The Brexit challenge for Spain and Gibraltar, and the Catalan crisis

Spain has good reasons for wanting the best possible Brexit deal as the Spain-UK relation has become increasingly significant in terms of trade, direct investment, tourism, fisheries and the number of Britons living in Spain, by far the largest group of British expats in any European country.

As a result of the magnitude of relation, Spain can be said to be in the soft and not hard camp, though this makes it sound as if Brexit is like a boiled egg, which it may well be as it is proving hard to crack. We should not forget, however, that all the EU countries have to agree to the terms of any deal. Spain cannot go out on a limb.

Except for the contentious issue of Gibraltar, the UK overseas territory long claimed by Madrid since it was ceded to Great Britain in 1713, the relationship between Spain and the UK, since Spain joined the EU in 1986, has blossomed, underscored by the state visit of King Felipe and Queen Letizia in July.

Felipe González, a former prime minister, calls Gibraltar the ‘grit in the shoe’ in the Spain-UK relationship, while British ambassadors in Madrid liken being summoned to the Spanish Foreign Ministry on Gibraltarian issues to ‘going to the dentist’.

A ‘hard’ Brexit would be particularly damaging for Spain. A report written for the Spanish government’s Brexit commission earlier this year said it could cost the economy up to €1 billion in lost exports, while the UK’s departure from the EU could result in Spain having to increase its EU budgetary contributions by €888 million and some regions in losing their European funding. This would not be welcome news for a government that only last year finally managed to meet the budget deficit target set by the European Commission for the first time since the onset of Spain’s economic crisis in 2007.

The repercussions of a hard Brexit on the 800,000 Britons which the report said were living in Spain and the 300,000 Spaniards in the UK would be significant.

I should clarify these figures: the 800,000 one is based on 300,000 Brits registered in town halls, known as empadronados, and 500,000 estimated to own properties in Spain and who spend part of the year there. The UK’s Office for National Statistics puts the number of registered Spaniards at around 130,000.

In fact, there are fewer than 300,000 Brits in Spain, as we shall see.

Close to 11,000 Spaniards are at British universities (few British undergraduates, by comparison, are at Spanish universities). EU citizens are entitled to study in other EU member states, pay domestic fees (in some cases less than a third of the international fees) and sometimes get student loans. When Britain leaves the EU a new arrangement with European countries regarding the rights of students will be needed.

I will now look at some of the Brexit aspects.

The trade relation
Two-way trade of goods between Spain and the UK rose from €12 billion in 1995 to €30 billion in 2016, and continues to grow. Spain has enjoyed a trade surplus with the UK almost every year since 2002 (close to €8 billion in 2016).

The surge in sales to the UK has helped Spain notch record exports records every year since 2009, a factor that played an important role in the economy’s recovery from a deep recession.

Spain’s exports to the UK last year accounted for 7.5% of its total exports, the third largest amount after France and Germany. The sector whose exports to the UK have increased the most is the motor industry (from €1.6 billion in 1995 to €5.4 billion in 2016). Spain is home to many of the major car producers including VW which owns Seat.

Spain’s imports from the UK were 4% of the total in 2016, making the UK the sixth largest supplier.

As the UK will, it seems, though nothing at this stage is certain, leave the EU single market and the Customs Union, another trade arrangement will have to be made. Options range from ‘doing a Norway’ and retaining membership of the European Economic Area, which would allow unfettered access to the single market but would require a large contribution to the EU budget and would not allow the UK to impose restrictions on immigration, to ‘doing a Switzerland’ and negotiating bilateral deals with the EU. But the Swiss have no agreement with the EU on free trade in services, a major area for the UK. A further option would be to go it alone as a member of the World Trade Organisation. This is the falling off the cliff option if there is no Brexit deal. The UK government wants a bespoke deal with the EU. Trade talks will hopefully begin next month when the contentious issue of how much money the UK has to pay to the EU to settle the messy divorce is agreed. The clock is ticking.

Direct investment
Spain has a higher level of direct investment in the UK than it has in any other country, while the UK is the second largest investor in Spain.

Two Spanish banks are part of the UK banking system. Banco Santander, the euro zone’s largest bank by market capitalisation and one of the global systemically important banks (meaning it is too big to fail), is the UK’s third-largest mortgage lender. Santander UK generates around 20% of Santander’s total profit.

The much smaller Banco Sabadell took over TSB and its network of 614 branches in 2015. Sabadell makes around a quarter of its profit in the UK.

At the moment the so-called ‘passporting’ rights for members of the Single Market allow UK-based banks to offer financial services to companies and individuals across the EU unimpeded.

As part of a global group, Santander UK has more options available to it than its peers when considering how to address the uncertainties over the UK’s exit from the EU.

Santander and two other Spanish companies in the UK, Telefónica and Iberdrola, represent a whopping one-third of the Ibex-35, the benchmark index of the Madrid stock market, so if Brexit dents their share prices in a big way when the UK’s departure from the EU kicks in the index would feel it intensely.

Infrastructure and construction companies, such as Ferrovial and FCC, also have significant interests in the UK. Ferrovial holds large stakes in four airports and has won two big contracts for the high-speed rail.

Hotel chains such as Melia and NH also operate in the UK and last, but not least, Inditex, the world’s biggest fashion retailer, whose flagship store is Zara, has more than 100 stores across the UK.

The Brexit impact on foreign direct investment will obviously depend, like so much else, on the type of agreement the UK reaches with the EU. By no longer being in the Single Market, the UK would be a less attractive export platform for multinationals as they would bear potentially large costs when exporting to the rest of the EU.

Citizens
We Brits love Spain. Close to 18 million British tourists came to Spain last year, almost one-quarter of the total. Sterling’s depreciation has so far not affected British tourism. Close to 237,000 Britons were officially registered in town halls as living in the country on January 1 of this year, the largest group of British ex-pats in Europe and the third largest number of foreigners in Spain after Rumanians and Moroccans.
Spain is the only case in the EU where there are more UK citizens living in another EU country than the other way round. But this does not necessarily give Spain a stronger hand in the negotiations.
Brits play a major role in some local economies, particularly during the low tourism season. There are, for example, 74,000 Britons who live in the province of Alicante all the year round and 50,000 in Malaga.

The flip side of the free movement coin is that young Spaniards can escape unemployment by looking for job opportunities (and the chance to improve their English) in the UK.

The legacy rights for what we call the stock of British citizens in Spain (i.e. those already in the country like myself as opposed to those who come here after Brexit) and by extension of Spanish citizens in the UK are a burning issue. Madrid is lobbying hard to reach an agreement with the UK that ensures a high degree of protection of the rights of both communities, but any deal has to be agreed by all EU countries.

Where are we now?

For both UK citizens in the EU and EU citizens in the UK, there is a very long way to go on guaranteeing rights, even though progress has been made on social security, health and pensions. The words of Michel Barnier, the EU’s chief negotiator for Brexit, that “Brexit should not alter the nature of people’s lives” has yet to be realised. EuroCitizens, which is leading the campaign for citizenship rights, describes the current panorama as sombre.

Currently, the biggest stumbling block for UK citizens in the EU is the ending of freedom of movement rights in the EU27 – according to the current EU position we will be ‘landlocked’ in one EU country with no right to move or work in another. The recognition of professional qualifications will be limited as will be the scope of economic rights. Finally, if you move away for more than two years, you will lose all your rights. Voting rights are another issue, though local voting seems to have been taken out of the equation as it varies between different EU27 countries and will be dealt with bilaterally.

At the moment, healthcare is covered by reciprocal agreements under the EU’s aegis. The current situation in these areas looks as if it will be maintained under bilateral agreements, including the S1 scheme for pensioners living outside the country where they worked plus the aggregation, export and uprating of pensions.

By limiting “further movement rights” after Brexit, Brits in Spain, and of course in all EU countries, would have their rights guaranteed in one country, but be unable to travel and work freely in the other 27 EU countries, as they can at the moment.

In the event of a bad deal for Brits already in EU countries, which Mrs May says would be worse than no deal at all, there is always the option of taking out Spanish nationality. The playing field in this area, however, is not level. Britons in Spain need to prove 10 years of residency in their application (five years for Spaniards in the UK) and have to renounce their British citizenship (Spaniards do not have to do the same in the UK). A Briton granted Spanish nationality has to sign a form declaring he has no other nationality, although this has no effect on British citizenship itself. There are no known cases of a passport being subsequently taken away, but with data sharing becoming ever more sophisticated it is harder to keep the second passports secret from the Spanish authorities.

A petition which I helped to launch asking, among other things, for the same right to be granted for long-term UK residents in Spain as a 2015 law that allowed the descendants of Jews expelled from Spain in the 15th century to claim a second Spanish passport has attracted 21,000 signatures.

The Daily Star, that most reliable of newspapers, suggested that the aftershocks from Brexit could even trigger Spain’s exit from the EU – in, what it termed ‘a desperate bid to maintain boozy Costa holidays’. This, of course, is nonsense.

Spain remains predominantly pro-EU –membership is supported across a broad political spectrum– and a Sprexit is definitely not on the cards. All the parties represented in parliament support Spain’s continued EU membership. In Spain, democracy, modernisation and the country’s
external influence are connected inextricably with the EU. The EU is widely perceived as a benefactor.

The country has all the ingredients –massive unemployment, growing inequality, an influx of immigrants and the loss of trust in established political parties– to produce a right-wing populist anti-EU presence in politics, but remarkably has not done so, unlike other countries, notably France, the UK and most recently Germany.

Among the reasons are: the prevalent and persistent pro-European sentiment, which is higher than average; Spaniards are the least inclined of any European people to support returning power from the EU to the member states; they hold favourable attitudes to globalisation compared with other EU countries; and anti-immigration sentiment is also well below the European average.

Other factors are the relative weakness of Spanish national identity, partly explained by the strong nationalist movements in regions such as Catalonia and the Basque Country, and the association of the extreme right with the Franco dictatorship.

Populism in Spain has, however, gained a foothold in the far-left Podemos, but even that party is not calling for Spain to leave the EU.

Gibraltar

Gibraltar voted 96% in favour of remaining in the EU, the highest Remain vote anywhere: 19,300 voted to stay and just 800 to leave. The UK’s exit from the EU will make the Rock’s border with Spain an external and not an internal EU frontier (which as, at present, has to be kept open under EU rules). As such, Spain could close it and a legal challenge by the UK/Gibraltar would be more difficult. Some 12,000 workers, mainly Spanish, cross the border every day.

The situation of this border post-Brexit is similar to that between Northern Ireland and the Republic of Ireland, i.e. between what will be a non-EU territory and an EU country.

The Spanish government has made it clear that the Rock’s post-Brexit relationship with the EU must have the backing of Spain. This position was included in the EU’s guidelines for the Brexit negotiations.‘Gibraltar leaves the European Union when the UK leaves, not because it is part of the UK, but because the UK is responsible for its foreign affairs’, Prime Minister Mariano Rajoy said. ‘From then on, all relations between the EU and the UK or those that affect Gibraltar must take into account Spain’s opinion and have its favourable vote’.

The Sun’s response to that was “Up Yours Senors,” recalling its famous headline in 1990 “Up yours Delors” over concerns about a common European currency.

For the Rock’s Chief Minister, Fabian Picardo, the most important voice in any dialogue between London and Madrid is Gibraltar’s.

Gibraltar and Spain have toned down the rhetoric since the departure of Margallo, the previous foreign minister. Both sides maintain their well known red lines on sovereignty but without making a big song and dance about it. There is no formal communication between the two governments but plenty of contact at the local level between Gibraltar and the Spanish area near the Rock.

The more pragmatic Alfonso Dastis, the current foreign minister, has said he will not make an agreement between the EU and the UK on Brexit conditional on recovering sovereignty over Gibraltar. Last month he said “we don’t talk about a border, we talk about a fence, and we are certainly going to keep it open.”

The key issue for Gibraltar is not the Single Market, as 90% of business is done with the UK itself, but freedom of movement. Some 7,000 Spanish workers and around 5,000 more skilled workers from other countries cross every day and without them the Gibraltarian economy, largely based on tourism, financial services and online gambling companies, would suffer and in an extreme scenario could be crippled. The Franco regime closed the border between 1969 and 1982.
There is also the question of keeping open Gibraltar’s airport, which is built on partly reclaimed land that Spain says is not covered by the Treaty of Utrecht.

The regional government of Andalusia has voiced its concerns over possible restrictions on crossing the border. The area known as El Campo de Gibraltar, where most Spanish workers who cross the border live, has an unemployment rate of close to 40% compared to flourishing Gibraltar which has full employment (its jobless rate is less than 1%, a mere 84 people) and the world’s fourth-highest GDP per head. Studies show that Gibraltar accounts for around 25% of the GDP and jobs of the Spanish region around the Rock.

Gibraltar is a small economy and it is very easy to reshape it. According to Picardo, “If a storm comes and you are a small cork, you might get wet, but you will not sink. A large vessel has more serious problems. Gibraltar is like a small cork.”
When King Felipe addressed the UN General Assembly last year, he called Gibraltar ‘the only colony in European territory’ – supported by UN resolution 1514 (XV) on territorial integrity – and invited the UK to ‘comply with the UN mandate and put an end to this anachronism with a solution agreed between the two countries that re-establishes Spain’s territorial integrity’.

London argues that the principle of territorial integrity does not override the principle of self-determination. Not only that, the UK Government stresses at every opportunity that it will neither change or discuss Gibraltar’s sovereignty against the wishes of the Gibraltarians (the so-called double-lock).

Madrid is offering Gibraltar co-sovereignty as a way for the Rock to continue to be part of the EU, but this has been roundly rejected. ‘We have made a very generous co-sovereignty offer, but two can’t dance if one doesn’t want to’, said Dastis. ‘And if the UK doesn’t want to negotiate and the population of Gibraltar prefers to make its own way outside the union, then that’s up to them. But if they want, in some way, to maintain a relationship with the EU, Spain will make good on its interests’.

Catalonia

Spain has its own peculiar form of Brexit in the shape of the unilaterally proclamation by the government of Catalonia last month to establish an independent country. Why do I say this? Because an independent Catalonia, should it ever happen, which I very much doubt, would mean leaving the EU and having to re-join, as that region only belongs to the EU by virtue of being part of Spain. And it would only need one EU country to veto Catalonia’s EU membership for it to fail, and no guesses as to which country that would be.

Spain is living through the most serious constitutional crisis since the failed coup in 1981 against the restored democracy, following the death of the dictator Franco. Unlike that crisis, this one has no easy solution. These are sad times: all the stereotypes that Spaniards are incapable of living together, epitomised by its Civil War between 1936 and 1939, of which Franco was the victor, are being reinforced.

I am going to try to be dispassionate in the very heated debate over Catalonia. A colleague in Madrid suggested that before talking about the crisis I should take a deep breath and stick my head in a bucket of ice.

Here goes. First, a little history. Catalonia, like Spain’s 16 other regions, has enjoyed a degree of autonomy since 1978. Together with the Basque Country and Galicia, it has a profound sense of national and cultural identity. In 1934, two years before the Civil War, Lluis Companys, the president of the Catalan government declared an independent state within the Spanish Republic but it was very shortlived. Companys was shot in 1940 after Franco won the civil war and suppressed Catalan nationalism.

There is no doubt that last month’s referendum on independence for Catalonia was illegal, and it has been as divisive as the UK referendum on Brexit. Just as Brexit has divided families in the UK, so too has the Catalan referendum held on October 1.

The referendum violated Spanish law, UN resolutions on the right to self-determination, the recommendations of the Council of Europe’s Venice Commission, an agency of reference on constitutional matters and referendums, and Catalonia’s own regional charter, the Estatut. Changes to the Estatut need the approval of two-thirds of members of the Catalan parliament. The independence referendum bill was approved in September by just over 50% of MPs. Even the Catalan parliament’s lawyers questioned the validity of the fast-track procedure for approving the bill for the referendum.

Only Spain’s national parliament and the central government have the power to call referendums.

As a result of the independence declaration by Carles Puigdemont, the president of the Catalan government, the central government in Madrid, run by the conservative Popular Party, called a snap election in Catalonia, to be held on December 21, and imposed direct rule on Catalonia as of October 27, a procedure that has been adopted in Northern Ireland when things have got out of control. Both these measures are supported by the Socialist party and the centrist Ciudadanos, but not by the far left Podemos. President Eisenhower invoked the principle in 1957 to fight racial segregation in Little Rock, Ark., and President Kennedy took a similar approach in Alabama in 1963.

The Catalan government and parliament were dissolved, the region’s ministries and local police force have been taken over by officials from Madrid and some of the separatist leaders imprisoned pending trial for rebellion. Drastic steps – the proclaiming of independence – demand drastic measures.

What happened in Catalonia was a collision between self-determination and Spanish state sovereignty, between the supremacy of Spanish law and laws passed by the Catalan parliament.

Perhaps nothing captures how far off the rails we have reached today than the divergent treatment given to two people before the referendum, Arnaldo Otegi, a condemned former member of the Basque terrorist group ETA, who continues to press for an independent Basque Country, and Joan Manuel Serrat, the Catalan singer-songwriter, an iconic figure censored by the Franco regime. While Otegi was guest of honour at the Catalan national day, Serrat was labeled a traitor and fascist for questioning the referendum.

The film director Isabel Coixet cannot leave her house in Barcelona to take her dogs for a walk without being insulted, and has moved to Madrid.

How did we get here? Very simplistically. The turning point came in 2010 when the Constitutional Court in Madrid ruled there was no legal basis to recognise Catalonia as a nation and that the Catalan language should not take precedence over Castilian Spanish, among other things. This followed a challenge by the Popular Party, then in the opposition, to the new Catalan autonomy statute which was approved in 2006 in a referendum in the region and ratified in the Congress and Senate in Madrid. The court’s ruling, in my view a big mistake, took a staggering four years and inflamed nationalists who until then were not pushing very hard for independence. Before then, it was unusual for more than 20% of Catalans to support independence. Support for secession reached a peak of 49% in 2013.

This situation was aggravated by Spain’s long and harsh recession and corruption in political parties as they fed the grievance that Catalonia was paying a disproportionate amount to the Spanish coffers and not receiving enough in return.

Other factors are the falsifying of history taught in schools in Catalonia. In the words of the distinguished historian John Elliott whose seminal book on 18th century Catalonia was published in 1963, “With their devolved powers, generations have been exposed to a falsified version of history, a manipulation with nationalist tendencies.” His book was rather prophetically callesdThe Revolt of the Catalans.

TV3, the Catalan TV channel, has also pushed the cause of independence.

Tensions came to a head in June 2011 when protesters over the economic crisis surrounded the Catalan parliament, forcing ministers to reach the building by helicopter. The cause of independence took off and led to conservative nationalists and more rabidly pro-independence parties, grouped together in Junts pel Sí (Together for Yes), to rely for their support in parliament and hence formation of the regional government, as of the 2015 regional election, on an unholy alliance with the anti-capitalist CUP. Junts pel Sí and CUP won between them 72 of the 135 seats in the Catalan parliament in 2015 (47.8% of the votes cast).

Not only was the referendum illegal, but it came after a series of claims made by separatists that are demonstrably false. For instance, it is not true – and European treaties reflect this and endless assertions by the European Commission – that an independent Catalonia would automatically stay in the EU and the euro zone. Nor it is true that voting is an exercise in democracy in all cases (dictatorships also organise referendums, as happened during the Franco regime). Nor is it true that Catalonia would be more wealthy on its own, particularly if not able to re-join the EU. This is not the same as saying that it could be economically viable as an independent state. Nor are comparisons with Scotland viable. Scotland’s referendum was an agreed process and Catalonia’s unilateralist.

More than 2,200 Catalonia-based companies and two banks, including some big names such as CaixaBank, Spain’s third largest bank, and the cava producer Codorníu have voted with their feet so to speak and moved their legal headquarters, and in some case tax domicile, because of the uncertainty. Even the lottery business in Sort, which has an uncanny record for producing winning tickets (not for nothing does Sort mean luck in Catalan), has moved its domicile and changed its name to La Suerte.

Catalonia plays a key role in the Spanish economy. The region’s population of 7.5 million (16% of the total) generates around one-fifth of Spain’s GDP, one quarter of total exports and received 18 million of the 75.3 million tourists last year. Its economy is larger than Portugal’s.

Not only companies have fled, but also the deposed president of Catalonia, Carles Puigdemont, who refuses to appear before a court in Madrid on charges of rebellion, sedition and misuse of public funds, claiming he will not get a fair trial, and sought refuge in Belgium, where he still is.

Was Madrid’s heavy-handed response to the referendum justified?
2.3 million people voted (43% of the electorate), 90% of them in favour of independence, although these figures have not been independently identified.

Human Rights Watch has condemned the excessive use of force by the police. We were all shocked by the images of riot police beating old ladies over the head with batons in order to stop them voting. The police violence was a major propaganda coup for the secessionists.

Ridiculous slogans saying “Franco ha vuelto” have appeared on Catalan walls, making it sound as if his dictatorship never ended. The accusations by those in favour of independence that the imprisoned leaders are political prisoners is rubbish and is an insult to opponents of Franco who were jailed and tortured. They are politicos presos, not presos politicos.

Spain is a pluralistic democracy, which ranks high on all recognised yardsticks, such as the EIU’s 2016 democracy index (17th out of 176 countries, higher than the US and Italy, for example).

Should the central government have allowed the referendum and then ignored its result? I have no clear cut answer.

By the way, of the 900 injured only four were hospitalised. Secessionists exaggerated the scale of the injured and of the injuries, which is not to belittle the violence used.

The secessionists’ communication with the foreign press, part of their attempt to internationalise the conflict, was also more successful than the hermetic central government’s attempts to explain itself until it sprang into action after the referendum.

Could the Catalan crisis add to Gibraltar’s Brexit concerns? Those in favour of independence for Catalonia support Gibraltar’s right of self-determination (a right they would like) and hence they accept British sovereignty over the Rock as this is what Gibraltarians voted for in a referendum in 2002 (99% in favour).

The Catalan crisis has reinvigorated outside of Catalonia Spanish nationalism, and this surge in patriotism could intensify Spain’s sovereignty claim over Gibraltar.

What next?
A recent poll shows that the Catalans supporting a solution of Spanish constitutional reform and more self-government is around 70%.

Clearly the problem can no longer be left to the courts. Some kind of political compromise will be required to encourage the significant proportion of the Catalan population in favour of independence to be comfortable within the Spanish state.
But the two sides are at the moment so entrenched that a dialogue is a non-starter; furthermore, there are divisions in the ranks of the secessionists.

The central government hopes the unionist parties, representing the so-called silent majority against independence, which was slow to become vociferous, will reverse the current situation and win more seats in the regional parliament next month than the parties in favour of independence. What happens if they don’t and the pro-independence claim a renewed mandate for independence? A lot is riding on next month’s election.

Date
November 18, 2017