Export growth is down sharply, turning negative vis à vis the eurozone s periphery.

Without external constraints, public and private expenditure grew precipitously in many countries on the eurozone periphery, while wages rose faster than productivity.

Nonetheless, the German model does hold some useful lessons for the eurozone s embattled peripheral countries today.

That is why interest rate spreads in the eurozone periphery are widening again now.

But now it is permeating the eurozone s core. And in the US, even if President Barack Obama and the Republicans in Congress agree on a budget plan that avoids the looming fiscal cliff, spending cuts and tax increases will invariably lead to some drag on growth in 2013 at least 1 of GDP.

However, there are substantial differences among these economies.

The creditors imposition of strict austerity on the periphery is perpetuating the eurozone s division between center and periphery.

Moreover, unemployment in the eurozone has skyrocketed to an average rate of roughly 12 , with more than 50 youth unemployment in the periphery countries implying a long term loss of talent and erosion of the tax base.

This may seem extreme, but it simply recognizes the reality that much of the existing debt will not be paid back without new flows of official financing.

Either one involves risk sharing among eurozone members.

Second, all eurozone countries are effectively in the same boat.

Meanwhile, not only is fiscal austerity pushing the eurozone periphery into economic free fall, but the loss of competitiveness there will persist as relief at the waning prospect of disorderly defaults strengthens the euro s value.

Given the exposure of some euro zone states such as Austria, this crisis will also affect the euro area directly.

The peripheral countries external deficits are falling rapidly, thus diminishing the need for foreign financing.

This pressure on the peripheral countries to deflate their already stagnant economies is turning into the eurozone s greatest challenge.

But several eurozone members did not keep their word, and the crisis engulfing their sovereign debt now endangers the survival of the eurozone as a whole.

It has not resolved the fundamental economic imbalances between eurozone countries.

Throughout the crisis, it has been widely assumed at least so far that the eurozone core would remain solid, and would continue to write the checks for the periphery s distressed governments and banks.

The Germans have been insisting on institutional change more centralized eurozone control over periphery banks and government budgets in exchange for expanded access to financing for the periphery.

Instead, it is claimed, eurozone members should have been allowed to default.

Greece, a eurozone member, is now in just such an untenable situation.

Formed originally as a free trade area, the eurozone comprises 17 of the countries.

The eurozone crisis will not be resolved until this internal imbalance is reduced to a sustainable level, which requires not only fiscal adjustment in the troubled peripheral economies, but also balance of payments adjustments across the eurozone as a whole.

Not surprisingly, increased emigration to the stronger eurozone countries (such as Germany) has been accompanied by higher outflows of financial capital.

Political risks in the eurozone s periphery include the collapse of Italy s government and a fresh election as a result of former Prime Minister Silvio Berlusconi s criminal conviction.

German officials now understand that, given extensive trade and financial links, a disorderly eurozone hurts not just the periphery but the core.

But the euro system means that Germany s exchange rate cannot increase relative to other eurozone members.

After the advent of the euro, the eurozone s Mediterranean members enjoyed a lending boom while piggybacking on Germany s low interest rates.

Despite all this, markets remain unconvinced by the eurozone s shows of solidarity.

That, in turn, implies the need for a real exchange rate adjustment inside the eurozone, with peripheral countries production costs falling relative to those in the core.

Eurozone leaders must recognize that spending cuts will do nothing to stabilize the balance sheets of core country banks that are over exposed to peripheral countries sovereign debt.

Large discrepancies exist within the eurozone, reflected in structural trade imbalances between the core and the periphery that lie at the heart of the debt crisis.

As the ECB belongs to all euro countries, they would all bear the loss.

Ten eurozone countries had just been downgraded by the ratings agency Standard Poor s.

Fears of default began to affect other countries, such as Portugal and Spain, among the 16 members of the eurozone.

In the wider European Union, countries like the United Kingdom or Hungary are as much afflicted by structural deficiencies as some peripheral eurozone countries are.

Eurobonds would not cure disparities in competitiveness eurozone countries would still need to undertake their own structural reforms.

First, the eurozone authorities misread the real causes of the debt crisis, which stemmed mainly from a growing competitiveness gap between the core and periphery countries.

Moreover, balkanization of economic activity, banking systems, and public debt markets continues, as foreign investors flee the eurozone periphery and seek safety in the core.

If a gradual process of disintegration eventually makes a eurozone breakup unavoidable, the path chosen by Germany and the ECB large scale financing for the eurozone periphery would destroy the core central banks balance sheets.

And now, thanks to the fiscal compact, even the eurozone s core will be forced into front loaded recessionary austerity.

The constraints for eurozone countries are similar to those of a state in America that gets into fiscal trouble.

They have involved huge financial risks for eurozone members. They have fueled tensions among member states.

But the eurozone s peripheral countries simply did not have a choice they had to reduce their deficits, because the foreign capital on which their economies were so dependent was no longer available.

With Merkel s active help, the eurozone is (in effect) moving towards becoming a transfer union the stricter the new rules and the larger the interest rate spreads among eurozone countries, the faster that will happen.