Austerity measures for the peripheral countries of the Eurozone will not solve the current crisis, but have the potential to make it worse, according to a Credit Suisse investment specialist.

The economies in the peripheral countries, including Ireland, Greece, Portugal and Spain, have weakened to such an extent that only a combination of stimulus and corporate default will bring relief, Credit Suisse Private Banking global head of strategy, thematics and portfolio analysis Mike O'Sullivan said.

"The pain has been limited to the periphery, but has been very intense. In the periphery people don't want to spend, they can't spend, they fear the banking system," he said.

The core Eurozone countries, including Germany, France, The Netherlands, Finland and Italy, on the other hand have had relatively strong economic growth, O'Sullivan said.

"So there is kind of the bi-polar nature to the crisis here," he said.

"Part of that hasn't really sunken in into the healthier countries.

"The Germans don't really know how weak the countries at the periphery are, or they don't realise that austerity is not appropriate for countries where the banking system is broken and were confidence is shot to bits."

Yet, the alternative to austerity is not pretty, O'Sullivan said.

"I think some of the alternatives are more ruthless. If you look at Spain, they really should let some of these banks go bust," he said.

"There should be more aggressive reforms of the banks and management of the banks, more aggressive reforms of the regional economies."

But the European Central Bank (ECB) should also provide stimulus directly to struggling companies in the peripheral countries.

"The domestic economies badly need some form of stimulus," he said.

"Small to medium size businesses in the periphery have no access to funding. Instead of investment projects, I think you need straightforward lending to these small to medium sized enterprises in the periphery.

"Another gap in the logic of the growth debate problem in Europe is that the ECB is making funding available for investment projects, but the big problem is the supply of investment projects.

"Actually finding, as [US President Barack] Obama would say: 'shovel-ready' projects is very difficult. That area needs quite urgent attention.

"That is partly because entrepreneurs no longer have any confidence, partly because the infrastructure operated four or five years ago is now crumbling."

But Credit Suisse head of strategy and research Australia David McDonald said Australian investors should not be overly concerned about the situation in Europe.

"We are more hostage to Europe only in a financial market and sentiment sense," he said.

"If you see a Spanish bank go broke, everyone thinks the world is ending, but the impact on Australia economically..., well, there isn't any to be honest."