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Brexit is Bad for Spain Too

Spain anticipates downward growth projections as a no-deal Brexit looks increasingly likely

Prime Minister Boris Johnson is dead-set on bringing Great Britain out of the EU no later than October 31st, deal or no deal. But the high cost of a hard Brexit threatens countries across the eurozone, and not just the UK.

Spain’s acting President Pedro Sanchez has made it clear that a no-deal Brexit will cause severe harm to the Spanish economy. “In the short term, Brexit – a no-deal Brexit – is the greatest risk to Spanish economic growth”, Sanchez shared at the Bloomberg Global Business Forum in New York. “Not only for Spain”, he added, “but for the global economy”. This is partly due to the number of British nationals living in Spain – the largest contingent of such in the EU – as well as Spain’s deep trade ties with the United Kingdom.

This setback comes at a time when the Spanish economy is still in need of further reform, and as unemployment rates sit at 14 percent, the second highest in the EU after Greece. Spain’s central bank expects output to expand by 2 percent, down from the 2.4 percent they had initially forecast in June. While technically a decrease in the growth rate, Spain still outpaces other major euro economies, as Germany teeters on the edge of a recession and Italy’s economic growth is flagging.

Some voters worry that due to continuous political instability at home and abroad, Sanchez is losing an opportunity to implement reforms that could boost Spain’s long-term economic prospects – a situation that could become much more dire if, or when, the UK crashes out of the EU.

“There have been very few significant economic reforms in recent years”, Bank of Spain Research Head Oscar Arce noted. “We haven’t made the most of a situation that was optimum to launch reforms.”

“We are especially concerned about the external risks building around the Spanish economy, the potential increase in trade tensions and geopolitical risks“, said Arce, referring to increased insecurity in the case of a hard, no-deal Brexit.

Reduced investment and consumption in Europe overall is also likely to factor into Spain’s continued slowdown. Growth predictions have gone down from 1.9 percent to 1.7 percent for 2020, and to 1.6 percent in 2021. A hard Brexit has the potential for a total negative cumulative impact of 0.7 percentage points on growth over a five-year period.


Spain is set to have its fourth election in four years. President Sanchez is focused on convincing voters he is the right leader to mitigate Brexit, and accompanying tensions. Copyright: davide bonaldo / Shuttershock.com

Reduced growth could make a recession more likely if other factors across the eurozone were to worsen, further depressing economic recovery. “Latest data make us more pessimistic about a recovery in the eurozone”, Arce added.

Brexit Isn’t Localised

Complicating matters is Spain’s relationship with Scotland, where separatists have been keen on pushing forward their own independence referendum. If successful, this would allow the country to re-join the EU at a later time. The question of supporting Scotland’s bid to re-join the EU puts Sanchez on edge, as Spain faces internal contention from their own Catalan nationalists, who forced the issue of separation to a head with an illegal referendum in 2017. So far, Sanchez has been able to dodge commenting, claiming any referendum Scotland holds would be a “domestic political issue”, and that “the referendum is not a solution, it divides societies and creates a huge fracture in society”.

Once again campaigning for re-election, it is in Sanchez’s best interest to convince voters he is the right leader to mitigate any tensions on the Catalan issue and ensure they will not try  to secede again. Spain is set to have its fourth election in as many years after Sanchez failed to gather enough support to ensure a second term as president, though his Socialist party did get the greatest number of seats.

Spain’s political uncertainty means that the country has been rolling over budgets from previous years and has been unable to institute new reforms, further depressing their ability to cope with additional economic unrest.

“Also worth mentioning as a possible risk element is the continuation of uncertainty on the domestic front about the course of main economic policies in this country in the future”, Acre explained.

British overseas regions will be hit with unintended consequences in a no-deal Brexit. Caribbean territories will find cooperation with their neighbours more difficult, especially if they are reliant on EU aid to rebuild after natural disasters, such as the the aftermath of Hurricane Irma on the island of Anguilla in late 2017.

The Falkland Islands are entirely reliant on trade with the EU, and nearly all of their fish is first exported to Spain before it makes its way to other EU states. A third of the calamari bought in Spain comes from these islands. But without a deal in place, Spanish buyers would have to pay a customs duty of up to 18 percent – dramatically hiking up the price of seafood and likely resulting in an extremely lowered consumer demand.

The long-contested British territory of Gibraltar at the southern tip of Spain voted almost unanimously to remain within the EU, as its residents are economically dependent on the country. Over 15,000 people commute across the border daily to work in Spain, with almost 10,000 Spaniards crossing into Gibraltar for the same reason. A no-deal Brexit would make this coexistence nearly impossible to sustain. The British territory’s status has been a major stumbling block in Brexit negotiations since the referendum back in 2016.

While Spain and the UK did manage to reach an agreement over Gibraltar in 2018, the final status of the territory remains up in the air – a resounding sentiment shared by many countries across the eurozone experiencing the uncertainty of Brexit.

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B. Lana Guggenheim

Lana is a freelance journalist based in New York City. She has a M.Sc. in International Conflict from the London School of Economics and Political Science. She has worked as an analyst, reporter, and editor, covering extremism, culture, economics, and democracy.

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