A great deal of Eurozone's GDP growth in the past came from domestic demand - both in Germany and elsewhere within the union. Of course some of that growth was driven by credit, including cheap sovereign debt. But as austerity kicks in, demand growth begins to struggle.
As the chart below shows, German demand growth has dropped off while the overall euro area domestic demand has been contracting. The only thing that has kept the Eurozone GDP from going much lower (it is likely already in the negative territory now) are exports outside the area.
|Source: Credit Suisse (click to enlarge)|
The top 5 customers for Eurozone's exports are the UK, the US, China, Russia, and Switzerland. The weak euro should clearly help, but growth in these nations is expected to or has already slowed. Nevertheless with domestic demand contracting, exports will be the only way for the Eurozone to generate GDP growth going forward. Without it governments will be unable to meet their debt to GDP target ratios and the union could be called into question. The Eurozone now needs the rest of the world to buy its products more than ever.