Leading article: Retreat is not leadership

What is a right-minded liberal to make of Britain's sudden isolation in Europe? First, a confession. Along with pro-European political leaders, and along with other pro-European newspapers, we may have been too forgiving of the naive and idealistic, and not forgiving enough of those who questioned the way in which the European elite pursued the goal of ever closer union.

The term Eurosceptic, for example, has not always been helpful. By corralling those who were opposed to any form of European co-operation with those who were properly sceptical of specific expressions of solidarity, we may have helped to limit open debate.

This applied in two areas in particular. One is democracy. It should have been more embarrassing to pro-Europeans than it was that the European Union's structures were so distant from the peoples in whose names decisions were made. This provoked two unsatisfactory responses: one was to strengthen the power of the European Parliament, which is all very well but still lacks general acceptance; the other was to hold or demand referendums, only occasionally an effective democratic device.

The other area in which the pro-Europeans failed was in the construction of the single European currency. Many economists pointed out that there were problems not only with the design of the euro but also with the way in which those design rules were ignored, but there was a tendency to brush such concerns aside. A currency union of Germany, France and the Benelux countries might have worked, but the rules were bent to allow other countries to join and then to allow them to stay.

The pro-Europeans were right to see that unity with Britain's neighbours was in our strategic interest, although they may have played down too many of the flaws in the EU. However, what happened in Brussels early on Friday morning was a different order of mistake. This was quite different, too, from the British demanding and securing an opt-out from something we did not like, as John Major did from the single currency at Maastricht. This was a fundamental test of European unity, and David Cameron was found wanting. Our Prime Minister, who is capable of being statesmanlike, chose to play the part of a party leader instead. He was finally overtaken by one of his early manoeuvres, promising to pull the Conservatives out of the main centre-right group in Europe in exchange for votes in the leadership election in 2005. Needless isolation from Angela Merkel and Nicolas Sarkozy was compounded by George Osborne joking about the French president standing on a box.

Another promise made for short-term tactical advantage was that of a referendum on any treaty change – later glossed to mean "any treaty change that transferred powers to Brussels" – adopted to cover Mr Cameron's weakness over promising a referendum on the Lisbon Treaty. That promise naturally lapsed when the treaty was ratified, but instead of showing leadership, Mr Cameron appeased his party with the promise of another referendum – little realising that treaty changes would be proposed a mere 18 months later.

So there he was, in the hideous Justus Lipsius building at 2.30 in the morning, friendless, and sure of a mauling by his own party if he signed up to treaty changes that could conceivably be read as allowing the Germans and French to lay down rules for our financial services industry. So he ended up on the wrong side of some big dividing lines – isolated from Europe, and standing up for bankers. Once again, Mr Cameron undermines the Government's claim that we are all in this together. No wonder Nick Clegg is furious.

Mr Cameron's weakness in Brussels will earn him a short-term partisan boost in Britain. And it may distract attention from his failure of leadership in the even more important talks about climate change that were still taking place in Durban, South Africa, as we went to press. But Mr Cameron's "no" to the fiscal compact will do nothing to help Europe to recover from the problems caused by binding divergent economies into a single currency, and it does nothing to resolve the democratic deficit at the heart of the EU project.

Under pressure, Mr Cameron sometimes seems distinctly un-prime-ministerial. In his first few months, he was at his best when he seemed to be above the party fray. Now his retreat from green leadership and his failure to lead in Europe strike a petty, partisan note. That may seem merely disappointing, but his failure to show leadership for the long term could be a disaster for the national interest.