BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Friday, 25 May, 2001, 07:25 GMT 08:25 UK
Europe's hidden money
By BBC News Online's Orla Ryan

The great train robbers may have wondered how to dispose of their £2.6m in used banknotes in 1963.


If you had a lot of money and it was suddenly to explode and burn, what would you go and buy

Alison Cottrell, UBS Warburg
Anyone with ill-gotten gains stashed in suitcases across Europe now have other problems to face in the months ahead.

If people don't swap their Deutschmarks or French francs into the new euro notes by early next year when the currency becomes legal tender, they will find their cash is worthless.

For this reason, criminals, tax dodgers and many ordinary people across Europe could embark on a spending spree during the next few months.

It is unclear how much money is "hidden" across the eurozone.

Many elderly people store cash at home.

Some people, with or without regular jobs, seek to avoid tax by not declaring income.

Others, who have earned money through criminal means, want to hide how they earned their money.

"It will have to come out some way. It will have to go into physical assets or into banks and come out as euros," UBS Warburg's European policy analyst Alison Cottrell said.

Spend, spend, spend

Already, a housing boom in Spain has been, in part, attributed to the need to get rid of illicit or legally hoarded cash.

Dual pricing in a eurozone supermarket
Many consumer goods are already priced in euro
"If you had a lot of money and it was suddenly to explode and burn, what would you go and buy?" UBS Warburg's Alison Cottrell asked. "You could go to the bank or you could think I have always wanted a swimming pool. Some of these areas that have nicer villas and nicer climates have larger black economies."

Estimates are that between 7% and 16% of European GDP is accounted for by the black economy, but it is notoriously difficult to calculate its size.

Piggy bank raid

But for many people, the issue is not one of illicit cash, but of money stored in piggy banks and jam jars.

The cultural inclination to store money is so strong in France that the government has relaxed anti-money laundering laws for six months, allowing people to exchange up to 10,000 euros at a time without any questions being asked, Deloitte & Touche's Emma Codd said.

Euro coins
Getting all the coins out to people is a logistical nightmare
"In France it is estimated that older people who live in rural areas, people who evade tax - they could be hoarding up to half the money in circulation," she added.

The Irish central bank estimates that IR£30m worth of coins is being hoarded around the country.

"That is logistically a major job to get those coins back in, not only to get the new euro coins out," a Central Bank of Ireland spokesman said. "You don't want people in the first couple of weeks of January next year to be queuing to change those coins."

Currency weakness

It is feared that these hidden stashes of cash could weaken the euro.

Already, the currency has weakened on international markets amid fears of a global economic slowdown.

Patrick Mange, senior European economist at Merrill Lynch said: "From a purely psychological point of view, it could be a factor weakening the euro... I don't think hidden money is such a big amount, that it would lead to a destablisation of the currency [but] it could play a role. It could increase somewhat the pressure on the euro."

Some reports have suggested that operators in the black economy in central and eastern Europe could choose to switch their Deutschmarks into dollars, weakening the European single currency. But it is thought unlikely that the hidden amounts of money are large enough to sway the multi-billion dollar currency markets.

Alex Plavsic at KPMG said: "It is also likely that once the euro has been introduced, there will become an unofficial secondary market for the conversion of 'dirty' national currency into the euro. Those with an excess of local currency will pay a premium to convert it to euros."

Click below for background and analysis on Europe's single currency

Key Issues

FACT FILES

INTERACTIVE QUIZ
See also:

24 May 01 | Business
12 Feb 01 | Business
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes