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Holy smokes! This may save Greece billions

ARIS MESSINIS | AFP | Getty Images

Greece's cash-strapped government can save 1 billion euros a year if it eliminates contraband tobacco, according to a new report.

The country lost an estimated 740 million euros in revenue from the sale of illegal cigarettes last year, up from 565 million euros in 2013, Euromonitor said over the weekend - a figure it expects to reach 1 billion by 2019.

Euromonitor's calculations are based on the average price for a pack of cigarettes in Greece - 3.80 euros in 2014 - and the average tax burden per pack - 85 percent of the tax inclusive retail sales price.

A booming trade

Illegal trade accounted for 21 percent of all cigarettes consumed in Greece last year, up from 18 percent in 2013, according to a December survey from AC Nielson.

"This growth has been fuelled by excise and industry-driven price increases and is fed by the expanding availability of illicit white cigarettes from the United Arab Emirates and eastern Europe for which Greece acts as a transit point to the wider European region," said Shane MacGuill, tobacco analyst at Euromonitor.

'Illicit whites' are the term for branded cigarettes manufactured for the purpose of smuggling, which shows no signs of slowing.

"Further excise hikes and the continuing use of Greece as a transit hub means penetration is likely to reach and exceed 25 percent by 2019," MacGuill added.

An uphill battle

Athens is aware of the crime's economic cost. Tobacco smuggling was mentioned in a list of reforms that finance minister Yanis Varoufakis submitted to euro zone officials last month as part of a deal to obtain an extension on Greece's 240 billion euro bailout program.

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But how the government can reduce illicit consumption remains unclear.

"The government and industry must move to dampen domestic demand for illicit products through moderate tax increases and educating Greek consumers about the nature of the illegal cigarette trade," MacGuill said.

Initial progress was made last year through a public campaign by private tobacco firms and government agencies with the slogan "Say No to Illicit Tobacco Products." However, MacGuill warns that it will take more than just slogans to tap into tobacco's lost income.

Athens is expected to provide more detail on its list of reform proposals, including fuel and tobacco smuggling, in the coming weeks to secure future bailout funds.