Amidst all the doom and gloom in the Eurozone, two days ago there was a ray of hope in the economic climate. A flash estimate of the consumer confidence indicator, computed by the EU Commission’s Financial and Economic Affairs division, showed an improvement, even if a slight one.
Consumer confidence in the EU was still a negative 19.4 in May, but better than the negative 20.2 recorded in April, whilst the Eurozone indicator improved to a negative 19.3 from a negative 19.9 in April. It’s a case of rejoicing at less bad news.
This indicator is built on a set of questions addressed to consumers regarding the financial situation of households, the general economic situation, unemployment expectations (with inverted sign) and savings, all over the next 12 months. Published every month, it is computed on the basis of data from 22 EU countries and 15 Eurozone members, covering around 96.5 percent of total private final consumption expenditure.
The long-term average for the last ten years has been a negative 13, and has been particularly depressed since early 2008, when it took a nosedive. After a sharp recovery in 2009, the indicator became stable, but it started going down again in mid 2011. Low consumer confidence reflects the equally negative business confidence, reflecting pessimism fuelled by increasing unemployment, the impoverishment of the middle classes, and higher business mortality.
The recent G-8 Summit at Camp Davis recognised that the EU needs to stave off total collapse and generate support for banks and for citizens too, by shifting the debate from austerity to growth? That's what the final communiqué of the meeting says. It is time to escape the Minsky moment (named after the economist of the same name) in which debtors cannot pay, creditors do not want to pay, and everyone is trying to write off the debt at the same time.
Political action so far, however, has had nothing like the strength it needs to prevent the constant and intense rise in unemployment, fall in production and sudden slowdown in demand. Leaders have been paralysed by a great divide between those who understand that the absence of growth remains the key problem, and those who appeal to fiscal stabilisation policies and austerity for a return to macroeconomic equilibrium.
Europe remains the hot spot of the world economy. "Conflicts over austerity and growth remained unchanged after the Camp David summit,” said the liberal Germany daily Süddeutsche Zeitung the other day, “on one side stands Germany, and on the other the rest of the world.” The paper added that “Merkel’s austerity is seen as a major error.”
Merkel's policy may be popular in Germany, but outside the country – and this is most important – Germany is isolated. Germany and France must find a new political balance to be able to continue working as the motor of Europe’s crisis policy. It is not about coming up with a gigantic reflationary plan. But Berlin must make a growth policy in Europe possible. This is the message from Camp David.