There are few things more frustrating than being a British Eurosceptic in Brussels. Not, I hasten to add, because of the behaviour of my fellow Europeans. The frustration begins and ends this side of the Eurostar terminal at Waterloo.

When I return home to London, I meet and talk with other Eurosceptics. Invariably the same thing happens: as they open their mouths, words come out that bear little relation to reality. As they speak, they talk about a caricature European Union, stuck with a timewarp impression that has not been updated in the past 20 years. The Europe they have in mind is, as Nick Ridley put it in 1990, “a German racket designed to take over the whole of Europe”, with the French “behaving like poodles to the Germans”.

They seem wholly unaware that the EU is changing. It has enormous problems — such as the push towards a federal state inherent in the proposed new constitution — but the dynamics of the realpolitik which governs the EU are already in flux. Two critical developments mean that the Franco-German axis is no longer the dominant force.

First, the statist, tax-devouring continental economic model is falling apart. Reality has ensured that even the inept German Chancellor, Gerhard Schröder, has started — however limply — to realise that reform is necessary.

Secondly, and more fundamentally, the accession of the ten new member states this year has changed the ambience of the EU. The union has taken into its bosom countries which, far from wanting to form an alliance to take on the US, look to America as their saviour. The EU did nothing to free Poland, the Czech Republic, Estonia, Slovakia, Slovenia, Lithuania, Latvia and Hungary from the Soviet empire. They owe their freedom to the US. Indeed, many of their leading politicians were educated in the US and have been imbued with ideas of the free market and liberty.

When Donald Rumsfeld spoke of Old and New Europe, he was spot on. These new countries’ economies are light years away from those of Franco-German Old Europe. Estonia, for instance, introduced a stunningly successful flat tax rate of 26 per cent in 1994. In order to remain competitive with their neighbour, Lithuania and Latvia then introduced their own, which has prompted Estonia’s plan to reduce its rate to 20 per cent within the next three years. Latvia is now reducing its corporate income tax rate to 19 per cent and Slovakia has brought in a flat 19 per cent rate for individuals and corporations.

In contrast, the Czech Republic has tried to ape Old Europe and has raised taxes and widened its welfare state. It is easy to see what will happen next: people and businesses will move to Slovakia and its economy will suffer.

The typical British Eurosceptic’s response is to argue that this is all very well but irrelevant. The EU itself is the problem. And up to a point, yes. The proposed constitution is a damaging distraction that has to be defeated. But there is a further positive sign which comes from the heart of the EU.

The appointment this week of José Manuel Durão Barroso as President of the Commission is indicative of a new outlook. It is inconceivable that a man with his views could have been given such a job — by, remember, France and Germany — as little as five years ago.

Barroso is certainly a convinced supporter of the EU. But he is also an Atlanticist, hosting — at considerable domestic political cost — talks between George W. Bush and Tony Blair in the Azores before the Iraq war, of which he was a supporter. He is a Portuguese version of Margaret Thatcher, ignoring uproar from the unions and less far-sighted colleagues to push through labour market and other free-market reforms.

It would be the ultimate in self-defeating irony if Britain turned its back on the EU, as many Eurosceptics seem to want, at the moment when the New Europe mindset is beginning to hold sway over Old Europe. It is, after all, the fruit of our success; it was British policy to widen the EU.

The real debate across the EU is much wider than Britain’s exclusive focus on the constitution. It centres on whether the old sclerotic EU needs to change and introduce, albeit 20 years after Thatcher, market-friendly reforms. New Europe is winning, Old Europe losing, as Barroso’s appointment shows.