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HindustanTimes Sun,26 Oct 2014

Drugs, sex and alcohol could boost Europe's economic growth

AFP  Paris, June 08, 2014
First Published: 14:33 IST(8/6/2014) | Last Updated: 16:01 IST(8/6/2014)

Europe's governments are turning their attention to prostitution, drugs and contraband as possible ways of boosting their economic growth profiles, as they struggle away from their debt crises.

Italy caused a stir when it announced last month that it would begin including revenues from drug trafficking and the sex trade, as well as contraband tobacco and alcohol, to calculate gross domestic product (GDP) from next year.

One effect would be to reduce the public deficit as a ratio of output, if EU authorities were to accept the idea. That would be a big help to countries trying to get their public deficits below the EU ceiling of 3.0% of output.

In 2012, Italy's central bank estimated the value of the criminal economy at 10.9% of GDP. Including these figures could therefore boost the country's growth to above the government's 1.3% estimate.

Last month, Britain said including illegal activities such as prostitution and drugs into national accounts would add about 10 billion pounds (12.3 billion euros, $16.8 billion) to GDP, equivalent to about one% of national output.

Using the undeclared or so-called black economy to calculate national statistics is part of a range of changes recommended by the European Union's statistical institute, Eurostat, to be implemented in September.

Eurostat said including such data would allow a better comparison between countries with different laws.

"GDP is not an indicator of morality," said a spokesman, adding that only transactions carried out consensually would be included.

But others are less convinced.

Eric Vernier, researcher at the Institute of International Relations, said including "gross criminal product" in growth figures is a cynical attempt to combat the eurozone's debt crisis.

"The problem is to put this new statistical method on the table at the moment when everyone has budget problems," he said.

"There has been a general acceptance of this accounting approach since the crisis: what matters most is what goes into the state coffers."

'Denial of basic morality'
Many of Europe's struggling governments will welcome any boost to growth figures that will reassure both disillusioned voters and markets.

But the decision has sparked outrage among politicians and rights groups.

The French minister for women's rights, Najat Vallaud-Belkacem, and Belgium's Interior Minister Joelle Milquet, have both written to the European Commission to express their "astonishment" over the proposals.

"Prostitution is not a voluntary commercial activity. To believe that it can have an ideological bias is a mirage and an insult to the millions of victims of sexual exploitation worldwide", they said.

"Prostitution cannot be assumed to be a transaction freely agreed between parties. The question also arises concerning drugs, especially hard drugs, considering the issue of addiction," added Ronan Mahieu, head of INSEE, which calculates France's GDP.

A spokeswoman for the Association for the Protection of Women's Rights in Britain said the group was "surprised and saddened" by the decision.

While in France, Marine Le Pen, the leader of the extreme-right National Front party which came top in recent European Parliament elections, described it as a "denial of basic morality".

'Shadow market'
Europe's black market is already huge, according to experts.

Friedrich Schneider, professor at the Johannes Kepler University of Linz in Austria, estimates that the European Union's "shadow market" is equal to 18.6% of the bloc's 2014 GDP.

But calculating the value of illegal activities is no easy task.

An EU document from 2012, littered with acronyms and complex mathematical formulas, gives guidelines on how to calculate the "inputs" of the prostitution industry, such as the cost of renting an apartment, or "transport and storage" for drug traffickers.

It even includes how to interpret the "ratio of purity" in narcotics.

Schneider argues that undeclared illegal activities and "value creating" services such as prostitution should be included in the calculations, but not totally criminal activities.

On this basis, Germany, Italy and France account for about half of Europe's black-market activities.

In recession-hit Greece, he estimates that black market transactions account for an estimated 23% of GDP, lower than the estimated 40% of the less-developed economies of Eastern Europe, but far higher than the roughly eight% in Luxembourg.


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