European governments to tackle shadow economy for economic recovery

  • Europe’s shadow economy is worth €2.1tr, the equivalent of 18.5% of Europe’s economic activity
  • The report estimates that ten percent (€200bn) of the shadow economy could be remedied through the use of electronic payments
  • The shadow economy is a cash-based phenomenon across Europe, driven by undeclared work and under-reporting

London, 7 May 2013: Europe’s economic crisis has been a powerful driver for many European governments to take measures against the shadow economy as they look to consolidate budgets and foster recovery, according to a report published today by Visa Europe. In 2013, Europe’s shadow economy is set to be worth €2.1tr, or the equivalent of 18.5 percent of Europe’s economic activity. While this signals a ten-year low for the shadow economy, the report shows that it is still a cash-based phenomenon across Europe driven predominantly by undeclared work and under-reporting.

The Shadow Economy in Europe, 2013 – Using electronic payment systems to combat the shadow economy analyses the scale of the shadow economy in Europe which ranges from 8-10 percent of GDP in Switzerland, Austria, the Netherlands and the UK, through to nearly 30 percent of GDP in Bulgaria, Croatia, Lithuania and Estonia. Previous reports have demonstrated a strong relationship between the shadow economy and the economic cycle and this theme is re-visited in the 2013 report. In particular it shines a spotlight on the efforts of governments across Europe to find innovative, smart ways of addressing their fiscal deficits by tackling the shadow economy rather than merely resorting to tax increases or benefit cuts.

Steve Perry, Commercial Director at Visa Europe said: "In times of down-turn, rising unemployment, lower disposable income and fears about the future tend to lure more individuals into ‘shadow activities’. While prior to 2009, the fight against the shadow economy was bearing fruit across all parts of Europe, recently different responses from Western, Southern and Eastern Europe have emerged which are having varying degrees of success. What is common to them all is that the shadow economy is still a cash-based phenomenon across Europe, which is driven by undeclared work and under-reporting."

Undeclared work accounts for two thirds of the shadow economy in Europe while another third is a result of sales under-reporting. According to the report careful targeting of these two areas through a range of government measures is helping to drive change, with electronic payments singled out for their efficacy in tackling the shadow economy. For example, Romania established a national system for POS (point of sale) and online tax payments via bank cards in recent years which have raised tax payments by card by 34 percent year-on-year. Where measures to tackle the shadow economy have involved the introduction or intensification of electronic payments, then a significant dent in the size of the shadow economy has been seen. Indeed the report predicts that targeted use of electronic payments would help reduce the shadow economy in Europe by a tenth (over €200bn), particularly if there is an increased focus on under-reporting which has been downplayed for the most part by government efforts.

International experience suggests there is a clear correlation between the size of the shadow economy and the number of electronic payments which take place. For example in countries where electronic payments are widely used, such as the UK, the size of the shadow economy is significantly smaller than in a country such as Bulgaria where electronic payments are not widely embedded. Sectors particularly associated with shadow economy are: construction, retail, manufacturing, tourism and transportation. Taking retail as an example, the report shows that online shopping creates transparency and hinders the shadow economy as it limits the opportunity to under-report.

A spotlight on the UK

With the fourth lowest level of shadow economy activity in Europe in relation to GDP, the UK’s shadow economy hovers around 10 percent and is worth €189.5bn. The low level of shadow activity in the UK is attributed to its mature and widespread use and acceptance of electronic payments which is underscored by every £1 in £3 in the UK being spent on a Visa card. The report shows that in the UK where electronic payments and a high level of banking inclusion combine, the shadow economy is at its lowest. The study also shows how online payments in the UK have helped hinder shadow activities by improving transparency and so limiting the opportunity to under-report.

Specific efforts* by public authorities, banks and payment systems across Europe that have sought to engender positive behaviours in citizens through their own actions are commended in the report. Examples such as the long-term e-government initiatives, particularly the ability to pay for various services in the public sector through electronic means, represent a critical element in changing old habits. However the report calls for on governments to realise the potential of electronic payments to thwart the size of the shadow economy.

Steve Perry went on to say: "The economic crisis has driven European governments to take measures against the shadow economy. There is a common understanding and agreement that cash is fuelling shadow activities, and we expect initiatives focused on cash displacement to surge in the coming years as governments make concerted efforts to reduce the distorting impact of the shadow economy across Europe by concentrating efforts around electronic payments."

The Shadow Economy in Europe, 2013 – Using electronic payment systems to combat the shadow economy is the latest update in a series of reports of the same name which have previously been published in 2008, 2010 and 2011.

To download the full report, please visit:

* Specific efforts by public authorities, banks and payment systems include:

  • In 2010, in Poland, Visa Europe and its issuers and acquires banks, introduced a terminalisation fund aimed at increasing POS penetration. It resulted in 100k new POS terminals in 2.5 years with 75 percent of the terminals located in shadow economy prone sectors
  • In 2011, Ireland developed and implemented a financial inclusion strategy
  • In 2011, Italy made electronic payments mandatory for amounts over €1,000. Tax incentives for electronic payments at POS were introduced combined with the threat of closure for retailers who failed to issue a sales receipt 3 times in a 5-year period. Research found that €9.1bn has been raised in additional tax inflows. Similar mandatory measures have been introduced in Spain (€2,500) and Greece (€1,500)
  • In 2012, Portugal introduced mandatory reporting by banks of merchant POS transactions to tax authorities


About Visa Europe

Visa Europe is a payments technology business owned and operated by member banks and other payment service providers from 36 countries across Europe.

Visa Europe works at the forefront of technology to create the services and infrastructure which enable millions of European consumers, businesses and governments to make electronic payments. Its members are responsible for issuing cards, signing up retailers and deciding cardholder and retailer fees.

Visa Europe operates a high volume, low cost business model that provides services to its members. Its surplus is reinvested into the business and used to improve capital and reserves. In the last six years, Visa Europe has invested over €1 billion in new technology and infrastructure.

Since 2004, Visa Europe has been independent of Visa Inc. and incorporated in the UK, with an exclusive, irrevocable and perpetual licence in Europe. Both companies work in partnership to enable global Visa payments. As a dedicated European payment system Visa Europe is able to respond quickly to the specific market needs of European banks and their customers - cardholders and retailers - and to meet the European Commission’s objective to create a true internal market for payments.

For more information, visit