The EU runs a trade surplus with itself of EUR 307 billion – a figure that should be zero if all transactions were properly reported and recorded. Measurement errors alone cannot account for this systematic deviation. Instead, one cause seems to be massive VAT fraud, which costs EU countries EUR 30–60 billion each year. This is the result of an empirical analysis jointly conducted by the Kiel Institute for the World Economy (IfW Kiel) and the ifo Institute in Munich.

“When companies declare sales as exports, they are exempt from VAT. However, if, in reality, these transactions were not cross-border but domestic, they are not recorded in the supposed trading partner’s import statistics and go untaxed,” explain IfW President Gabriel Felbermayr and ifo researcher Martin Braml, who wrote the study.

According to their estimates, such practices could cost the EU member states’ treasuries some EUR 30 billion in 2018 alone. The researchers recommend digital, automated clearing system of data on imports and exports within the EU as a way to reduce the number of balance sheet discrepancies and make fraud more difficult in the future. Their findings have now been published as a Working Paper.

The researchers analyzed data on trade between all 28 EU member states going back to 1999. In 2018 alone, the intra-EU trade surplus reached a remarkable EUR 307 billion. This is the equivalent of just under 2 percent of the EU’s gross domestic product (GDP) and is more than the GDP of the eight smallest EU members combined.

More Than an Intriguing Outlier

Last year, the entire world ran a trade surplus with itself of EUR 357 billion (USD 422 billion) – so this new analysis suggests that 86 percent of the global deviation is solely due to the EU. The EU has had a “self-surplus” since 1993, when the single market was established. This surplus increased considerably with the 2004 enlargement of the EU, and over the past twelve years has grown to a total of EUR 2.9 trillion.