The “shadow economies” in the crisis-ridden countries of the euro zone

7/28/2019 The shadow economies in the crisis-ridden countries of the euro zone

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The shadow economies in the crisis-

ridden countries of the euro zone

Well, The German Parliament approved the planned bailout for Cyprus, in a transparent

and clear vote in the Bundestag. The aid program and package proposed obtained a

sizable majority after most members of the opposition Social Democrats (SPD) and

Greens voted to approve it also. The bailout legislation received 487 votes in favor and

102 against it, with 13 abstaining. After the vote, the German Finance Minister Wolfgang

Schuble of the conservative Christian Democratic Union (CDU) said the billions in aid

for Cyprus are necessary in order to ensure the stability of the entire euro zone.

"We must prevent Cyprus' problems from becoming problems for the other countries,"

he said on behalf of the government lead by Chancellor Angela Merkel. Schublewarned there was a "significant risk" of contagion, especially to Greece and other

vulnerable euro-zone countries before the vote came in his favor. However, despite his

faction's broad support, SPD's party whip Frank-Walter Steinmeier accused Merkel's

government of management failures in the way it handled the Cyprus crisis. He said the

mandatory levy originally planned even for small-scale depositors had been a "huge

mistake." Nevertheless and as expected, the SPD cast its votes Thursday in favor of

the bailout. The opponents of the bailout packaged failed in their attempt on

Wednesday night to halt the vote after the Federal Constitutional Court in Karlsruhe

rejected a petition to delay it. The court did not provide information on who had filed the

petition.

In conclusion, under the bailout package, which is currently undergoing the mandatory

approval process in euro-zone national parliaments, the European Union's permanent

euro bailout fund, the European Stability Mechanism (ESM), and the International

Monetary Fund (IMF) will provide Cyprus with a 10 billion ($13 billion) loan. The loan

conditions stipulate that the country must radically restructure its banking sector. A
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mandatory levy must also be applied on bank accounts with large deposits in the

country. Through the deposit tax and other measures, Cyprus is expected to raise 13

billion in additional funds for the bailout on its own.

The Bundestag also approved this month an extension of the maturity dates on bailout

loans issued to the euro-zone countries Portugal and Ireland beginning in 2011. By abroad majority within Merkel's conservatives, the business-friendly Free Democratic

Party, the SPD and the Greens voted in favor seven-year loan extensions for the

countries, but even people who are considered affluent by the numbers do not

consider themselves rich. They too feel that they are victims of the crisis, and they are

worse off today than in the past. But does this mean they cannot be expected to bear a

greater burden to save their country? Of course not.

Southern Europe's hidden Economies

Southern Europeans in a number of countries have traditionally paid no taxes on a goodshare of their income, which is one reason households with far smaller incomes have

been able to accumulate substantially larger assets than German households.

Estimates by European expert economists, reveal how horrifying the scope of the

shadow economies is in the crisis-ridden countries of the euro zone. Among all the

countries in the Organization for Economic Cooperation and Development (OECD),

Greece, Italy, Portugal and Spain occupy the first four positions in the applicable

negative ranking.

In Spain, Portugal and even southern France, as well as in Italy, the hidden economy

makes up over 20 percent of GDP, compared with almost 25 percent in Greece. By

comparison, it only constitutes about 13 percent in Germany, and significantly less than

10 percent in other euro countries, like Austria and the Netherlands. To be precise, the

shadow economy deprives Spain, Italy and other countries of dozens of billions of

Euros in tax revenue each year, and has been doing so for decades.

Published data and figures also show that in Greece, Spain and Portugal, the shadow

economy plays an even greater role today than it did in the late 1990s. The scope of

the shadow economy has declined in Italy in recent years, but only slightly. In other

words, if attitudes toward taxation in Southern Europe were just as good as they are in

the north, the debt-ridden countries would have solved their budget problems long time

in my humble opinion.

All said and done however, the debt-ridden countries are only eligible for the billions

from bailout funds if they satisfy certain conditions in return. In addition to spending cuts

and tax increases, they generally include the obligation to actually collect taxes. If tax

laws not only appear on paper, but are also drastically enforced, then even Greece will


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be able to set aside doubts concerning the sustainability of its debts. Despite the

drawbacks and qualifications of the ECB's wealth figures, one realization remains: The

countries of the south are far more prosperous than previously supposed. There is still

plenty to be written about on the subject, although I believe strongly that cash-strapped

countries that have already taken advantage of aid from the bailout funds should be

required to increase their own contribution even further. Along these lines, I noted that

the ailing economies of Southern Europe Countries have already begun increasing

taxes on their citizens, in some cases substantially and in this context, I also believe

that their governments should also be be taking aim at their long lists of assets.

Date: april 20. 2013

Mircea Halaciuga, Esq.0040-724.58.1078www.SIPG.ro
http://www.sipg.ro/http://www.sipg.ro/mailto:[email protected]://www.sipg.ro/

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The “shadow economies” in the crisis-ridden countries of the euro zone