Last Thursday, the European Commission released its European Economic Sentiment Indicator, and contrary to what many analysts had anticipated, specially on this side of the Atlantic, it showed that consumer and business confidence are at its highest point in Europe since March 2008.

In spite of widespread debt problems, the Eurozone Economic Sentiment Indicator, or ESI, rose to 101.3 in July from an upwardly revised 99.0 in June, pulled by strong growth in Germany.

German businesses clearly perceive their situation as improving. The IFO Business Climate Index, an early indicator for economic development in Germany, saw its largest jump in July since German unification in 1990.

Europe’s economic releases suggest the region is not headed for a double dip. Though Europe’s sovereign debt problems present a huge financial and, consequently, economic risk, financial markets have nonetheless demonstrated an impressive resilience. Indeed, their behavior under this strain speaks to a significant, fundamental healing.

“All in all, the strong pick-up in economic sentiment in July confirms that the spillover effects from the sovereign debt crisis to the overall economy have been limited thus far,” said ING Bank economist Martin van Vliet.

There are other positive indicators, such as the TED spread (the gap between Treasury bill and interbank lending rates, and a good indicator of liquidity), which has only widened in this crisis, from 20 basis points (bps) to about 40 bps. Some widening was to be expected in the face of European uncertainties, but matters are still a long, long way from the 460 basis-point spread recorded during the 2008–2009 crisis.

Similarly, junk bond spreads have widened, from some 600 bps over Treasuries earlier this year, to 700–750 bps, as the European problems have become evident. Though an unsurprising reaction to the European credit scare, these spreads are a far cry from the 2,100 bps they reached in 2008–2009.

Meanwhile, issues continue to get sold on bond and money markets, and even bank lending has shown some tentative signs of flowing again.

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Tags: economic, Europe, Germany, junk bond spreads, liquidity