I don't quite get it.

If individual EU member states want to cooperate more closely (for example, by harmonizing national standards, deposit-return systems, or who knows what else), this must be possible without a small EU member state blocking it with a veto.

There are now three ways to achieve this: Either the participating countries create another confederation alongside the EU to facilitate this voluntary cooperation, or the countries do so in the form of a “two-speed EU.”, or we get or we'll end up with a hodgepodge of bilateral and multilateral agreements (which is exactly what the Union was formed to prevent). I fail to see why a small EU member state should have the right to veto a decision made among several other EU partners that does not affect it.

As far as I understand, that's the “two-speed EU” approach.