Europe's Shadow Economy: As Big As Germany

Tyler Durden's picture

On an unweighted average basis, European shadow economies are 22.1% of total economic activity or around $3.55 trillion (as large as Germany's whole economy). A report by Tax Research, suggests that Austria and Luxemburg have the smallest shadow economies in the euro area at 9.7% of GDP, while Bulgaria at 35.3% and Romania at 32.6% top the list. Of the major economies, Germany clocks in at 16%, France at 15%, Italy at 27% and Spain 22.5%. Stunningly, in terms of tax revenues lost, the shadow economy translates into an estimated €864bn or just over 7% of euro area GDP and, in context, accounts for 105.8% of the enture healthcare spending of the EU. It appears that more and more Europeans have no choice but to shift to a shadow economy (as taxes rise among other things), and this is the biggest threat to the entire economy. This is likely one reason the 'austerity' actions have not been successful since far less taxes are being paid via the conventional channels.


The average shadow economy is 22.1% of the nation's economy...


Which equates to some dramatic absolute numbers...

and the corresponding losses of taxes are huge...


16 EU member states have a situation where the tax lost as a consequence of the existence of the shadow economy as a proportion of the annual deficit exceeds 100% - suggesting that tackling tax evasion could, in theory, entirely clear the annual deficit. Though of course, the politicians will not see the unintended consequence of that 'evasion' tackling that merely drives the economy more underground.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Cognitive Dissonance's picture

They ain't gonna stop until they have taxed (and taxed and taxed and...) every last copper tin penny Euro.

I am more equal than others's picture

Beware of the Shadow.......   they will tax everything and its coming soon.   Look for personal identification chip implants.  It will contain an inventory of assets, current accounts, and liabilities.  If you have assets not on the inventory you will be a tax dodger - a revolutionary - worthy of death.  No buying or selling without the 'chip.'  What better way to tax every transaction.  Coming soon to a banker's office of implants.  First boobs (that was for getting that loan for the boat you drive four or eight times a year) then chips.  Get them in the drive-through window please.  Be the first sheeple to comply and you get an extra $1,000,000,000 credit.  It's magically created in our digital 'ones' and 'zreos' printing room.

Fedaykinx's picture

the indigenous missionaria protectiva would kick in before that's allowed to happen in the united states, if mandatory implanting were actually attempted there would be a bloody revolution virtually overnight.  millions upon millions of people would rise up.

Village-idiot's picture

We can only hope!

The problem is there are a few idiots who'll volunteer to get it.

Then the government will slowly get everyone chipped. eg. if you want welfare you must have a chip. If want your government pension you must have a chip, etc. etc., right down to borrowing a book from the local library.

Naturally there'll be a few hold-outs but they'll simply be labelled as potential terrorists and trouble-makers.

Useful idiots will turn them in.

Go Tribe's picture

Tyler, Tyler, Tyler. You have it all backwards. Germany's economy is as big as Europe's shadow economy. The new normal is the shadow economy.

Shizzmoney's picture

Look on the bright least it isn't 3x-7x's bigger than Germany (like JPM's shadow banking system is over US GDP).

ILikeBoats's picture

Of course, this assumes that untaxed behavior will magically stay the same if it can be taxed ... all it shows is that people don't trust or respect the government, in varying degrees.

Let's phrase it as a positive thing, that the govt's are being restrained by people acting independently of them!

FU Bernanke and FU Eurocrats!

McMolotov's picture

There's something to be said for the idea that as more and more people become comfortable with black markets, they're less likely to revert to traditional government controlled markets.

Once you go black (markets), you don't go back.

CH1's picture

as more and more people become comfortable with black markets, they're less likely to revert to traditional government controlled markets.

Yes. Business people in black markets have to be better than players in state markets.

debtor of last resort's picture

Ssshhhtt... It's like the paper/physical metals diversion.

McMolotov's picture

Starve the beast, then beat it over the head for good measure.

TrumpXVI's picture

And the same thing is going on here in the U.S., of course.

The last stat I saw on the U.S, shadow economy pegged it at around 9%.  It's got to be well north of that by now what with the labor participation rate sinking and all of those brand new "sole proprietors" and new "entrepreneurs" (operating from their basements w/NO customers) that our new economy is generating.

DCFusor's picture

The shadow economy is happening in spades here where I live (SW VA, US).  Drugs alone....

No, not that so much.  Here in the boonies we've kind of created a thing I'd call Libertarian Communism.  Paul, down the road, is a heck of a woodworker.  He needs some special tool.  Well, I have a machine money changes hands - next week I need some cool jigs, Paul provides them - again, no money.

We have lawyers, doctors, farmers, mechanics, woodworkers, loggers, builders, you name it - all working like this, the old way - I owe ya one - just a nod, not even a handshake unless materials cost dominate, in which case, you buy 'em, I machine them kind of deal.

Need a bumper welded back on?  A fix for your plow or rake? A prototype of a new invention?  DC does that.  Need your computer built/fixed - DC does that too.  DC like nice furniture - Paul does that.  DC gets sick - Cathy handles it.  DC needs legal help, Sam is get the idea.

Need your garden tilled?  Ryan does that.  Need solar panels hung up?  Mark takes time off farming to help.  Most of the time, zero money is involved.  It's very difficult to figure out how to tax that, but that's not the main reason we do - it's just that we are civilized here.

I'm so glad I moved away from the wash DC area 35 years ago I can't even describe it.


McMolotov's picture

Sounds like a hotbed of terrrrrism. Prepare to be droned, comrade.

Urban Redneck's picture

SW VA has been preparing to be droned a long time. 

Kirk2NCC1701's picture

Newsflash:  Europe has always had a large shadow economy.  Call it "experience with governments", which the much younger US is only figuring out now.

Ghordius's picture

and a long experience indeed - this goes back to Roman times

St. Paul was after all Saulus the Taxman on his way to Damascus and Jesus gave advice on taxes when asked before that

Kreditanstalt's picture

Why do you call these "tax revenues LOST"?

Instead, try to look at it as "private sector earnings SAVED". 

And why is the shadow sector "the biggest threat to the entire economy"??

It's a big threat to governments.  That's all.

But a big shadow economy is emblematic of FREEDOM.

Kirk2NCC1701's picture

They hate us for our Freedom.

THE DORK OF CORK's picture

Its the only way things actually function on a micro level in Europe.


You pay the plumber cash for a odd job , he spends his cash in the village pub / PMU / take away.........


In Ireland the Pint is taxed anyway.............


In europe we have suffered from a lack of money supply since the euro began to form in 1980 ~


You tax the money supply.........there is simply no flow in Europe.


Walk into any French village today.

They are nicely kept but are dead zones with regards local commerce.


The French drank more then Irish at one time.......


Ask yourself why ?


Labour was rewarded pre 1973 /80


The money orbited the local village and town much more so then today in this now grey soviet like world of Lidl & Aldi stores

Element's picture

Shadow Economy = Real Economy


Try and disprove that.

W T F II's picture

Perhaps Gypsies of Roma actually have the largest aggregate GDP in Europe..??

Kirk2NCC1701's picture

Didn't Adolf first come for the (rev up with) Gypsies, then the Commies?  Before he went into high gear?

Fuh Querada's picture

So how are these data obtained? Agents provocateurs? Mafia informants?

W T F II's picture

Pablo Escobar's remaining relatives

A. Magnus's picture

Nothing like a bunch of crybaby thieves getting all upset because they aren't able to steal from taxpayers enough! Bunch of worthless fucking tax parasite pieces of shit! If these government fucktards actually PRODUCED something of value for what they earn for just existing in their desk jobs we could solve the 'economic crisis' overnight...

PontifexMaximus's picture

The biggest no brainer of the century, do you really believe, that all krauts are dumbasses? When it's up to cheat Wolfie, believe me, they are more than up to date. And even Kavallerie-Steinbrück-Peer knows that: "Ich kenne meine Pappenheimer" . Hollande, Letta and........Angela do not like that at all.

ShrNfr's picture

Just remember, Obama wants the US to be more like Europe. At the rate he is going, our entire GDP will be driven underground.

Cacete de Ouro's picture

"London LIBOR Traders plead guilty to boosting Shadow Economy, but plead ignorance, saying that they didn't know that Lady Marmalades was a cash in hand operation."

"We left the details to the Tradition geezer, innit", said a gormless barrow boy trader who declined to be interviewed...

smacker's picture


If the €864 billion of lost tax revenues were collected by EU governments, it would be the same €864 billion not being invested or spent by the populations in those economies. So it's isn't really "lost" revenues, it's just that the money remains in the pockets of those who earned it. As it should do, not least because the evidence available confirms that governments waste it or steal it.

AynRandFan's picture

That's the rationale all right, and I just happen to agree with it.  Aside from blowing up terrorists, the government does almost nothing for me.

geewhiz's picture

The goverment blows themself up?

W T F II's picture

It would leave Germany with a few Euro left over after they debit the pot for Target II balances owed.

FreeNewEnergy's picture

€864 would be blown by the governments, anyway. Better to keep it in the hands of the rightful owners than hand it over to crooks.

Long black markets, gray markets, barter, gardens, FREE TRADE, bitchez.

A tax on labor is nothing short of slavery.


Village-idiot's picture

Many people go into the underground economy out of necessity; not by choice.

The real problem is trying to get them back into the above-ground economy. They become a lot wiser, smarter and more self-sufficient, developing contacts, networks, etc. and not needing the government at all if they can help it.

The writing's on the wall, but politicians just refuse to acnowledge it. They'd rather waste additional money enforcing the tax laws in order to prolong their corrupt, bankrupt system for as long as possible.

W T F II's picture

Bottom-line: The Eurotrashleadership sat on tax-cheat lists for years. It is sport in Europe. Only suckers pay.

Hey, wait a minute..?? Sounds like US..!! What was Mitt's effective rate..?? How about Al Gore's..?? Don't Ask-Don't Tell

AynRandFan's picture

What is a shadow economy?  CASH

Everyone I know is looking for ways to conduct their business in cash.  We are headed down the same road.

orangegeek's picture

Shadow economy?   I thought we used the term "black market".  Who changed the letters?  Bastards!!!

geewhiz's picture

Kudos to Bulgaria and Romania, Italy could do better and probably does. If a countries underground economy isn't 60% it isn't trying hard enough.

geewhiz's picture

Govt theft of pvt property goes up, thier take shrinks. Laffer curve. Two reasons for that. 1. The real economy (pvt sector, not govt) shrinks 2. A greater % of whats left goes underground.

That leaves the parasites to get by on the toilet paper with dead people on it, until the crack up boom that is. Long live the underground economy and long live the bitcoin (or any indestructable substitute if it should fall)

Pseudolus's picture

Mr. Murphy is a rabid socialist driven by puerile envy of anyone who ever got anything for themselves

The grey economy is the systems last lifeline tbh - the access to informal and private means to an income will be the very affordance stopping the peasants revolting as they try to reduce entitlements.

Governments should be grateful for it. In time they'll realise its easier to leave the proles alone outside the system and concentrate on tightening the screws on the Party faithful


supermaxedout's picture

The highest German Finance and Tax court (BFH) has declared in one of his decissions a few years ago the following:

There exists no thing such as "tax morale". According to the court,  tax evation has nothing to do with moral,  simply because the souvereign is also not acting morally. The deal offered by the authorities is always the same since tax was invented. Whether you pay me this and this or I through you into prison(or in earlier times: I kill you and your family, or I burn down your house, etc. ). This is an offical high court statement saying that it has nothing to do with morale when a person cheats the tax.

The problem what we have now in most parts of the world, is that the superrich and connected people do pay very little taxes compared with their wealth and income. But the little guy, the hardworking middleclass pays for everything.Now they are even ripped off from their savings for the old age.

There exists another decision from the highest court in Germany, the Constitutional Court (Bundesverfassungsgericht). It says, that the souvereign has to stop the taxation of the income at 50%. To pay more than 50% of what you make is according to them simply total unjustified robbery. And they have reason for this, because the taxation does not stop at 50%.What is the actual tax reality compared to the paradise in the Middle Ages when the tax was 10% of the agricultural production.

If you are single and you have a good paying job or good running business in Germany you have to pay already now close to 50% taxes,  starting for each Euro you earn more than 80.000 Euro. This includes income tax, solidarity tax, church tax.  Till you reach 80,000 Euro the tax rate for a single is appx 40% on average.

But there a plenty other taxes on top of that. When you spend your hard earned money you buy gas or diesel or need electricity whatever energy the price includes an energy tax. On top of that you pay the sales tax of 19%.

Lets say a liter of gasoline cost 1.80 now. This includes appx 1.30 in taxes. And these things go on and on and on. Buying light bulbs you pay an additional tax, salt, coffee, brandy, tobacco, champagne, buy a house you pay 5% of the price as tax, pay your insurance premium you pay 19% insurance tax . And of course for most of this things there is the sales tax of 19% on top. Only food and books come with 7% sales tax on top only, all other things you need  (including alcohol and luxury food)  include 19%.

So the real tax quote for a higher middle incomer earner is appx 75 to 80%.   And as we all know, the things will end always the same.  Its the middle income earners which are paying it all. Now and in the future.

So a flourishing grey economy is nothing else than self defense of the small against the fraudsters from higher up. And what is also always true: The small people are hanged and the big ones walk away free, no matter the enormity of their crimes.