Black economies shore up states, says study

Financial Times: 

Unofficial, or “shadow”, economies can help shield European countries during a recession – but illicit activity has to be on a sizeable scale, according to report by Germany’s Deutsche Bank.

Countries with a high prevalence of moonlighting builders, unrecorded cash transactions, missing invoices, tax evasion or illegal activities such as drug dealing, have seen smaller contractions during Europe’s worst downturn since the 1930s than more honest neighbours, researchers at the Frankfurt-based bank have concluded.

The relationship works, however, only if the “shadow economy” is large – such as in Greece, where George Papandreou, prime minister, acknowledged this month that the public services are riddled with corruption.

In spite of its growing fiscal problems, Greece’s economy has shrunk only about 1 per cent this year – compared with about 4 per cent for the European Union as a whole.

At the other extreme, Deutsche Bank found that countries with a “particularly honest” population – such as Austria, France or the Netherlands had also fared relatively well during the crisis.

Indicating that its research was not to be taken entirely seriously, Deutsche Bank said the countries faring worst included Germany where inhabitants “are neither impeccably honest in their work ethic, like the Austrians, nor do they expend so much effort in circumventing the state as, for instance, the Greeks”.

Posted via email from Jim Nichols