David Cameron is not the only political leader in Europe facing a public backlash. Before the financial crisis, European mainstream parties of the Left and Right could count on roughly 75 per cent of the vote. This year, that support has dropped to nearer 55 per cent, with fringe nationalist and populist parties the beneficiaries.

The difference with Ukip is that while it poses as independent, it is, as Nigel Farage has made clear, harnessing popular support so as to force change inside the Conservative Party – a change of leader and a policy of immediate withdrawal from the EU. In this respect, they are a party within a party.

Every time the Prime Minister makes a further concession to his anti-European backbenchers he is notching up a further advance for Ukip. He may genuinely have thought his January referendum commitment would be enough to see them off but instead it has given them a new lease of life, as the recent local elections and opinion polls have demonstrated.

Labour in the 1980s paid the price for indulging its own hard Left for too long before Neil Kinnock, realising that his party’s future was threatened, fought back against them and won. Similarly, the Republicans allowed the Tea Party to grow in influence, contaminating and dividing America’s Right wing, with fatal electoral consequences.

Both for his own sake as well as the country’s, the PM cannot allow Ukip’s appeal to spread further without pushing back against their isolationist demands. They may have succeeded in legitimising these by hitching certain Tory grandees to their wagon, but this is all the more reason for Cameron to draw a line now, plant his flag firmly in the ground and fight back. He has to put long-term policy ahead of short-term political tactics.

The uncertainty about Britain’s future position is already damaging investors’ confidence and the economic recovery. The Government’s ability to forge alliances for a reform agenda in Europe is being weakened by others’ belief that we are simply being dragged towards exit – why should Berlin or Paris bother finding agreement if they think we are on a one-way ticket out of the EU? And left unchecked, populism will drive voters further in extreme and unpredictable directions as the next general election approaches, with consequences for all the mainstream parties.

The ground on which Cameron chooses to fight must be Britain’s economic interests and the future of our national prosperity. He must be clearer about the reform agenda he is pursuing based on his economic liberalism, belief in free trade, the priority he attaches to jobs and growth and the urgent need to boost Europe’s competitiveness and strengthen its single market. He may be frustrated that the fog of internal war is clouding his message but he has to rise above this because, ultimately, it is where he will pick up allies, at home and in the EU.

Cameron is right to highlight the advantages of a new EU-US trade deal – it would be worth billions to our manufacturers and service providers. But make no mistake: Britain can only obtain the benefits from such trade deals by negotiating as a bloc with the rest of the EU. When I was Europe’s trade commissioner, at the same time as pushing talks to liberalise world trade as hard as I could, I launched bilateral negotiations with India, Korea, South East Asia and across Latin America, as well as updating Europe’s trade agreements in Africa. Success was worth major new export opportunities for British companies, their employees and shareholders. In not a single case could I have opened these negotiations if I had been representing Britain alone because our market, by itself, is simply not big enough for others to negotiate with.