Leading article: Dangerous referendum talk costs UK credibility

Trouble in the European Union invariably spells trouble for the British government, whatever its political complexion. And the crisis over the euro provides a graphic example. By highlighting an abiding flaw in the thinking behind the single currency – the impossibility of imposing financial discipline across so many disparate national economies – the euro crisis has allowed Britain's dedicated band of Eurosceptics to say "I told you so". What is more, the obvious solution – closer fiscal union – could have knock-on effects that threaten the pre-eminence of the City of London, handing the Eurosceptic tendency a campaigning opportunity it has not hesitated to seize.

Liam Fox's speech to the Taxpayers' Alliance yesterday was just the latest salvo from a wing of the Conservative Party that is trying to take out its frustrations with the constraints of coalition by making common cause with a resurgent Ukip. The clamour is now mounting for a referendum – though precisely on what is unclear: the nature of the relationship with the EU or whether to leave? So far, it has to be said, so predictable – and so dispiriting.

Still more dispiriting, however, is the way that the Prime Minister has so unwisely risen to the referendum bait. Until recently, he and the Chancellor had managed, more or less credibly, to argue that it was right for the UK to be outside the euro, but in British interests for the euro to succeed. This was not the simplest message to get across, but nor was it the hardest: the difficulties of the euro inevitably harm the UK economy, and the euro's failure would make the damage infinitely worse. Mr Cameron should have kept to this message and ignored the calls for a referendum; he could always blame the Liberal Democrats if he needed an alibi.

Appearing to treat with those who want a referendum, as Mr Cameron did in The Sunday Telegraph, does not silence their demand, it rather encourages them to repeat it more loudly, then take umbrage when it turns out that nothing has changed. And this is what happened. What Eurosceptics took from Mr Cameron's article was that he was open to holding a referendum on Europe, even though that statement, like many others, was gnomic in the extreme. What he actually said was that he was "not against referendums on Europe", but not that he was explicitly in favour.

The Prime Minister was clearer about his opposition to "the earliest possible in/out referendum", but he stopped short of excluding such a prospect altogether. The cumulative effect was to raise referendum hopes among those opposed to membership of the EU only a couple of days after he had appeared to dash them in Brussels. To the impression of weakness in the face of a Eurosceptic advance was thus added political incoherence. Nor did Mr Cameron do much to clear things up in his Commons appearance yesterday.

The Prime Minister should know how rash concessions to his party's Eurosceptics can come back to haunt him. In honouring his pledge to take Conservative MEPs out of that parliament's centre-right bloc, he shocked his natural allies in Europe and undermined British influence. And by breathing hot and cold on a referendum, he will only raise further doubts in Europe about his, and Britain's, commitment. A Prime Minister with a respectable majority has the luxury of remaining aloof from factionalism in his party, and that applies still more if he is in coalition. The euro crisis is serious enough in itself, without Mr Cameron allowing himself to be bounced into making it a British political drama, too.