Green leads fight against Tory eurosceptics

Britain outside the European Union but enjoying all the privileges of membership is a "fantasy", Damian Green is expected to warn later.

Green, the former immigration minister who is now in charge of policing at the Home Office, will use a speech to the party think-tank Bright Blue to argue against his party colleagues – including work and pensions secretary Iain Duncan Smith – who believe Britain could prosper outside the EU.

"There is a fantastic vision of an EU which remains a single market, including the UK, but which in all other respects allows the UK to be outside," he is expected to say.

"This is a fantastic vision precisely because it is a fantasy. What is in this for those on the other side of the negotiation?"

Eurosceptic feeling within the Conservative party has heightened in recent months as a result of the eurozone crisis, which is pulling the 18 member states with the euro closer together.

David Cameron has conceded a referendum on Britain's ongoing status in Europe will have to take place at some stage, but wants the issue deferred until the current instability on the continent is resolved.

"Ask yourself a simple question," Green's speech, seen by the Telegraph newspaper, states.

"Would we be more or less likely to negotiate a good deal for UK-based companies wishing to trade with Europe if we had pulled out of the EU?

"And ask yourself another simple question. If you were a company in China or India wishing to set up a base in Europe, would you be more or less likely to choose Britain if we had withdrawn?"

His arguments were forcefully backed up by comments from the German finance minister, Wolfgang Schauble, who hit out at Britain's attitude in a private dinner attended by the UK's ambassador.

"Quite a lot of people were struck by how harsh he was on the UK," a source told the Times newspaper.

"He expressed his admiration for the UK… but [added] that they are just wrong about Europe, they are wrong about the future."

Green will acknowledge later the EU is "imperfect" and "irritating" but claimed the government is working hard to achieve changes.

"Staying in and fighting is the best way to meet our economic needs," he will urge.

EU membership will also be the subject of attention in Holyrood later, as the nationalist government struggles to cope with the implications independence would bring for Scotland's relationship with Europe.

European Commission president Jose Manual Barroso has warned Scotland would not inherit the opt-outs won by Britain to EU spending.

Any new state would have to start afresh, he insisted, undermining the SNP's own previous claims on the issue.