The European council’s decision to tell Theresa May to, in effect, “Go back, try harder” is no surprise. It always seemed overwhelmingly likely that the 27 heads of government would rubber-stamp the recommendation of their lead negotiator for Brexit, Michel Barnier, that the UK has not yet made “sufficient progress” to talk trade. And (whisper it) EU leaders seem to be rather enjoying the theatre of all this – why release the pressure when you can keep the squeeze on the Brits?

But the simple truth is that there is probably relatively little that the UK could have done that would have persuaded the EU to green-light trade talks at this summit. Officials had already determined the outcome of the summit weeks ago. So the British team should be thinking Keep Calm and Carry On rather than crying May day.

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A lot has already been agreed in the negotiations. Angela Merkel’s comments yesterday that she has “no doubt” a Brexit deal will be secured are helpful. Yet in our divided post-referendum political landscape there is all too often an unfortunate tendency to abandon critical faculties when considering statements from Brussels, while rightly cranking them up to full dial when following government utterances.

The idea is taking hold that the EU was right, or perhaps even acting in accordance with legal prescriptions, when it separated the talks into two phases – with “sufficient progress” required on three initial issues of EU citizens, the so-called divorce bill, and Northern Ireland, before moving on to considering trade and our future relationship. In fact, the EU’s decision to phase talks into these supposedly discrete elements is a profound error.

How can progress seriously be made on the Northern Ireland/Ireland border without knowing the nature of the UK-EU future trading, customs and regulatory relationship? Equally, despite publicly saying that sufficient progress is not made, the European commission is privately telling politicians from EU member states that only “technical issues” remain to be resolved before settling on EU citizens’ rights.

The clock is ticking on article 50, but there’s still a good year remaining of substantive Brexit negotiations

Meanwhile several of Open Europe’s contacts at the London embassies of EU member states have confirmed to us that they are pleased with developments in the talks. One embassy is even sending the message back to their capital that the UK had moved about as far as it could at this stage of the talks and there is a danger of backing the prime minister into a corner – precisely what May herself is now saying.

Last week, I asked a foreign minister of a major EU member what would be needed for the UK to convince his country that sufficient progress had been made to start talking trade. The minister insisted that it wasn’t “time” yet. When I pressed on what policy or other commitment he thought was missing, he brushed off my concern. He explained that the UK and EU were like a couple who had only been out on four or five dates and weren’t ready to ... (that’s when he trailed off).

Ultimately, the test of whether “sufficient progress” is made will be first and foremost a political one. Michel Barnier might as well be licking his finger and sticking it in the air to test the wind.

So if it comes down to politics, how will this be resolved? May should reject calls to walk away from the talks. Britain should press on negotiating in good faith. The PM should keep reassuring member states that the UK has agreed both to honour commitments it made as a member, and to not leave a financial black hole during this EU budget period. But we also need to start preparing now for the next phase of talks.

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The cabinet has still not decided – nor even really debated – what sort of country we want to be post-Brexit. Do we want to stick as close as possible to the EU, taking all or almost all of their rules, without any say over forming them, so we can get the best possible market access? Or do we accept the cost of losing some EU market access for the greater opportunities of designing our own rules and regulations? This most fundamental of questions will need to be answered soon.

We need to prepare and publish our high-level vision for the future UK and EU trade arrangements. And, if it’s not possible to resolve at this stage which model we prefer, we can lay out the options.

The clock is ticking on article 50, but there’s still a good year remaining of substantive Brexit negotiations. Nonetheless there’s no time to be wasted. May forged a grownup consensus with her Florence speech – it has evidently had a positive effect on the talks. She will need to tread as carefully in the months ahead.

• Henry Newman is director of the Open Europe thinktank