AEI's John Makin examines the consequences of German deflationary policies and Greece's probable exit from the eurozone in the latest Economic Outlook.

Austerity measures in Europe have been the topic of a heated and mostly confused debate in the economic world. During the May summit of the leading industrial nations at Camp David, German chancellor Angela Merkel and other European leaders pushed for continued European austerity. Keynesian critics argue that these policies destroy economic growth.

When the G8 major economies convened at Camp David last weekend, the continuing crisis of the euro, common currency of 17 European Union (EU) members, dominated the economic discussions. The agonies of Greece, badly divided in recent parliamentary elections, and forced to vote again on 17 June, were at the forefront.

Greece's economic and political unraveling could not be coming at a worse moment for President Obama. The crisis has the potential to send shock waves not simply through Europe but also through global financial markets on the very eve of the U.S. presidential election.

After five years of wrenching economic recession, one has to wonder what it will take for Greece to cut itself loose from the failed IMF and EU policies that have reduced the country to its present terrible economic pass.

At best the IMF-EU bailout package will stave off a disorderly Greek default for three to six months....

The rescue offers Greece the opportunity for an extended struggle to settle for slow economic growth for an extended period. This debt crisis is not over...

On May 6, all eyes will be focused on the second round of the French presidential election, which Socialist challenger Francois Hollande is likely to win. Equally important for Europe’s future is the Greek parliamentary election scheduled for the very same day.