Spain is estimated to have one of the biggest black economies in Europe, accounting for between 20 and 23% of annual GDP. Spanish tax authorities are investigating 12,000 big transactions involving €500 notes.
It is, perhaps, the strangest idea yet for pumping extra liquidity into Europe’s troubled banking system. Spanish officials were yesterday reported to be looking for ways of encouraging Spaniards to remove the estimated 108m €500 notes they have hoarded in safes or under floorboards and take them to the bank. That averages out to at least two per Spaniard, or a total of €54bn, circulating outside the country’s banking system.
A combination of tax-cheating and a long-standing mistrust of banks, means Spain soaks up a quarter of all the €500 notes - one of the world’s highest denomination bank bills - released every year.One option for getting the notes into the banking system, by offering a no-questions-asked fiscal amnesty, was ruled out by the finance minister Pedro Solbes yesterday. El Mundo newspaper reported, however, that there had been pressure from within the government’s finance team to consider a fiscal amnesty. Spain’s tax inspectors, whose job it is to root out the notes when they are used for tax fraud, were among those opposing the idea.The purple €500 notes are so rarely seen that they have earned the nickname “Bin Ladens”.Most are used in real estate deals, where property is often bought and sold in a mixture of fiscally opaque cash and fiscally transparent bank transfers. The price of property deals reported to the tax authorities is, therefore, often much lower than that really paid.Other notes circulate in the country’s black economy. Sectors including the footwear industry, construction or silversmiths are thought to do much of their business in black currency.
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