Deutsche Bank shines light on benefits from ‘shadow’ economy

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 earlier this month, the public services are riddled with corruption.