An EU referendum could be the crucial moment of David Cameron's career It now looks as though a British referendum is on the way. In an effort to solve the euro-crisis, the 17 countries in the single currency are moving towards banking union. They are creating one system and a bailout mechanism to underpin the euro, which will soon require proper governmental oversight and close coordination on policy in areas such as tax and budgets. That means political union. The precise nature of what the new arrangements will be remains undecided, and it will take several years to resolve. Jose Manuel Barroso, the president of the European Commission, is pushing for a full-scale EU federation, with countries pooling all of their major decision-making in a move that would amount to the creation of a pan-European government. He wants a plan for a new treaty by 2014, although that timetable might slip. The French, Germans or other member states may also resist elements of his proposals, but the general direction of travel is clear. There will be much closer European integration, for which there is no appetite in Britain beyond Lib Dem leader Nick Clegg and a diminished band of Europhiles. This means that at some point in the next few years, events will force the UK to choose what it wants its relationship to be with the new model EU. The pressure for a public vote - a referendum - will be irresistible . Many Tory Eurosceptics and the members of Ukip want it to be a straightforward in-or-out question put as soon as possible. The Prime Minister is keen to avoid such a stark choice. His preferred option seems to be for the UK to stay in the EU but for the government to renegotiate the terms of our membership. Possibly this could be done in alliance with other countries, such as Sweden, which might also want a much looser relationship with Brussels. However, the binding nature of existing EU treaties makes such a set-up extremely difficult to arrange. And being in coalition with the Europhile Liberal Democrats, David Cameron is constrained from demanding negotiations now. Instead, Foreign Secretary William Hague is instigating a vast "audit" which will assess which laws and powers might be repatriated. In theory, the terms of any subsequent renegotiation could be put to a vote. Very difficult, as his overwhelmingly Eurosceptic MPs are watching him like a hawk for signs of a sell-out. Mr Cameron and Mr Hague, wanting to wait and see what kind of federation the EU comes up with, hope to put off dealing with this until after the 2015 general election. But an interim promise of a referendum on a potential renegotiation may not satisfy Tory Eurosceptics, or the country. However, it is also an opportunity for Mr Cameron to define his leadership. Either renegotiating the UK's relationship or taking the UK out, and sealing a friendly free-trade deal with the EU federation, would certainly mark him out as one of history's consequential prime ministers. Does Labour stand to benefit from Eurosceptic divisions? In theory it will, if the broad mass of sceptics squabble and cannot cohere around a consistent position. Yet it is also tricky for Labour. For several decades the party leadership's response to these questions has simply been that it is a "pro-European party." Ed Miliband's views on the matter are opaque. But with the basis of membership about to alter fundamentally, his party risks being exposed for having done very little thinking on what happens when the old EU no longer exists. Labour will be under pressure to say whether it favours renegotiation, and if so which powers it wants back. And if it opposes any new deal, does it want to sign the UK up to a treaty of EU federation? There are also some potential Eurosceptics in the Labour movement - in the trade unions and beyond - who may be tempted to sign up with the cross-party Eurosceptic campaign that Tory donors are getting ready to fund. Might all this help the Lib Dems? It is not inconceivable that the Lib Dems could use the looming debate and referendum to carve out a niche for themselves, potentially amongst sections of the younger vote, as the one party that is enthusiastically in favour of all things EU. But, again, that would mean the party saying it wants the UK to sign up for federation, or government by Brussels. There are probably very few votes in such a proposition. It looks likely anyway that the Lib Dems will be punished for their role in the Coalition in a general election before the EU referendum takes place.