The European Union will be challenged by George Osborne today to "reform or decline", as backbench pressure intensifies on the Tory leadership to demand the return of widespread powers from Brussels.
The latest outbreak of infighting over Europe has placed fresh strain on Coalition unity, with one senior Liberal Democrat figure provocatively likening David Cameron to Neville Chamberlain in his willingness to appease Eurosceptic critics.
The source claimed that continuing concessions by the Prime Minister echoed his predecessor's behaviour in negotiating with Hitler ahead of the Second World War.
"He's become like Neville Chamberlain. He gives a bit more, then gives a bit more. The problem is he does not seem to realise it will simply never be enough for the Eurosceptics," the Lib Dem said. "He needed to hold the line earlier on and stick by the speech in which he said the party needed to 'stop banging on about Europe'."
Mr Osborne will toughen the Government's language on Europe in a speech to a conference organised by the Fresh Start group of Eurosceptic MPs. He will seek to reassure them by arguing that an overhaul of the EU's structure is essential to end its "ongoing economic crisis" and to guarantee Britain’s continued membership of the bloc. It comes after more than 90 Conservative MPs signed a letter calling on Mr Cameron to demand the power for Westminster to veto any EU laws deemed unacceptable to Britain.
Their appeal has been dismissed as unrealistic by ministers while critics argue that such demands, as well as the prospect of a referendum on EU membership, are undermining the confidence of foreign investors.
However, the Chancellor will argue that revising Britain’s relationship with the EU will help cement public support for the union.
He is expected to say: "The biggest economic risk facing Europe doesn't come from those who want reform and renegotiation. It comes from a failure to reform and renegotiate. It is the status quo which condemns the people of Europe to an ongoing economic crisis and continuing decline. And so there is a simple choice for Europe - reform or decline. Our determination is clear: to deliver the reform and then let the people decide."
He will say the worldwide economic crisis six years ago has "dramatically accelerated" the shift of global power to south and east. During that time the European economy had stalled while the Chinese economy has grown by 50 per cent and the Indian economy by one-third.
Andrea Leadsom, the co-founder of Fresh Start, suggested yesterday that a "no" vote to EU membership in the referendum promised by Mr Cameron in 2017 might not lead to a British exit.
"What we fail to consider is what 'out' really means," she told Bloomberg. "If Britain votes to leave the EU, we haven't left: we start negotiations. That set of negotiations to leave may even be more fruitful than the negotiations before the referendum."
Ms Leadsom said she favoured a "profoundly reformed EU" because of "the potential of a globally competitive trade bloc".