Adrian Hamilton: The battle is on to convince the markets that the euro has a future

The history of our relations with the Continent has for centuries been one of persistently trying to stand apart and just as persistently having to get involved at the last. It's going to be exactly the same with the euro.

All the talk of splitting off from the EU, all the acres of print about whether David Cameron defended our honour or threw away our interests at the Brussels summit, is just a sideshow. The simple fact is that this crisis is for real and it is as dangerous for us as for the members of the currency. There is now an even chance that the euro will fail and the zone will break up. Already, companies, banks and governments are planning for such an eventuality. Once you plan for something, you make it more likely.

This may bring some cheer to the anti-Europeans. "We're well out of it." But we're not out of it. Britain can't divorce itself from major events across the Channel, and it will find itself even less able to do so over the euro. It is not just the economic ramifications of a break-up of the currency union that are at stake. The effects could be devastating on UK growth.

But it is also the political consequences of a failure of the euro. For better or worse, it has become the glue holding the majority of European nations together. Split back into nation states and you are bound to see a reversion to competitive devaluations and protectionism, if nothing else for reasons of self-defence.

Britain has done so well out of not being a member of the zone because most others have been. So long as it has held together, we could afford to devalue (as we have) and to seek to protect our own interests without fear of retaliation.

The warning by the ratings agency Moody's yesterday that, while maintaining our triple-A credit rating for the moment, it could be forced to reconsider in the event of the collapse of the euro is patronising but reflects reality.

All is not lost. I still believe the euro will survive, not least because of Europe's capacity (including our own) to act when absolutely necessary. The markets, contrary to the accusation that they're intent on making money by betting against the currency, actually want it to survive. Pension funds, banks and investors need safe havens for their money. It is just that the problems of Greece and other indebted countries have shattered their faith in sovereign bonds. They are desperately anxious to get it back.

At the same time, when you look at the finances of Italy and other countries such as Spain, there are no fundamental reasons for believing that they will go bust. The problem is again one of confidence. As soon as you lose faith in holding sovereign debt, then the scale of their default seems unmanageable.

What is now needed is for the leaders of Europe, including Britain, to come back after the New Year with solid proposals that will convince the markets that they are prepared to throw themselves wholeheartedly behind the currency, including a rescue fund of sufficient proportions to manage the debts of the biggest countries, and at least a statement of intent that integration of economies will allow the European Central Bank to intervene fully in the market. Yesterday's demand for ECB three-year debt was an indication of what it could do when it comes to propping up the banks but also an indication of just how desperate the need is.

Britain's willingness to join in the rescue fund, through the IMF or EU, would increase immeasurably the sense of purpose of the Union and put our allies under obligation to us.

Refusing to sign up to an EU treaty was neither here nor there. Just as we have on virtually every comparable occasion over the past three centuries or more, it's our role now to commit ourselves to a solution to this, the gravest crisis Europe has faced since the War.

a.hamilton@independent.co.uk