Cleansing Europe’s Unhealthy Cash Culture

I predict economic hardship in Europe will not truly be over in the worst hit countries (Spain, Portugal, Italy, Greece)  until governments and banks can change the beliefs governing the behaviours and attitudes of small and medium sized businesses and consumers about paying by credit or debit cards rather than cash. In 2014, my circumstantial evidence on trips to these countries is that local banks, hotels, restaurants, transportation, retail, real estate agencies, professional services and so on are turning these societies into a more cash-driven, less transparent and more secretive places to live, work and visit. More, not less income is being obscured from tax authorities today than in 2004, at precisely the point these countries need to broaden and increase their tax bases. Indeed banks in one recent example in Barcelona (Santander, Caixa)  are gouging customers (particularly foreigners) with 3.5% supplementary fees on additional credit card fees, are doing their level best to dis-incentivise a behavioural change . Hoteliers this Summer in many of the smaller independent hotels are actively encouraging cash payments, refusing to offer invoices and I would guess, increasingly hiring employees on a “cash only” paid basis. What we are seeing is the point at which people’s trust and confidence in politicians and banks has reached a nadir.

What is required? Successive governments have tried enforcement tactics but they are not visibly working. Governments, banks and other key constituents need to appeal to the SME business owners and managers’ self-interest and that of their customers. Make it easier and more attractive to pay by credit or debit card (embrace high tech, simple VAT reimbursement process), remove frictional banking costs (excess charges), incentivise transparent billing (corporate tax system, faster settlement with suppliers), offers of increased state investment in local health, education and welfare linked to increased declared income receipts from SME business owners and so forth.  This is a long way from the “macro” political shenanigans in Brussels but until the unhealthy cash culture is changed, economic re-emergence in these countries is going to be painfully slow. After all it is the SME sector that these countries must heavily rely upon to generate revenue, jobs and taxes if they are to emerge from intensive care and stand on their own two feet.

© James Berkeley 2014. All Rights Reserved.

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