• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

The Gray Economy: Europe's €1.5 Trillion A Year Black Hole

Tyler Durden's picture


With Greek tax-collectors under increasing pressure to squeeze their quote out of an increasingly bombastic population, Italy's Rossi arguing for the need to fight VAT evasion, and France taxing anything and everything that moves - all in the name of austerity; it seems, as Bloomberg Brief's Niraj Shah notes today that attempts to bring burgeoning debt levels in Europe under control - by tackling the unofficial, or gray, economy - may backfire. It seems, given the large and growing (average 17.3% of euro GDP or EUR1.5tn) size of the gray economy that the more governments try to capture 'gray' externalities (or hike VATs - up from 18.1% to 20% on average), they merely succeed in pushing more transactions into the gray area. A study by Schneider of Linz University finds that focusing on the gray economy may be counter-productive as some of the activities may act as a safety net and contribute to growth - in a counter-cyclical way - serving as a cushion for people facing wage cuts and job losses. With as much as 24% of Greece's economy now estimated to be 'unofficial', the Troika-inspired 23% VAT rate is having quite the unintended consequence it seems.

From Ireland's 12.7% 'unofficial' economy to Greece's 24% of GDP, the people have found a way to survive...


... which, it would seem, drives transactions further off the grid as VAT rates rise.

... forcing Europe to scramble to find any incremental sources of tax revenue which just aren't there, in turn pushing the continent to rely on debt funding (like the US) to an ever greater degree, until finally all the sovereign funding needs are funding solely through debt.

Charts: Bloomberg Briefs

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Tue, 10/23/2012 - 08:54 | 2912259 Marcuz Aurelius
Marcuz Aurelius's picture

Deer voters, we the government like to express our gratitude for your dilligent co-operation.

Tue, 10/23/2012 - 10:38 | 2912636 CH1
CH1's picture

Dear serfs, we, your masters, would like to express our appreciation of your unfailing, unquestioning obedience.

There, fixed it. :)

Tue, 10/23/2012 - 08:53 | 2912260 swissaustrian
swissaustrian's picture

It's a very rational choice to go gray if VATs are arround 20% and incomes are taxed at 50+%. Add on to that that your taxes are directly distributed to banker bailouts and you get the picture.

Tue, 10/23/2012 - 08:57 | 2912274 MillionDollarBoner_
MillionDollarBoner_'s picture


Declaring income and paying taxes in ClubMed is like turkeys voting for Xmas... 

Tue, 10/23/2012 - 09:00 | 2912288 Howdan
Howdan's picture

+1000 - Spot on.

That's already been happening in the UK for the past 4 years - so many people are doing cash transactions and just anecdotally the "gray" market seems to be growing exponentially.

Why are the stupid politicians so b****y stupid! They pander to the liberal left wing tofu-munchers / rich-bashers and instead of lowering taxes for everyone thus raising more revenue because people actually pay their taxes, they keep hiking taxes and push people underground or abroad.


Tue, 10/23/2012 - 09:09 | 2912314 fonzannoon
fonzannoon's picture

fuels the red money conspiracy

Tue, 10/23/2012 - 09:54 | 2912484 Offthebeach
Offthebeach's picture

Paying taxes is collaboration with the enemy.
Especially "income" tax, what ever a income is. I give up a unreturnible day of my life to get equally compensated. Just like a insurance compensation is unfazed because of being made whole for a loss, so too me for the loss of my life, by the hour, week, year.

Income tax and the Federal Reserve Crime Syndicalists.

Tue, 10/23/2012 - 10:51 | 2912713 ParkAveFlasher
ParkAveFlasher's picture

The Swiss are laughing their asses to the bank.  The Swiss bank that is.

Companies are moving upper management into Switzerland.  this is the only way to avert taxes in Europe proper and the US as well.  If you can show that the key decisions for manufacturing property are made in Switzerland, you are subject to their favorable tax rates and their favorable tax rates alone. 

Switzerland is becoming the heart of the empire.  All industrial nations are assisting it in this goal.

Tue, 10/23/2012 - 10:40 | 2912676 Ghordius
Ghordius's picture

Howdan, in Scotland the underground economy (aka grey economy - did not know this term) was estimated around 20%-25% of the official economy - 25 years ago

I remember answering posts here in ZH last year that cited a "need in the US for an underground economy" and I remember writing "europe never ended having several of them"

and attempts at banning them are usually quite futile

Tue, 10/23/2012 - 11:22 | 2912831 Peter Pan
Peter Pan's picture

If there was no taxation, there would be no evasion. There.....fixed it.

Tue, 10/23/2012 - 09:02 | 2912292 new game
new game's picture

like turkeys celebrating thanksgiving- just helping...

Tue, 10/23/2012 - 09:04 | 2912297 Winston Churchill
Winston Churchill's picture

Everything was done cash under the table,when I lived there for a while back in the 70's.

That was pre VAT.

The black economy,was the economy,a long standing Greek tradition.

Tue, 10/23/2012 - 09:10 | 2912313 swissaustrian
swissaustrian's picture

If tax collectors were never actually working anyway, we bother declaring taxes.

I just hope that these poor Greeks don't store their cash in EUR-Notes, especially not those that were issued by the Greek central bank.

Hugo Salinas Price and Max Keiser have proposed a silver drachma for Greece:


Tue, 10/23/2012 - 12:08 | 2912979 HoofHearted
HoofHearted's picture

As someone who works on research in the area, it is imortant to note that there is a difference between black and grey economies. The black economy involves illicit goods hat are specifically illegal- drugs, conterfeiting, prostitution in some places, smuggling, etc. The grey economy is the sale of goods that are not forbidden but done in a way that the government does not see the transaction. The sizes of grey economies tend to grow with more taxation and more regulation. AndI'ma big proponent of the grey economy. Carl Simon at Michigan was looking into this long before anyone knew to call this an underground economy. You should read his book, "Beating the System- The Underground Economy." Good stuff...

Tue, 10/23/2012 - 12:15 | 2912998 Winston Churchill
Winston Churchill's picture

A dinstiction without a difference.

Anything you can go to Jail for doing, by definitiom, is the black economy.

Tue, 10/23/2012 - 13:03 | 2913129 RafterManFMJ
RafterManFMJ's picture

It's a very rational choice to go gray if VATs are arround 20% and incomes are taxed at 50+%. Add on to that that your taxes are directly distributed to banker bailouts and you get the picture.


Dunno, every book and movie on the subject says when you go Grey, you wake up disoriented and with your anus sore.

Tue, 10/23/2012 - 08:55 | 2912266 MillionDollarBoner_
MillionDollarBoner_'s picture

"24% of Greece's economy now estimated to be 'unofficial'"

Fuck me - is it Optimistic Tuesday or something?!?

More like 94% !;o)

Tue, 10/23/2012 - 09:33 | 2912338 Zero Govt
Zero Govt's picture

my optimism is Greece's black (free of Govt) market increases from 24% to 99.24% ...i think Italy's runs around 30% so they've some catching up to do

it's very important everyone keeps Christine Lagardes Louis Vitton handbag waving in the air very, very empty ...it's not only fucking funny but it shows you how desperate her Masters are at wanting our money

the sooner Govt collapses the sooner the recovery (from Govt destruction) begins

Stop Paying Tax ...it's the most enlightened and beneficial political policy you could ever endorse

Viva Le Black Market (Duty Free shopping)


Tue, 10/23/2012 - 08:56 | 2912267 LawsofPhysics
LawsofPhysics's picture

File this under "duh".  Imagine that, if people can't find fair and honest treatment in the official "market", they make their own market.  Imagine that.  long security contractors to the rich.  Bring it bitchez...

Tue, 10/23/2012 - 09:30 | 2912280 Zero Govt
Zero Govt's picture

"...and France taxing anything and everything that moves..."

That's gonna work!

French car sales have already fallen off the cliff, all other consumer products now forming a cue to follow... . .

these Marxists aren't the sharpest tools in the tool shed that's for sure. Hollandes 'thinking' makes a wooden workbench look like space-age technology with his old, tired, failed socialist mantras

Wake me up when France looks like Communist Russia or China (ie. a bankrupt shithole) ...it can't be many years away with vacuous ranting lefty-loons in charge

Tue, 10/23/2012 - 08:59 | 2912281 new game
new game's picture

gray goes black as in swan

not predictable when and where...

Tue, 10/23/2012 - 08:59 | 2912284 grunk
grunk's picture

I was at a discount grocery store the other day. The woman in front of me had a cart full of cheap sodas. The check out guy asked if she was having a party. She said no, she ran a club.

"An under 21 club?"

"No, I run a club out of my house. These are mixers for the liquor." 

She paid with food stamps.

Let the underground economy begin.



Tue, 10/23/2012 - 09:12 | 2912320 ebworthen
ebworthen's picture


Bet they have some fun.

Tue, 10/23/2012 - 09:01 | 2912286 Genève Barbegazi
Genève Barbegazi's picture

Well the Swiss military is ready to keep all those french fuckers just over the border in line.....

Tue, 10/23/2012 - 09:02 | 2912290 swissaustrian
swissaustrian's picture

Not the billionaires.

Tue, 10/23/2012 - 09:10 | 2912312 yogibear
yogibear's picture

French are known for chopping heads. 

Tue, 10/23/2012 - 10:47 | 2912699 JimBowie1958
JimBowie1958's picture

But almost always only their OWN heads.

Tue, 10/23/2012 - 09:24 | 2912386 WhOracle
WhOracle's picture

Establish blockades around Geneva to stop the cheap workers inflow...


Tue, 10/23/2012 - 09:27 | 2912398 Zero Govt
Zero Govt's picture

when a country starts to crumble you can't blame the neighbours being selective in who they take in

Tue, 10/23/2012 - 09:33 | 2912421 WhOracle
WhOracle's picture

The "ruling" neighbours are not doing themselves any service "vis a vis" of the swiss citizen by doing so. This is only gonna last so long.

Tue, 10/23/2012 - 09:04 | 2912287 swissaustrian
swissaustrian's picture

The black market in Argentina was balooning during the IMF engineered collapse. Barter was the new big thing. They had huge barter networks with parallel "currencies" which were only accepted within the networks.

Tue, 10/23/2012 - 10:36 | 2912656 CH1
CH1's picture

Goes to show you that without the magic of the state, we'd never be able to survive!

(That's not <sarc>, that's <ridicule>!)

Tue, 10/23/2012 - 12:47 | 2913086 m0w0g
m0w0g's picture

Been there, done that with bartering her in the States back in the '80s. If you traded services for goods, you made out great; vice-versa, not so good. Then the IRS got interested, and they pretty much disappeared. Maybe they're still around, but "grayish" now.

Tue, 10/23/2012 - 09:01 | 2912291 zilverreiger
zilverreiger's picture

Free Market bitchez! System D to the rescue


Tue, 10/23/2012 - 09:01 | 2912294 Vincent Vega
Vincent Vega's picture

That second chart reminds me of a video game I use to play called Tempest. Coincidence???

Tue, 10/23/2012 - 09:14 | 2912332 ebworthen
ebworthen's picture

I remember that!

Fun game.

If you didn't avoid the alien spiders (taxes) they got ya'!

Am I remembering that right?

Tue, 10/23/2012 - 09:09 | 2912298 ebworthen
ebworthen's picture

People will be people.

Reminds me of the housing agency at a local university that couldn't understand why they had vacant units three years in a row.

Renters knew; the university was charging $50-$100 more per month than local private apartment complexes whose units were newer, larger, and had better amenities. 

I could not break them of the notion that people "had" to rent from them because they were the university.

If you raise taxes enough people will find a way around it; same for "austerity".

People don't "have" to to anything.

Tue, 10/23/2012 - 09:07 | 2912303 Dr. Engali
Dr. Engali's picture

The thing is after this all caves in on itself after the chaos ends the sheeple will put another corrupt government in place to lord over them and the cycle will continue. If people can figure out how to get by without government when the burden of government gets to high, why can't they make the next logical step and govern themselves?  

Tue, 10/23/2012 - 09:34 | 2912345 fonzannoon
fonzannoon's picture

humans have somehow suspended the laws of nature. there should be a lot less people around who have more active frontal lobes. but technology has allowed a huge segment of people to just exist, and worse, they have a say in how everyone else is governed.

Tue, 10/23/2012 - 09:52 | 2912477 LawsofPhysics
LawsofPhysics's picture

That which cannot be sustained, won't be.  Hedge accordingly.

Tue, 10/23/2012 - 10:50 | 2912707 JimBowie1958
JimBowie1958's picture

Ever see the movie 'Idiocracy'?

That is the future of Western Civilization if they 'fix' this shit.

Tue, 10/23/2012 - 09:08 | 2912307 yogibear
yogibear's picture

Usually occurs when the government is ending before a new system installed (communism, fascism, etc).

A bit more time until people get fed up and revolt! 

Tue, 10/23/2012 - 09:08 | 2912311 rsnoble
rsnoble's picture

Gee, nothing like being forced into survival mode and then have whatever it is you're doing to barely make it outlawed by the stupid fucking gov't.

I think people in all countries just need to go on a fucking shooting rampage.

Tue, 10/23/2012 - 09:19 | 2912356 rsnoble
rsnoble's picture

I guess you could say im a little pissed because one of my income streams after losing a $100k+ job a few years ago is largely on Ebay, and now all that crap is under attack. Many say that the upcoming USSC case everyone is crying will outlaw garage sales, Ebay etc is being blown out of proportion. Really? Then why was it when all that SOPA crap was going on the US mfg's came right out and said they want all that stuff shut down because they don't want people to be able to buy used products??? What a great idea! Furthermore, don't people have to be making more than min wage to buy that crap in the first damn place?

I think all this is leading to a cashless society, many which also say will never happen. Really? Louisiana outlawed cashe for the sale of used goods over a year ago all in the name of your personal security. As far as im concerned the only assholes needing security are the deuchbags that write these laws.

It's gona get ugly, one big broken gov't with gazillions of greedy workers all wanting to continue on like nothing is wrong and they only have one place to turn which is the rest of us poor bastards. They will take and take until everything implodes I am convinced. The bastards just need to join the depression with everyone else. HA HA as if that will happen in anyone's own free will it's all about survival now. Everyone for themselves.

Tue, 10/23/2012 - 09:39 | 2912442 thomasincincy
thomasincincy's picture

'as long as it doesn't affect me america' and most are one paycheck away from the gutter

wait until it hits washington, that's what i want to see. the only reason the have a major league baseball team is because of the size of government

Tue, 10/23/2012 - 10:19 | 2912571 Things that go bump
Things that go bump's picture

Who would be stupid enough to obey a law like that?

Tue, 10/23/2012 - 11:00 | 2912758 ParkAveFlasher
ParkAveFlasher's picture

"As far as im concerned the only assholes needing security are the deuchbags that write these laws."


No one officially condones violence however when the first monkey in the clan suddenly grabs a bone and starts making like Thor on the outnumbered enforcer, that will be "price discovery" right there.

Tue, 10/23/2012 - 09:10 | 2912317 Michelle
Michelle's picture

Hey Tyler, Bloomberg has an article out this morning and I'm curious why there is no mention of it anywhere here? The Nov. 1st deadline regarding naked CDS is a big deal but I haven't read anything about it on your site.

Naked Ban Means CDS Safest Relative to Germany: Poland Credit



Tue, 10/23/2012 - 09:27 | 2912399 Shevva
Shevva's picture

Might help explain why there's so many funking idiots about me every day, I work with a bunch of monkeys that just found a stapler.

Tue, 10/23/2012 - 09:55 | 2912489 GreatUncle
GreatUncle's picture

He he monkeys ... :-)

2 monkey astronauts in a rocket launch with a politician.

Ground control to monkey 1 turn fuel on. FUEL ON monkey replies!

Ground control to monkey 2 main engine on. MAIN ENIGINE ON monkey replies!

Ground control to politician YES? 

Ground control to politician "DON'T TOUCH A FUCKING THING".

Monkey 1 or 2 shoot him if he does.

Staplers are boring!

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