.

It might seem, therefore, that any British Euro-scep who called for an end to illusion would be combining realism with idealism. Alas, matters are more complicated; idealism always is. Those wretched European leaders, a title few of them deserve, are not yet ready to face reality. It would be no use us telling them that they, like sheep, had gone astray. At the least provocation, they would accuse us of gloating. We can only hope that the big bazooka of the markets is now turned relentlessly on to the Euro. If it could be killed before Christmas, that would be the best present many Europeans would receive.

The Euro's fate awaits on events which no-one can foresee. So let us turn to the broader question of EU membership. Here, the Euroscep line is straightforward. We all want to rejoin the Common Market. We would be happy with a Europe based on free trade and inter-governmental co-operation. Indeed, once that were attained, our relations with the rest of Europe might be
easier. Sometimes, couples have to divorce before they can be friends again.

Free trade would have rules, to prevent protectionism. But they would be sensible and limited rules. In future, there would be nothing to prevent insurance companies charging a lower motor-insurance premium to a fifty-year-old female than to a twenty-year-old male. We would control our own labour market. If any of the others thought that this gave us an unfair advantage, they would be free to follow our de-regulatory lead. They would then be pleasantly surprised by the effect on youth unemployment rates. We would recover our fishing grounds, which would lead to a rapid rise in fish stocks. We would also leave the Common Agricultural Policy.

If there were any complaints about all this, we would remind the others that the UK has a sizeable trade deficit with the rest of the EU. Although our membership contribution would be reduced, we would still be paying country members' dues. It all sounds so simple: too good to be true. As they say in the City, when it sounds too good to be true, so it is. The others would go berserk. We could fall back on our sovereignty. "Those are our terms. We are not changing them. Take it or leave it".  If we did so, the answer would almost certainly be: "In that case, leave".

It is important to avoid a trade war with the EU. On the face of it, that should not be hard. Free trade is as much in their interests as in ours. But who trusts the EU to act in its own interests? Free trade, the golden child of growth, is the bridesmaid of prosperity and stability. If Europe slid into depression, it would come under threat. Already, the French are plotting to get back at us and they have never been comfortable with free trade. We cannot just rely on commonsense and Anglo-Saxon pragmatism as our big bazookas.

There will be other opportunities to wrest concessions and move in the direction of the Common Market. There may even be an opportunity for a fundamental re-negotiation and a referendum. But we will have to pick our moments. We will need tactical cunning, diplomacy and good luck. Some Eurosceps are inclined to forget that other countries have sovereign wills too. We cannot prevail merely by telling the other twenty-six what to do. We will have to find allies, which should not be impossible once last week's over-cooked atmosphere dispels. David Cameron's powers of personal diplomacy surely exceed Nicolas Sarkozy's. His strategy of wishing the others well while insisting on Britain's interests is capable of implementation without excessive provocation.

Many Eurosceps will demand more, partly in revenge for Lisbon, a major cause of over-cooking. But this is a moment to be guided by Margaret Thatcher and to trust David Cameron. Certainly, Mrs Thatcher fought battles: not until she could win them. As for Mr Cameron, he is one of the very few people with an overview of the battlefield. He sees the telegrams from the European Embassies; he knows the other heads of government. He has the information to help him decide what might work. Not all the information, of course: no-one has that. No-one knows what the markets will do tomorrow, how long the Euro can survive, what the EU will look like in a year's time. But the PM is in the best position to safeguard Britain's interests and he has the right instincts to assist him.

None of this will be easy. It is not going to be an endless succession of vetoes, cheers and accusations of weakness from…can one believe it?… Ed Miliband. But Mr Miliband is worth hearing on the subject of weakness. It is his special subject.

Last weak, a number of Tory MPs and commentators did display weakness: over-cooking at the least provocation: panicking under fire. They know who they are. They ought to be embarrassed. On previous form, they will be, for about five minutes. But when the next crisis occurs – it is when, not if – it would be helpful if, before turning up the oven to one thousand degrees, they considered the possibility that the gentleman in Downing Street might be right.