The celebrated economist, who quit the Greek government in 2015, said the rise of Germany’s right-wing FDP and Alternative for Germany (AfD) parties killed off hopes of a more united Europe promoted by leaders such as France’s Emmanuel Macron.
Mr Varoufakis tweeted: “The 20% plus rise of the FDP & AfD means one thing: Macron's strategy for a federation lite is dead.
“Four more years of EU disintegration ahead.”
Angela Merkel won a fourth term in office but her Christian Democratic Union (CDU) saw its vote share fall by around eight per cent, the worst result for the party since 1949, while the AfP gained a similar amount to win its first seat in the Bundestag.
At the same time, Germany’s second largest party, the Social Democrats (SPD) only won around 20 per cent of the vote and have ruled themselves out of forming a coalition with Angela Merkel.
The CDU is now likely to form a coalition with the FDP and the Green Party but the uncertainty - along with the rise of the eurosceptic AfP - is hurting the euro.
The AfD's campaign capitalised on a backlash over Mrs Merkel's decision to open Germany's borders to migrants and refugees in 2015.
The party’s success has shocked Germany's political establishment but Mr Varoufakis said the Germany’s mainstream ruling parties got what they deserved at the polls and called for a new style of European democracy.
He said: “The CDU, CSU & SPD reaped the harvest they had sown. Time for a transnational European Democracy movement.”
Mrs Merkel told supporters said she had hoped for a "better result".
She said she would listen to the "concerns, worries and anxieties" of AfD voters and try to win them back.
Mrs Merkel also said her government would have to deal with economic and security issues as well as addressing the root causes of migration - one of the main reasons behind the AfD's result.
She said: “Today we can say that we now have a mandate to assume responsibility and we're going to assume this responsibility calmly, talking with our partners of course."
AfD co-leader Alexander Gauland vowed to fight "an invasion of foreigners" into the country.
He said: “We want a different policy.”
Mr Gauland said the AfD - which is expected to take 94 seats to become the this largest party in the 709-seat federal parliament - had been elected "to uncompromisingly address" immigration issues.
He said: ”One million people, foreigners, being brought into this country are taking away a piece of this country and we as AfD don't want that.
"We don't want to lose Germany to an invasion of foreigners from a different culture. Very simple."