In the latest economic outlook, American Enterprise Institute (AEI) economist John Makin examines the euro endgame.

Makin explains that austerity policies and bank deleveraging in exchange for loans has resulted in a predictable recession with plummeting employment, incomes, and prices.

With Greece’s imminent departure from the eurozone, what will happen to Germany and the rest of Europe?

Makin explains that:

• German deflationary policies are inflicting economic pain throughout Europe—most notably in Southern Europe—and the resulting leftist political backlash has put the euro in danger.
 
• Greece’s probable exit from the eurozone will have a contagious effect on the rest of Europe, as well as the world economy.
 
• If Germany refuses to lead Europe toward fiscal union and to accept higher inflation, the results could be a fragmented eurozone, a collapsed European financial system, and a deflationary shock in Germany.
 

John Makin is a former consultant to the US Treasury Department, the Congressional Budget Office, and the International Monetary Fund. He is available for interviews and can be reached at jmakin@aei.org or through his research assistant daniel.hanson@aei.org.

CHARTS: The economic suffering in Southern Europe and Ireland is clearly demonstrated in the extraordinary rise in overall unemployment  and youth unemployment rates in Europe since 2008 as seen in the charts below.

View the larger overall unemployment or youth unemployment chart.

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