WRITTEN QUESTION E-2710/00

by Christopher Huhne (ELDR) to the Commission

(1 September 2000)

Subject: Euro changeover and the black economy

1. Will the Commission please state recent estimates of its own, or of academic researchers, or of the International Monetary Fund, of the size of the black economy in each Member State?

2. What will be the implications of the exchange of euro notes and coin for national currencies for the black economy in each Member State?

3. What economic effects may arise, including the potential distortion of monetary indicators?

Answer given by Mr Solbes Mira on behalf of the Commission

(11 October 2000)

1. A point to be borne in mind is that many transactions do not show up in statistical surveys for a variety of reasons (exemptions, declaration thresholds, etc.) that are though lawful. The Commission works in close collaboration with the national statistical institutes in an attempt to include in the calculation of gross national product (GNP) all activities, whether or not declared to the authorities. This approach is described in the report sent by the Commission to the Council and to Parliament(1). The Commission does not carry out

estimates of the black economy in each Member State. The Honourable Member is here referred to the answer given to his Written Question E-2231/99(2). Numerous studies do though exist. The table sent direct to the Honourable Member and to Parliament's Secretariat is taken from the study Shadow economies around the world size, causes and consequences by F. Schneider and D. Enste (Working Paper No 196, September 1999, Ludwig-Maximillians-Universität and IFO Institute for Economic Research, Munich). It is for information purposes only and does not imply any judgment on the part of the Commission.

2. So as not to complicate the exchange of bank notes in 2002, the Member States decided that they would not add to the controls already in place. Pursuant to Council Directive 91/308/EC of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering(3), banks will simply need to check the identity of customers wishing to exchange a sum of more than15 000, whether in a single or several operations. However, introduction of the euro as legal tender will doubtless help to reduce slightly the volume of notes not kept in an account given the existence of ceilings on the exchange free of charge of national currency units into euros.

3. To a considerable extent, currency transactions in the black economy are carried out in cash, i.e. banknotes. Therefore, those who are actively involved in such activities might be afraid to change large amounts of cash at the bank during the relatively short official conversion period. It can be expected that agents will try to reduce their stocks of cash before the official changeover date. Similar arguments can be applied to banknotes, particular DM banknotes, circulating in foreign countries, particularly in the central and eastern European countries (CEECs). If holders of such banknotes find it difficult to change officially at the bank money stemming from black-economy activities, they may be inclined to exchange them first for dollars and then to move back into euros. However, no estimates can be made of the scale of such activities and the impact on banknotes in circulation should be only transitory. Since the beginning of the year, the value of DM banknotes in circulation has been declining slightly.

(1) COM(96) 124 final.

(2) OJ C 170 E, 20.6.2000.

(3) OJ L 166, 28.6.1991.