Whatever's next, business tries to prepare

So what will happen next? In the world of politics, Britain using its veto is big stuff and we will, for better or worse, come to see the implications of that in the months to come. But as far as the future of the eurozone is concerned, the veto was pretty marginal, a sideshow alongside the much bigger game of holding the currency, the banking system and indeed the whole continental economy together through what now seems certain to be another eurozone recession next year. That game resumes today.

The initial reaction to the various chunks of new information - the fiscal compact, the modestly greater firepower of the support funds including the International Monetary Fund, and the somewhat greater role of the European Central Bank - was that the European authorities are heading in the right direction but have a long, long way to go.

The markets will reflect this in their judgments. This week there is the specific issue of France's credit rating possibly being downgraded. But we should probably wait until well into the New Year before we have much feeling as to whether the massive funding needs of Italy and Spain can be met at an acceptable price. Greece and Portugal (and maybe Ireland) will be on life support for years but they are small enough to be carried by the rest of Europe. Italy and Spain are not.

Away from the world of summits and rows, something else is happening. In recent weeks, there has been increasing evidence of serious contingency planning by the European business community in the event of a eurozone break-up. If the banking crisis has taught company treasurers anything, it is that they cannot exclude extreme outcomes.

On the one hand, it is just possible that the eurozone might be preserved intact; on the other, it is equally possible that the euro will be dead by Easter. In between, there is any range of possibilities. We all have our own views as the most likely sequence of events but in practical terms, views don't matter; outcomes do. Companies have to be prepared not so much for what they think will happen - that is the easy bit - but what they think probably won't happen.

This may well have the effect of speeding up the whole process. As funds are moved out of southern European banks and into northern European ones, that puts more pressure on the ECB to prop up the weaker banking systems. A giant recycling operation is in progress and at a commercial level as well as a banking one.

The flood of money into German assets has been described in robust terms by Hans-Werner Sinn, head of the Ifo Institute in Munich: "It is not only Spaniards, Irish and Greeks who are on a shopping spree in Germany. They have been joined by many Italian wealth owners who are buying anything that is not nailed to the floor. When," he laments, "will the politicians wake up to this fact and do something about it?"

It is not at all clear what they can do. Impose capital controls? That would be a sure-fire way of breaking up the eurozone. Already it is being destabilised by these fears that some countries might both default on their debts and be forced to leave the eurozone altogether.

But equally the fact that people - individuals, companies, banks, whatever - are preparing for an extreme outcome, should make that outcome less catastrophic were it to occur. The received wisdom right now is that a break-up of the eurozone would be a catastrophe. The most apocalyptic version of this view came last week from Willem Buiter, a former member of the Bank of England's monetary policy committee, now working for Citigroup. He warned of "a global depression that would last for years, with GDP falling by more than 10% and unemployment in the West reaching 20% or more." Well maybe. But that intuitively feels wrong, and it is not what the markets are signalling - or at least not yet. Indeed, all our experience of currency zones breaking up suggests that while there is a short-term loss of output as a result of the disruption, in the medium term output grows faster because economies can escape from having the wrong exchange rate imposed on them.

The break-up of the Bretton Woods fixed exchange rate system in the 1970s was associated with a surge in inflation, and it took two cycles to grind that inflation out of the system. But global output did not do too badly at all.