The European Union is evolving quickly and unpredictably; Britain's capacity to influence that process is in decline. It is this combination of circumstances that will lead eventually to a referendum. David Cameron travels to Brussels for a summit on 30 January with an impossible mission. He is expected to break out of the diplomatic isolation that resulted from his decision to obstruct a new EU treaty last December. Yet he must also retain the goodwill of his MPs, most of whom believe his isolation in Europe is quite splendid.

It isn't. The act that was advertised in Britain as a "veto" was in reality a snub. The treaty that Cameron refused to sign will go ahead anyway. The exemptions he demanded for the UK's financial services industry remain rejected. That failure was ingeniously but dishonestly presented to the public as a gesture of patriotic defiance. The consequences of that deception are gradually becoming clear. Cameron still needs to secure British influence over the single market - the free-trading rules in which even Eurosceptics see virtue. The new treaty might be conceived as an emergency pact to stabilise the crisis-stricken euro, but with 26 out of 27 EU member states involved, discussions are certain to sprawl into other aspects of economic co-operation.

Damage limitation

The so-called eurozone-plus group will surely end up fiddling in areas in which the UK would traditionally insist on having a say - financial regulation, tax co-ordination, competition policy. Except, unlike in past negotiations, Britain starts off on the wrong side of the door. Cameron has yet to get into the room to fight a battle to secure the national interest, despite having sold it in advance as a famous victory.

Quietly, British officials have been doing their best to repair damaged European rela­tionships. Those ministers - up to and including the Chancellor - who must regularly deal with continental counterparts are being especially accommodating. "The whole government has suddenly become achingly communautaire," says one senior cabinet minister of his colleagues' conspicuous shows of European solidarity.

While isolated in the current treaty talks, Britain is by no means friendless in Europe. There is a receptive audience in many capitals to the UK's calls for freer markets, liberal reforms and more vigorous competition as the way to boost productivity and jump-start European growth. In that respect, Downing Street thinks it has found a potential ally in Mario Monti, the new Italian prime minister and a former competition commissioner in Brussels. Angela Merkel, the German chancellor, despite immense irritation with Cameron's combative stance in December, still sees Britain as a vital counterweight to France in the overall balance of European power.

A deal could still be done that would restore Britain's position at the top table and ensure that the UK perspective is expressed when wider economic reform is on the agenda. There is just one obstacle: the Conservative Party.

Last December, Cameron found the limit to what Tories will tolerate in terms of the compromises required to make European diplomacy work. He set off for Brussels with Tory MPs' demands for a demonstration of "bulldog spirit" ringing in his ears. Less audible but more menacing were whispers to the effect that his leadership would not be secure in the event of a craven capitulation to the forces of European integration. Anything less than wrecking intransigence would have been treated by the Conservative back benches as treason, so that is the path Cameron chose.

There is now an expectation in the party that Cameron will build on his defiant stand and negotiate the "repatriation" of European powers to Westminster. That is a fantasy. It seems to have escaped the attention of the Eurosceptics that repatriation is precisely what was rejected by every other member of the EU in December.

The regulatory exemptions Cameron demanded for the City of London at the last summit would have required reopening the Lisbon Treaty - the pact that decrees which areas of policy are subject to majority voting and which can be vetoed by national leaders. There is not a less appealing can of worms in the larders of Brussels. The Prime Minister should not have been surprised when his invitation to prise it open was curtly declined.

From the point of view of his fellow European leaders, Cameron is welcome to rejoin the discussion about EU economic reform and reclaim Britain's influence in the single market, as long as he doesn't start raking over past agreements. From the point of view of the Tory Party, Cameron is permitted to talk about EU reform on the one condition that past agreements are gradually unpicked. In other words, there is no overlap between the diplomacy that might secure Britain's influence in Brussels and the behaviour that is acceptable to the mainstream of the Conservative Party.

No deal

That makes it all but inevitable that the UK will continue to be marginalised in the negotiation of a new treaty. That pact will then surely empower a newly integrated eurozone-plus core to meddle with the single market in ways that would be unacceptable to Britain - regardless of who was prime minister. Cameron could never sign such a deal, still less steer it through parliament. Yet even if such a treaty is signed without Britain, the country's relationship with the EU would be fundamentally altered by it. Eurosceptics would spot the guaranteed dilution of UK influence over the single market and denounce it as a disastrous surrender of power. They would be right.

Meanwhile, other countries signing up to the treaty would hold referendums of their own. The governments of Ireland and the Netherlands are constitutionally obliged to consult their citizens on any substantial new EU pact. The pressure to allow British voters to voice their opinion on the new settlement would be irresistible. A bad deal would duly be rejected.

This is not meant as a Eurosceptic fantasy or a pro-European jeremiad. It is simply the trajectory we are on: away from influence in Europe; towards the exit.