First, they must simply hand over “valuable Greek assets of €50 billion” to be privatised – flogged off to decrease the debt. Who will do the privatising? Schäuble proposes that these Greek state assets – airports, electricity companies, whatever – should be surrendered to a body called the “Institution for Growth in Luxembourg”. And who is in charge of this institution, eh? Jawohl, meine Freunde! It turns out to be a front for the German KfW, the Kreditanstalt für Wiederaufbau, the state development bank that was set up, ironically, as part of the postwar Marshall plan to rescue the bombed-out German economy.

These Greek state assets may be tarnished, they may be indebted, but they belong to the Greek people; and now the 72-year-old Schäuble is seriously proposing that this family silver should be taken and sold by the Germans. Why the Germans? Because it is obvious from Schäuble’s proposals that he has complete contempt for the Greeks’ ability to run their own affairs.

His next two conditions are that there should be “capacity-building and depoliticizing Greek administrative tasks under hospices (sic) of the COM for proper administration of the program; (c) automatic spending cuts in case of missing deficit targets”. The arrogance is amazing. What does he mean by “capacity-building”? He means sending in natty-jacketed Eurocrats to take over the country. What does he mean by “depoliticizing”? He means telling Greek voters and politicians to get stuffed, because it is the Germans who are now running the show.

It is fitting that the draftsperson was confused about “hospices” and “auspices”. The eurozone is indeed turning into a hospice, and the dying patient is democratic self-government. That is what Germany wants Greece to do, as the price of staying in the euro. The only alternative, says Schäuble, is a “time-out” from the eurozone for at least five years: in other words, expulsion.

As the hours have passed since this document was leaked over the weekend, I have waited for the repudiation from Berlin. I had assumed that Angela Merkel would somehow distance herself from the demands of her finance minister – perhaps even issue a formal démenti. On the contrary, it has become ever clearer that this ultimatum has her support, and the support of the German government.

The message from Berlin is clear: either we take over the economic government of Greece, or we kick Greece out of the eurozone – and what is even more astonishing is that no one, in any other European country, is rallying to the side of the Greeks.

After five years of crisis, the European Union has reached such depths of intellectual and spiritual exhaustion that ministers are willing to contemplate two appalling options: the immolation of Greek democracy or a Grexit that would almost certainly prove contagious to other eurozone members – including, ultimately, the French themselves.

What will the Greeks do? My heart says they should tell Schäuble to get stuffed. Five years ago, I said they should go for freedom, and I think the same today. What have they gained, by staving off the inevitable? More unemployment, more misery, more poverty. What have they got to lose? Nothing but their chains – the servitude that goes with a cruel monetary version of the Ottoman empire.

Now is the time to rediscover the spirit of Marathon, to fight for the things that made Greece great, to burst the shackles of the Great King of Brussels. Now is the time for what they used to call arete – the full expression of their independent moral virtue.

Will they? Alas, I doubt it. The tragedy of modern Greece is that they don’t really trust themselves – any more than Schäuble does – to run their own affairs. There are still large public majorities for staying with the euro, for sticking with nurse – in spite of the toxic medicine she dispenses. I expect that the agony will go on, with endless deadlines and fudges and semi-disguised bailouts.

But the lessons from the Schäuble paper are clear. They apply to Britain as much as to Greece. The first lesson is that this is what happens when a nation gives up economic sovereignty, in the hope – accurate or deluded – of somehow becoming richer. The Greeks thought they were being smart to sacrifice their monetary independence; they thought they could free-ride. They didn’t appreciate that this autonomy might be something valuable in itself – something they would one day yearn for again.

The second lesson is that whatever they say in Brussels, there is nothing inevitable about any of this process of “integration”. It is all up for grabs. This is no time to moderate UK proposals for reform; quite the reverse, and David Cameron is dead right to open a new front on employment law.

No one can read that German paper, and conclude that the EU is still meant to be an association of sovereign nation-states. These Schäuble proposals are tyrannical. They should be bitterly resisted.

• Greece strikes deal with creditors – live reaction

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