Brexit and the (stronger than it looks) UK-Spain relationship

An unhappy and unexpected result

Although sometimes overlooked, Spain and the United Kingdom have a strong relationship, both in economic terms and in terms of their populations. Differing visions of the future of Europe and tensions about Gibraltar sometimes give the impression that the two countries are not natural allies, but the presence of around 300,000 UK citizens living in Spain and about half that number of Spanish citizens living in the UK presents a somewhat different picture. Several million citizens from each country visit the other every year. Moreover, Spain has a higher level of investment in the UK (18.9 %) than in any other country, while the UK is the second largest investor in Spain (12.8 %). Bilateral trade under the EU umbrella accounted for more than €30bn in 2016.

For Spain, European Union membership is essential for its own national narrative – an important contrast with the UK. In Spain, democracy, modernisation and the country’s
external influence are connected inextricably with the EU. The EU is widely perceived as a benefactor. Even despite the extreme effects of the economic crisis, pro-European attitudes remained strong. As well as consistently high support for the EU in opinion polls, no eurosceptic political party won any seats in recent elections to Parliament, even if the leftwing parties are critical of EU policies.

Spain took a constructive approach to the talks between the UK and the EU on a new settlement between November 2015 and February 2016. Although it did not share
Cameron’s enthusiasm of dealing with the ‘European question’ via a referendum, Spain tried to be helpful in finding ways to respond to his four concerns of economic governance, competitiveness, sovereignty and immigration.

It did not put down multiple red lines in those negotiations, hoping the agreement would be enough to convince British public opinion to keep the UK in the European Union. But this was not to be. The result of the Brexit referendum was a shock for many Spaniards. That sentiment was felt among the elites and i n the streets. Spain accepted – and regretted – the results of the referendum. At the same time, there was a strong fear that this unhappy and unexpected result could be fatal for the EU entire project.

Luckily the European Union, including, of course, Spanish diplomats and politicians, understood the gravity of the situation and decided rapidly to start a process of political
reflection about the future, looking beyond the UK referendum result and setting Brexit aside. Since it had no clear vision of what leave meant, the UK had to take time to decide how and when to move. The EU’s approach proved effective, as it created a degree of European unity that had been unexpected. That unity has stuck, proving that ‘divide and rule’ would not work in this case.

One manifestation of that unity was the absence of negotiation until the UK activated Article 50 of the Lisbon Treaty in March 2017. A second one was the rejection of the UK’s attempt to retain access to selected parts of the single market, as the EU stated that the four freedoms, including the free movement of people are indivisible. Spain’s position has been to not break the ranks and to show unity with the Commission’s negotiator, Michel Barnier, in spite of the important economic and personal links mentioned above.

Citizens’ status as the most salient issue

In the so-called divorce negotiations between the UK and the EU there are three key issues: the position of EU citizens in the UK and UK citizens in the EU; the financial settlement; and the management of the EU border between the Republic of Ireland and Northern Ireland. The situation of European citizens in the UK and UK citizens in the EU is an important priority for Spain.

It is clearly the most important dossier of the three that have to be negotiated in the divorce settlement, as Spain benefits from the freedom of movement: UK’s pensioners and tourists boost the local economy by settling in the coasts of Spain, while young Spaniards can escape unemployment by looking for job opportunities (and the chance to improve their English) in the UK. While it is true that Spain is the only case in the EU where there are more UK citizens living in another EU country than the other way round, this does not necessarily give Spain a stronger hand in the negotiations.

On the contrary, some coastal regions in Spain rely heavily on UK citizens’ spending, traditionally even higher than it has been since the referendum due to the strength of the pound. Given the high number of Spaniards living in the UK, as well as the large British community in Spain, Madrid is lobbying hard to reach an agreement with the UK that ensures a high degree of protection of the rights of both  communities. Although restrictions to freedom of movement are likely be put in place by the UK’s government, Spain will seek to ensure these restrictions are as soft as possible.

Regarding the financial settlement, Madrid believes that London should respect the agreements it has signed and has joined other capitals in pressuring the UK to abide by its commitments. In this sense, May’s reversal of the UK’s first position in neglecting it and therefore the acknowledgement that UK would have to honour its agreements has been welcome. Nevertheless, the amount of money the UK is willing to pay is still very low. Even 20 billion euros would not cover elements that have to be taken into account, apart from the Multiannual Financial Framework.

Thus, a higher offer, which would include the pensions of the British EU bureaucrats or the participation of the UK in European institutions such as the European Investment Bank, would be welcome. In any case, Spain will not be the most belligerent country on money issues. As a net beneficiary of EU budget, Spain is worried about potential holes in the EU’s budget, but would be unlikely to allow the negotiations to fail on account of this issue.

On the question of the Irish border, Spain has aligned itself with the EU, following what Ireland has asked for, regarding the Common Travel Area to safeguard the Good Friday Agreement that put an end to the conflict in Northern Ireland. That does not mean it will be easy to find a solution, but it will require willingness on both sides. At the same time Spain has taken the view that Northern Ireland could retain EU membership if it eventually secedes from the UK and joins the Republic of Ireland – a position of solidarity with Dublin, which is not at all obvious given the difficult issues it raises in relation to Catalonia’s bid for independence.

Actors and interests

The Spanish economy is highly exposed by Brexit, for the reasons outlined above. Business has a strong interest in negotiating a successful outcome. At the same time, there is a strong concern about the rights of the citizens to move between the two countries.Both factors encourage the political actors in Spain to take the negotiations seriously. A situation in the future very similar to the status quo today would be preferable for everyone in Spain. Spain’s political actors will try to influence EU’s position although without challenging common position agreed in Brussels. In these negotiations the most important actor is Michel Barnier, the EU negotiator, who receives his mandate from the European Council.

Thus Prime Minister Mariano Rajoy will call the shots for Spain. Vice President Soraya Sáenz de Santamaría, and the Minister for Foreign Affairs Alfonso Dastis, formerly Permanent Representative of Spain in the European Union, are also important. A clear example of an early success of Spain trying to influence EU’s position so far has been the softening of the stance as regards the negotiation of the future agreement. Thus, Dastis talked in January of the possibility of starting trade talks while negotiating the
divorce, and that was incorporated through the ‘sufficient progress’ formula. A second success was achieving EU support for the Spanish goal of having a say in any negotiation concerning Gibraltar.

Taking advantage of Brexit to reach an agreement with London on the final status of the Rock is high on the list of Spanish priorities, but this would be a bilateral negotiation and not part of Brexit talks between the EU and UK. There is also some role to be played by the Spanish Parliament, which has multiple parties following the 2016 elections. The lack of an absolute majority and the emergence of two new parties, Ciudadanos, which is centrist and liberal, and Podemos, which is leftist, have made parliamentary debates more difficult for the government but, as regards Brexit negotiations, there is a broad consensus on how to deal with them.

It is also interesting to stress that Brexit negotiations will coincide with a period of reflection on the future of the European project. One positive effect for Spain could be its recovery of a more central position in the EU. The vacuum created by the UK’s departure needs to be filled and Spain has a willingness to show more ambition in influencing the European Union.

The creation of the ‘Versailles Group’ with France, Germany and Italy is a positive step, but more concrete work on different areas of integration needs to be undertaken. The aim is to regain that credibility that was lost due to a combination of a period of introspection, an enlargement that changed the nature of the EU, and the severe economic crisis that hit the country.

Too early to figure out how the future is going to be

It is too early to anticipate how negotiations are going to be finished, although one thing is clear: there will be sequencing of the negotiations and no negotiations on the
future agreement unless ‘sufficient progress’ is achieved on the divorce arrangements. Fifteen months after Brexit and seven after the activation of Article 50, which gives only two years to finish the arrangements for exiting the European Union, leaves little more than a year and a half to complete the first phase.

It seems sensible to assume that the UK’s exit in March 2019 will be followed by a transition phase or ‘implementation period’ as the UK’s Prime Minister prefers to call it of around two years. That would grant some certainties to UK and EU businesses until 2021 or 2022, as they would all still be part of the Internal Market.

Being part of the Internal Market would require the UK to pay its fair share, respect the European Court of Justice and the freemovement of people, and all with little or no
say in the decisions of the EU for the duration of the transition period. Thereafter, a new framework will apply. So far, all the predictions, hopes and even threats by the UK have collided with reality: an unexpected unity – so far – of the EU27 behind Michel Barnier.

Nevertheless, among the EU27 Spain’s stance on economic relations between the EU and the UK is likely to be softer. For this reason, Spain is likely to adopt a more UK-friendly position when it comes to its future economic arrangement with the EU. That could even mean bilateral agreements on matters of interest, but only after the agreement with the EU has come to place. Spain, it is important to underline, would never break ranks. ‘Divide and rule’ will be avoided.

What needs to be avoided is the (remote) possibility of not reaching an agreement, which is not in anybody’s interests. A possible solution could be similar to a CETA, including not only trade and investment, but services and collaboration in the security and defence field. Nevertheless, it is too early to think seriously about this possibility. Although the UK government wants to proceed to the next stage as soon as possible, unless ‘sufficient progress’ is made, the EU is unlikely to respond.

By Ignacio Molina, Senior Analyst and Salvador Llaudes analyst at Real Inst. Elcano, Leading Spanish think tank on international affairs and strategic studies. 

Disclaimer:
The views expressed in this analysis post are those of the authors and not necessarily those of the UK in a Changing Europe initiative.

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