Greek democracy is being destroyed. Not by soldiers marching with insane slogans on their lips about the inevitable triumph of the German master race, international proletariat or global jihad, but by moderate men and women who think themselves immune to ideological frenzy. Greece's enemies are novel, but no less frightening for that: extremists from the centre ground; the respectable running riot.

Which ever way you cut it, Greece can't win. The EU "bailout" cannot perform the first function of a rescue and save the sufferer from suffering. The Germans, with Dutch and Finnish assistance, are pushing Greece into a death spiral. The EU demands that Greece cuts 150,000 public jobs over three years – the equivalent in terms of population of our government taking 800,000 jobs from the UK public sector. Greek politicians must also accept without a quibble a 22% cut in the minimum wage and further reductions in the welfare state.

Greece is in permanent recession. The economy shrank by 7% in the three months to December 2011. Tens of thousands of family businesses have gone bust. Europe is now offering to revive Greece by impoverishing it; to heal it by harming it. As Tacitus said of the Roman legions' earlier attempt to impose a European union: "They make a desert and call it peace."

Whether Greek society can stand the pressure remains an open question. The parties of the far left and right are flourishing in the polls as the public comes to see its centrist politicians as traitors for trying to appease a hostile EU. Once the Grecian fringe was reserved for the unhinged. The last time I asked Liana Kanelli, spokeswoman for the Greek Communist party, about her country's crisis, she flew off into a rage about how the 1999 Nato intervention to stop Serb nationalists slaughtering Kosovo Muslims was an imperialist plot to extend capitalism into the Balkans. Nothing I could say could wake her from her land of make-believe and return her to the subject at hand.

Her fellow citizens no longer see Kanelli and her kind as dangerous fools, however. Because they oppose the EU, cranks from the left and racists from the right now make more sense to Greeks than their mainstream politicians. The parallels with the 1930s are too obvious to labour.

Whatever the political consequences, every sensible financial commentator understands that the Greek economy can take no more. The "bailout" will merely push it deeper into the mire. The EU's terms do not begin to match the altruism the United States showed to the defeated Germans after 1945. America did not pauperise West Germans as many in France and indeed Washington wanted. America guaranteed their security, then gave them loans from the Marshall Plan that allowed the West German economic miracle to begin. Greece has invaded no one and committed no crimes against humanity. Yet the EU, which boasts that solidarity is its founding principle, is forcing it into destitution and chaos.

The alternative to bowing to the demands of their German overlords is not noticeably better. If Greece were to leave the euro, there would be hundreds of thousands, maybe millions, of law suits, as parties argued whether contracts should be honoured in the old or new currency. Hyper-inflation might set in. The European banking system might collapse. As William Hague says, the euro is a burning building with no exits.

The EU cannot take responsibility for what it has done and be magnanimous for reasons British readers may not grasp. Raised in a Eurosceptic country, we do not understand how an absolute commitment to the European project was a mark of respectability on the continent. Like going to church and saying your prayers for previous generations, a public demonstration of commitment to the EU ensured that the world saw you as a worthy citizen. If you wanted to advance in Europe's governing parties, judiciaries, bureaucracies and culture industries, you had to subscribe to the belief that ever-greater union was self-evidently worthwhile.

Currency union is – self-evidently – a disaster. Admitting that would bring a loss of face too great for the European elites to bear. To take the most discreditable example, Germany and Holland have benefited enormously from the single currency holding down the exchange rate for their goods, while imposing effective tariff barriers on southern Europe.

Instead of saying: "We are rich because they are poor", Angela Merkel and her boorish colleagues imitate the smug, parochial, selfish Bild reader, who thinks that foreigners' problems would be solved if only they could turn themselves into him. Germany insists that the Greek crisis is the result of the corruption of Greek public life. Greek politics is undoubtedly corrupt, although I should add that the first victims of corruption are poor Greeks who cannot afford to bribe officials or hide their savings from the taxman.

But Greek corruption cannot explain why Portugal is in crisis, any more than Italian corruption can explain why Ireland and Spain are in crisis. All five countries are suffering – and France may soon be suffering – because the euro is a monumental mistake. Rather than rectify it, European leaders attack the welfare states, employment protections and public services that the best of the European centre-left fought for after 1945. In the name of saving the euro, everything must go.

As the poverty deepens and the protests swell, the EU's image will change – and not for the better. It was once seen as a haven, which offered Europeans an escape from the terrors of the past. The EU, wrote the perceptive British diplomat Robert Cooper in 2002, is at the forefront of the "postmodern world". Instead of invading each other, Europeans allowed negotiators at Brussels to settle conflicts and regulate everything "right down to beer and sausages".

The EU may have been petty and irritating. It may not have been very democratic. But its avoidance of conflict produced a pleasant, prosperous and peaceful continent.

Europe does not seem pleasant, prosperous or peaceful today. When historians write about the end of its postmodern utopia, they will note that it was not destroyed by invading armies anxious to plunder Europe's wealth or totalitarian ideologues determined to install a dictatorship, but by politicians and bureaucrats, who appeared to be pillars of respectability, but turned out to be fanatics after all.