German investor confidence slides: the deficit hawks are wrong, again

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As the FT notes:

German investor confidence plunged this month at the steepest rate since the collapse of Lehman Brothers in late 2008 as Europe’s largest economy was hit by fears over the eurozone debt crisis, the FT reports.. The Mannheim-based ZEW institute said its economic sentiment indicator dropped by 17.1 points in June taking the index to its lowest level since April last year.

As I noted yesterday, the deficit hawks claim that:

at lower levels of public spending the economy is likely to grow faster. If the economy grows faster, then wages will grow faster. So households today will feel safe to borrow and consume more and to save less, knowing that their (pre-tax) incomes will be higher later, allowing them to pay off their debts. Investors will also expect better returns if growth is faster.

And this report shows that the more cuts are offered he more the reverse is true. The reality is investors will not invest when cuts are happening. And consumers will not consume either.

The hawks are wrong.