Under the volcano: Europe’s companies are preparing for the worst. It will change them

Economist
October 8, 2011

“There is nothing sinister about this,” says the chief executive of a Portuguese drugs firm. “We have to consider: what would happen with inflation, how would we get credit, collect debts and pay our suppliers and workers?” For months he and other Portuguese bosses have been rehearsing plans for what to do if the euro zone fractures or breaks apart completely. Many firms also have formal contingency plans for a sudden exit by Portugal by itself.
Such planning is not just a matter for companies in threatened economies on the periphery. Even a partial break-up would be catastrophic for companies throughout the euro zone, and pretty dire elsewhere in Europe’s single market. Like a hard punch on the jaw, it would cause painful dislocation. New currencies would have to be introduced. Panic would seize the banks on which companies depend for funding. Economic growth would hit a wall.

This is not a calamity it is easy to plan for. News of a euro-zone fragmentation, if it comes, will come suddenly, like a declaration of war. Where countries leave, borders will likely be closed to prevent mass smuggling of euro notes and coins from “peripheral” euro-zone countries. Similar barriers are likely to paralyse cross-border electronic payments, and maybe even telecoms traffic.

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