“I once sold a car in this market. These days I can’t even sell a second-hand bicycle.” Luis Aguiar a pensioner who sells at the ‘Thieves Market’

LISBON, PORTUGAL—Construction worker Carlos Marques lost his job in 2010 and a year later his unemployment money ran out. So he began peddling everything from old car radios to shoes to make a living.

“When I first started, business was booming,” said Marques, 46, as he hawked pans, radios and speakers at the Feira da Ladra, or “Thieves Market,” once a medley of sights and smells from Portugal’s colonial history and now the hub of Lisbon’s underground economy. “Now I’m struggling as most of my clients have lost their jobs or spent most of their income on taxes.”

Multiple years of recession, record unemployment and austerity in southern Europe are taking a toll — even on activities that usually flourish during hard times.

The loss of income has been so severe in Portugal, Greece and Spain that it has reduced demand for used or illegal goods and off-the-books labour, according to Friedrich Schneider, a professor at the Johannes Kepler University in Linz, Austria, who specializes in the shadow economy.

“This unusual situation is happening in Portugal, Greece and Spain, which are struggling,” Schneider said. “The bottom line: when there is no money to hire a cleaning lady then you end up doing the job yourself.”

The Portuguese underground economy will drop to 19 per cent of gross domestic product this year from 19.4 per cent in 2012. In Greece, where more than one in four people are jobless, it will fall by the same increment, to 23.6 per cent of GDP.

The contraction has coincided with the deepest austerity measures in decades to reduce budget deficits, ordered by European leaders such as German Chancellor Angela Merkel.

It hasn’t gone down well among traders at the Thieves Market in Lisbon, where pensioner Luis Aguiar sells bicycles and furniture across the street from a wall with the words “Merkel Go Away” daubed on it with red spray paint.

“I once sold a car in this market,” said Aguiar, 65. “These days I can’t even sell a second-hand bicycle.”

Set against the backdrop of Lisbon’s 16th-century National Pantheon, on a hillside overlooking the Tagus River where Portuguese explorers once set off to discover new continents, the Thieves Market used to reflect the nation’s seafaring and trading traditions.

Those selling African masks or exotic spices from India to tourists are now outnumbered by hundreds of desperate local vendors who display used clothes, pots, pans and old electrical goods on blankets on the sidewalk.

Marques and his wife were selling a handful of old kitchen pots for less than $1.50 each, alongside a car radio he had just traded for two audio speakers.

“There are more people interested in swapping goods these days instead of buying stuff,” said Marques, surveying his inventory. “People have no money.”

Portugal requested a bailout from its European partners and the International Monetary Fund in 2011, about six months after Ireland and a year after Greece, while Spain sought emergency money to clean up its banks in 2012.

Prime Minister Pedro Passos Coelho is still tightening the country’s collective belt to get the budget in good enough shape to start raising more money from bond investors again.

Portugal never had the prosperity to generate the savings some people in Greece and Spain are relying on now.

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While the Greek and Spanish economies were expanding at an annual rate of more than 3 per cent at the end of 2007, Portugal grew by less than 1 per cent a year for a decade before the debt crisis erupted in Athens in late 2009.

Portugal’s economy will contract another 1.8 per cent this year, a third straight year of recession, according to government estimates. While less than the Greek rate of 27.6 per cent, Portuguese joblessness was 16.4 per cent in the second quarter, albeit dropping for the first time in two years.

Papa Gei, a 39-year-old Senegalese salesman at the Thieves Market, said things are so bad in Europe that he is telling his friends to stay home.

“I came here in search of a better life,” said Gei, who used to work in a farm in Senegal. “If I knew it would be this bad in Portugal I would have stayed working at the farm.”

While Schneider calculates that the proportion of GDP that’s under the table has declined across Europe since 2009, in the north it’s because a gradual recovery in the official economy reduces the incentive to earn “black money.”

The unofficial market in Germany will shrink to 13 per cent of Europe’s largest economy from 13.3 per cent last year, based on research by Schneider, whose international survey of the shadow economy was published this year.

Officials at the EU’s statistics office and the Organization for Economic Cooperation and Development said they didn’t have recent data on the informal economy.

In Lisbon, Antonio Vicente encapsulates the erosion of living standards in the south.

The 57-year-old, who became homeless after losing his job as a baker two years ago, makes a living by feeding other people’s expired parking meters in downtown Lisbon to prevent their cars from being fined or towed.

“I used to make about 30 euros a day last year from clients,” Vicente said while sifting through a handful of coins after a 12-hour day. “Today I only made 8 euros.”

It is unlikely that Vicente and Marques, the trader at the Thieves Market, will be able join the official economy and they are left wondering how to make a living now that their black market clients are running out.

“We have too many people selling stuff to a shrinking number of customers,” said Marques. “If I can’t find clients to buy my goods I will have to dig deeper into the underground economy.”