During the current crisis we have several times heard invoked the wisdom of Milton Friedman about the unfeasibility of the euro as a currency surviving a recession. In an interview not long before his death three years ago, Friedman said: "The euro is going to be a big source of problems, not a source of help. The euro has no precedent. To the best of my knowledge, there has never been a monetary union, putting out a fiat currency, composed of independent states. There have been unions based on gold or silver, but not on fiat money – money tempted to inflate – put out by politically independent entities."

It is what lies below the surface of this observation that is putting not just the euro, but the entire confection of the European Union, under such intense pressure. Any recession would bring into play tensions between idealism and nationalism: the desire by those who pilot the European project to maintain the confection for as long as possible and as intact as possible, that it might come out on the other side of this economic horror bloodied but unbowed; and the inevitable identification of hundreds of millions who stand outside the fantasy world of the political class with their own nation state, their own nationals and their own national interest. Without a degree of coercion beyond what even this undemocratic, Sovietised swindle has attempted in the recent past, the national interest will in the end prevail.

There have been auguries of this for some months, while we have waited for the breakdown of the condition of denial in which Europe's political class finds itself. We recall last September's banking summit, at which the Germans decided to go freelance to shore up their own banking system, not least because it appeared that theirs was in far better shape than that of almost any other European country. Then about a month ago one of the most pro-European newspapers in the EU, Le Figaro, carried an article by one of its economics experts that for the first time took the paper's readership into its confidence about the gravity of the situation: it admitted that a country could drop out of the euro.

Last week Jean-Claude Trichet, head of the European Central Bank (ECB), said much the same; and Joschka Fischer, the former German foreign minister, followed that with a hint of Germany's unwillingness to continue to bankroll the more economically delinquent nations of the 27 and implying, for good measure, that Franco-German relations had probably not been so bad as this since Monty and Eisenhower chased the Wehrmacht over the Rhine in 1944.

The truth is that Europe has never had so dire a crisis since the Treaty of Rome was signed in 1957. Sauve qui peut is the watchword. President Sarkozy has entered a familiarly Gaullist phase, ignoring EU competition policy and pushing through a €6 billion support for the French car industry; other manufacturers, notably in eastern Europe, have protested to no avail.

Mr Sarkozy's assertion that he is not a protectionist is purely rhetorical. When a German minister says that "now is not the time" to let workers from the EU's former eastern bloc countries have full immigration rights in Germany, he is saying the same thing. Gordon Brown may not be able to ensure British jobs for British workers, but the Germans are determined to keep their jobs for German ones.

This bending of the rules – or rather this wholesale disregard of them – is the surest sign of a currency, and quite possibly an empire, in terminal decline. Mr Trichet went to Dublin last Friday to try to calm the Irish, whose own crisis brought 100,000 protesters on to the city's streets 10 days ago. He said the usual stuff about Ireland's being able to come out "well placed" to take economic opportunities after the slump. He was less able to square the political point about how Brian Cowen, the Irish prime minister, will win an election if he swallows the medicine the ECB is forcing down his throat: spending cuts, public sector wage cuts and eye-watering tax rises to bring Ireland's deficit down to the levels demanded of a member of the eurozone.

But the dishonesty with which all this is being addressed is breathtaking. Joaquin Almunia, the EU's economy commissioner, has initiated "disciplinary action" against France, Spain, Malta, Greece, Latvia and Ireland for breaking the fiscal rules by running excessive deficits. The offenders could be fined. It would be pointless. Both Greece and Portugal have been fined in recent years and have never paid a penny.

There have already been riots in Greece. The government in Latvia has been thrown out, and the Latvian people are now aware that whatever replaces it will have no scope to pursue anything other than an even more unpleasant economic policy. The danger of civil disorder is already spooking Mr Sarkozy, whose intelligence services have told him that it is not just the banlieues that are at risk of going up in smoke. Imposition of the strict rules on these six countries could lead to revolutions in some of them, Ireland not excluded. How would any fines be paid? With a loan from the Germans? Forget it.

Tomorrow the ECB is meeting to discuss the interest rate, and it is predicted that it will be cut from two to 1.5 per cent. That would make little odds in countries that, like Latvia, have literally run out of money. The IMF is trying to build up a special new fund to bail out countries in distress. It may soon become apparent that this attempt at a currency for disparate nations is about to disappear under the weight of reality – nationalist reality – and the big boys are going to have to come in and sort some nations out. For some countries there will be only three means of staying in the euro. One is to impose the discipline, and risk rioting and the fall of governments. The second is to persuade the ECB to bend the rules to such an extent that the illusion of the euro's strength (it is still, as I write, at an incomprehensible 90p against sterling) is forcibly broken and the speculators have their own field day with it, at last. The third is to get the lender of last resort – the Germans – to bail out countries in trouble.

The Germans have, quite commendably, refused already to do that. When Ferenc Gyurcsany, the Hungarian prime minister, asked them for a €190 billion handout last weekend to prevent a new economic Iron Curtain from going up across the continent, Angela Merkel told him to get lost. She has the German people and, more to the point, German business behind her: why should they pay for the unregenerate behaviour of others? Why should they worry about the collapse of the zloty and the forint? Why should it bother them that Latvia's debt now has junk rating, or that the Irish are almost broke? If Mrs Merkel wants to stay in power, and German workers wish to keep the fruits of their own labours, they must harden their hearts.

As for the rest of Europe, it must choose either to devalue and end the pretence of economic strength, or persist and risk the breakdown of individual governments. Either way, it is never glad confident morning again for the EU and its bastard currency. Milton was right.