Some months ago I coined the term Brexit – Britain exiting Europe in a Progress article.  Month by month the Brexit door opens ever wider. In numerous conversations with politicians, editors, civil servants and business leaders in different European countries there is a shrugging of shoulders as the assumption that Brexit will happen takes root.

Political Brexit began with Cameron exiting the main grouping of centre-right governing parties in Europe. Instead he linked with what Nick Clegg called ‘nutters, anti-semities and homophobes’ in the European Parliament. Add in Tory MPs at the Council of Europe voting with Russian MPs to block investigation of human rights issues in Putin’s autocracy and the Conservatives have never been so isolated from mainstream European politics.

Brexit accelerated with the appointment of William Hague as Foreign Secretary. Hague has made a priority out of downgrading links with Europe in favour of supporting links with non-democracies like China, Bahrain and Russia. Hague incessantly calls for the repatriation of EU competences and has worked with home secretary Theresa May to pull out of the European Arrest Warrant, DNA data sharing and other common crime fighting measures with EU partners.

Natural allies of the UK like Sweden, the Netherlands or Poland are dismayed at Hague’s hostility to EU cooperation.

Now Cameron is talking openly about a referendum. But on what? There is major EU resistance to negotiating and writing a new treaty. France does not want this at any price let alone a subsequent referendum as Francois Hollande made clear in his interview with the Guardian and other European papers this week.

Downing Street’s strategy has been based on a new treaty allowing Britain to trade its veto in exchange for obtaining major opt outs and allowing Britain a formalised semi-detached membership of a future EU.

But if no new treaty what then? Cameron can hold a permissive referendum instructing him to seek to negotiate a British exception to existing EU arrangements. But there will be no obligation on the other 27 member states to accept British demands. The Pandora’s Box of EU treaty revision will stay shut.

But Cameron cannot now row back from a referendum. And Labour cannot head towards the 2014 and 2015 elections as the only party opposing a referendum. Labour should not jump the gun and it would be helpful if Labour could recover verve and vision about Britain continuing as a major European player.

But if Cameron offers a referendum Labour must follow suit and fast. Margaret Thatcher famously said that referendums or plebiscites as we might call them in honour of the chief whip are ‘the devices of dictators and demagogues’. But the number of anti-referendum Thatcherites in all parties can be counted on one hand.

So Labour cannot shy away from a referendum but combine this with a new discourse that looks beyond the current euro- and pound-zone crisis and shapes a new partnership vision for the EU. This should be based on growth not Osborne austerity politics. National parliaments should form a Senate to balance the Strasbourg assembly. We need a reduced European Commission, tougher controls on banks to prevent another 2008, and a major rethink of social Europe.

Brexit does not have to happen. Europe without Britain will lose a major nation with a sense of humour, the best record on integrating non-white, non-christian citizens, a profound love of free citizenry expressed by habeas corpus and free media, the most efficient networkers and negotiators of any state service and its English speaking access to the world. That is what Europe loses with a Brexit. What does Britain gain? Nothing.

Labour has avoided speaking, hearing or seeing Europe for a decade. The Iraq war and its aftermath marked the end of New Labour’s effective engagement in the EU. The post crash agonies for all EU nations have increased the toxicity of EU questions. But ‘One Nation’ Labour cannot back Tory and Ukip visions of Britain as an isolated nation cut off from European Union partnerships.

Labour cannot leave the referendum as a Tory-Ukip policy. But accepting the inevitability of a referendum does not mean accepting the Michael Gove desire to quit the EU. The European question is back with a vengeance and Labour must lead not follow in opposition.

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Denis MacShane is the member for Rotherham and a former Europe minister