French, Germany Consumer Confidence Holding Up — A Dangerous Sign of Euro Zone Crisis Fatigue?
French and German consumer confidence showed unexpected strength, reports showed Friday. While the market is cheering about the “good news,” some economists view this as a warning sign of a euro zone crisis fatigue — something that is as dangerous, if not more so, than the crisis itself.
“This is like hearing the cry of ‘wolf’ too many times and people will no longer, in some sense, be scared of what’s happening,” said Srinivas Thiruvadanthai, an economist with the Jerome Levy Forecasting Center.
“The risk is, there is real danger and it’s not that there no wolf, there is a real wolf here,” Thiruvadanthai said.
A survey of consumers by the GfK institute in Germany showed sentiment holding up at 5.7 in June, the same level as in May. GfK’s gauge of economic expectations jumped to 19.6 in May from 8.5 in April and an index of consumers’ willingness to spend rose to 32 from 27.6.
“Despite recessionary trends in Europe and rising uncertainty as a consequence of the debt crisis, Germans feel that the national economy is continuing its upswing,” GfK said.
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A separate report from the French national statistical institute Insee showed consumer confidence in France rose for a third consecutive month in May to the highest level since November 2010.
However, Thiruvadanthai said the increase in consumer confidence is not sustainable.
The new statistics from France do not tell the real story and are most likely skewed from the recent election, said Guido Lombardi, executive director of the North Atlantic League and a former executive director of the International Council for Economic Development.
“For the last three months the French people have been fed rhetoric from an election where the candidate who won promised the French people no cuts in spending, no economic hardship, and no pain,” Lombardi said. “With that type of message for an economically embattled nation, who wouldn’t have a sense of optimism?”
That’s largely why the Insee has reported higher numbers.
Lombardi warned that “once the honeymoon is over from the (President Francois) Hollande campaign and the reality of a difficult economic environment sets in, look for that number to go down.”
Since the onset of the European sovereign debt crisis, policymakers have always managed to get things together every time they reached the brink.
Europe’s finance ministers approved the first rescue package worth €750 billion ($938 billion) in May 2010, aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility.
Yet, the situation slipped further, prompting euro zone leaders to approve on more measures to prevent the collapse of member economies. These include: an agreement whereby banks would accept a 53.5 percent write-off of Greek debt owed to private creditors, increasing the EFSF to about €1 trillion and requiring European banks to achieve 9 percent capitalization.