coldhearted scientist وداد

One of my friends works in an EU country and describes corruption and the ‘black’ economy there. These are the kinds of stories which inspire my fantasies of studying Economics.

According to my sources, friends high up at the large security company which packages and ships all of the cash for the National Bank, the situation is the following:

1. Contraband. We are a major contraband portal. That means drugs, people and all sorts of other unsavory products. There is a big Russian mafia presence in the the south.

2. Housing. Both the national and the local governments award by lottery a certain number of subsidized apartments. This means you can rent them with an option to buy at a greatly reduced price. People either sublet them or buy them and then resell them for an exhorbitant amount.

But these apartments are officially protected from market value sale prices, so that people cannot turn insane profits and speculate via immigrants or other marginal communities. So people sell the house for one amount officially, and the balance is then given in cash. This is such a common practice that as of last month notaries are bound by law to notify the central bank if they think this is happening, and people who withdraw more than 3000€ from any bank must identify themselves.

3. Fraud. The most amusing aspect of the corruption is the direct embezzlement by established companies such as the largest and most famous department store chain. They have skim agreements with the money counters and private lockboxes at the counting centers. They decide what they want their recorded receipts to be, and then have anything over that pulled aside (skimmed) and stuck in their security boxes. It is very Martin Scorcese in Casino.

4. Black money. Just about everyone who doesn’t live with their parents is involved in black money, which just means money exchanged off the books or under the table. Since social security must be paid on the salaries of employees, many small businesses pay one amount officially and pass the employees the rest of their salaries under the table. This amount is basically what the company saves by not paying for the benefits on a larger sum. Then there are people who work in bars, and other jobs which pay in cash every night. They don´t have benefits, social security, sick days, unemployment, vacation, or year end bonuses. All of this is crippling for them, but way cheaper for the companies.

Also, many people who do work full time only have part time contracts, so they may work six days a week but get paid off the books for four of them. If there is an inspection they say that is their day to work. These people get reduced benefits since they are not full time, and they only get twelve pay checks a year instead of the fourteen which are standard here.

Then you have office people like me. I am considered a freelancer, an “autonomous worker.” I work on a contract, and I pay my own social security. I get twelve checks. I have no vacation time, sick leave, unemployment insurance, or bonuses. They only take out 7% for income tax instead of the normal 15%, but I have to pay 15% VAT on my salary.

I am paid 1600€ a month and I take home 1250€ after paying the lowest possible deductible for social security. If I were not “autonomous” they would have to give me 14 checks, that is, an additional 3200€ per annum. It would cost the company 2200€ per month to pay me that amount, since I would also have full benefits.

They are trying to eradicate the black economy but the tax benefits for the workers are too great. If you have a second job, regardless of your gross salary from both jobs, they take over half of the second salary in taxes. Moonlighting would be impossible if the black economy did not exist, and it is necessary given the cost of living.

5. Ubiquitous 500€ notes. All of this goes a long way to explain why there are so many 500€ notes circulating here, and so many jokes about them. An additional reason is that like rednecks, people here keep their money under the mattress. They are not vested in the stock market and the bank gives few benefits in savings accounts. Over 200,000€ in cash was recently found in the house of a famous singer, under investigation for hiding income and assets. People were like, that’s normal, you need that money for the day to day running of a household.

Obviously all this black money is good for the economy because people spend on consumables more freely. Since the average take home salary here is 1000€ a month and the average cost of a flat is 250,000€, it doesn’t take a rocket scientist to figure out that folks are getting money from somewhere other than their reported income. On paper, it appears that on an average, housing costs take up 70% of income. Does that show fiscal irresponsibility, or does it just indicate that everyone is winking at how the system works? If you come for a visit, you will see a lot more than that.

6. Coda. Use as much of this as you would like for blog purposes, but please anonymize it somewhat because I am afraid of some of the companies I am talking about. They embezzle from themselves. There are certain cash receipts that they play with. They reduce their end in the till and then skim. The security company gets a cut of this. This company was a ministry under the former government, and then privatized. A lot of their current directors were Fascist henchmen back in the day.

A friend told me some stories about them getting robbed in South America year before last. They didn’t call the cops. They tracked the thieves and disappeared them after getting their money back. That is how they rolled. They are like the Mafia. They deal with your mistakes in house, in a very extreme way. I do not want them looking at me too closely.

Axé.