Spanish government finalizing plans ahead of a possible hard Brexit

A so-called “hard Brexit” is no longer a remote possibility in Europe. The Spanish government has nearly finalized its contingency plans to deal with the adverse effects for Spain should the United Kingdom crash out of the European Union in March of next year without a deal. The executive will launch a battery of measures and recommendations in January that are focused on the most exposed sectors. The rights of citizens, aviation – with former Spanish flag carrier Iberia a key concern – and the exchange of goods will figure among the key points.

Spain is one of the EU countries that has the closest ties with the UK, forcing the government to anticipate the worst possible scenario of no deal when it leaves the 28-country bloc on March 30, 2019. While Madrid has been making preparations for such a scenario, the chaotic situation in London – with Prime Minister Theresa May unable to guarantee to her European partners that she can get her Withdrawal Agreement approved by parliament – has forced them to pick up the pace.

Spain is one of the EU countries that has the closest ties with the UK, forcing the government to anticipate the worst possible scenario of no deal

Spanish Prime Minister Pedro Sánchez, of the Socialist Party (PSOE), has taken the reins of the project, and is due to officially launch it in January, possibly after the vote on the agreement takes place in parliament. The most visible element of the plan will be a webpage aimed at businesses and citizens containing all of the information relating to Brexit, government sources have told EL PAÍS.

The project will consider two scenarios: an agreed withdrawal, which is still the most likely, or a no-deal situation, which is looking more probable with each passing day. Until now, the Spanish government had been unwilling to publicly explore this second possibility in order to not create concern among businesses and citizens (although talks in private with the most affected sectors have taken place).

But as the key date of the UK’s exit approaches, more focus is being put on a possible adverse scenario. Practically all of Spain’s ministries are working to analyze which areas are most sensitive and to anticipate possible solutions. Here are the key elements of the contingency plan.

Practically all of Spain’s ministries are working to analyze which areas are most sensitive and to anticipate possible solutions

Citizens. Spain counts on the largest community of British residents in the EU (around 300,000), and a high number of Spaniards living in the UK (116,000). The Spanish government is working on the basis that, even without a negotiated withdrawal, London will be interested in reciprocally maintaining the rights of this significant number of people. On the basis of the recommendations that have been published by the European Commission in order to maintain rights intact, the Spanish government is seeking to reach deals that will guarantee rights to residency, healthcare and the recognition of academic qualifications. Sources consulted by EL PAÍS say that this will be the area with the least disagreement between the two sides.

Aviation. Air traffic is a much more complex issue. Beyond the general uncertainty related to a key area for tourism, Spain is faced with the specific problem of Iberia – the former flag carrier is part of the British group IAG, which also includes British Airways. The company would become a non-EU firm as soon as Brexit happens if it does not manage to apply changes to its structure in order to show the EC that its majority shareholders are European. A hard Brexit would leave this company without the time frame it is counting on – the current Withdrawal Agreement allows for a two-year transition period, in which the status quo in the EU would be maintained – in order to make the necessary changes on a gradual basis. “In the worst of all cases, there would be internal measures to protect the interests of affected citizens,” sources explain, without providing further information.

Trade. The government already has an estimate as to how much it will have to increase its customs resources should there be a hard Brexit. In such a case, goods would be subject to border controls to ensure that duties are paid on them and also to carry out inspections given that they would no longer be coming from an EU member state. These barriers threaten to significantly affect high volumes of trade: the UK is the fourth destination for Spanish exports.

The majority of the negative economic effect will depend on how prepared companies are. The Economy Ministry has for some time now been offering information on how to operate in a country that, from March onward, will no longer be part of the EU. There will also be instructions about how Spain’s Official Credit Institute can offer financing in the case of difficulties, although for now the government is not planning on opening official lines due to Brexit.

Initially, Madrid had identified the financial sector as one of the most exposed – Santander bank, for example, does large volumes of business in the UK. But plans made by Brussels and preparations of the banks themselves have quelled these fears, sources say.

Fishing. In this area, Spain considers the work already done by the EC to have significantly reduced the adverse effects for the Spanish fishermen who are operating in the United Kingdom (there are around 80 boats who fish in British waters).

Gibraltar. The issue related to Brexit that has consumed the most diplomatic efforts is the one that the government considers to be the best covered. The Spanish government believes that, even if the general Withdrawal Agreement were to be rejected – the document contains a specific protocol on Gibraltar – the bilateral arrangements that Madrid and London have signed up to relating to the British Overseas Territory would remain in force. And that would guarantee an understanding on the four key issues that cause friction between Spain and The Rock: the movement of citizens, tobacco smuggling, tax issues and environmental disputes. It is yet to be seen whether the UK will accept these memorandums should the Brexit deal between Brussels and London be dashed.

English version by Simon Hunter.