What could Brexit mean for Gibraltar?

A row between the United Kingdom and Spain over the future of Gibraltar has broken out amid Brexit. Why are Spanish politicians invigorated and Gibraltarians worried?

Brexit does not really change the debate over Gibraltar's sovereignty. Spain and Britain have their own interpretations of geography and history. And most of the 30,000 inhabitants on the rock are fervently British.

But the European Commission's assertion that Spain can decide whether a deal over Britain's departure from the EU applies to Gibraltar or not, will invigorate Spanish politicians, and in particular the current right-wing government.

With a great deal of public support, Spain's Popular Party views Gibraltar as a political, geographical, and economic injustice on its southern border.

Spain now appears to have some leverage over the UK when it comes to negotiating a Brexit deal for Gibraltar.

And Gibraltarians are rightly worried. The affluent British overseas territory has done very well out of EU membership.

Economic mix

Just as the rock is peculiar for its mix of sun-soaked red phone boxes, British bobbies and monkeys, Gibraltar's current relationship with the EU is also distinct.

Unlike the UK, Gibraltar is not part of the EU's customs union. So there are more checks on goods moving over the Spanish-Gibraltar border, and Gibraltar can set lower taxes on its imports and exports.

A large part of Gibraltar's economy is made-up of online gambling companies and insurance and financial firms. They like the mix of Gibraltar's low-tax economy and the territory's access to the European single market.

The standard corporate tax rate in Gibraltar is a business-friendly 10%. Over the border in Spain it is 25%.

And then there is the fact that Spanish, Gibraltarian, British and other workers can move freely back and forth over the border.

Neutral arbiter

All of the above make this British overseas territory one of the richest places, per capita, in the world.

It is also the root of the modern Spanish sense of injustice, because southern Spain's economy is stagnant and mired by unemployment.

In Gibraltar there is essentially no unemployment. The official figure is 1%. Over the border in the Spanish town of La Linea it is 35%.

In recent years the EU has been a neutral arbiter when Spain has tried to up the ante by increasing the checks and queues at the border.

Britain and Spain's mutual EU membership helped temper Spanish actions. However now the EU is obliged to take sides.

So not only is Gibraltar an early thorn in what seems destined to be a prickly negotiation between the UK and the remaining 27 EU members, it also signals that the Gibraltarian way of life and the territory's business-model will be a European bargaining chip in the talks.