There Is a ‘Brexit’ Cloud Over Gibraltar

There is a cloud over Gibraltar, and I don’t mean a literal cloud — even though Gibraltar is the only place in southern Europe that’s guaranteed to be overcast and cold. Well…maybe that’s the reason why it’s British.

But back to the metaphorical cloud. Discussions are running hot in Gibraltar. What’s the topic that’s threatening its (lack of) blue skies? The upcoming Brexit referendum on 23 June. The day Britain decides whether to stay or leave the EU.

The referendum is less than two weeks away. And if the UK leaves the EU, Gibraltar will be leaving too.

Gibraltar is a British overseas territory located in the southern end of the Iberian Peninsula. The tiny 6.7sqkm stretch of land is home to around 33,000 people. All its citizens have the right to vote in the upcoming referendum.

Gibraltarians — also known as Llanitos — are an interesting bunch. The nickname comes from the dialect they speak, the llanito — a unique mix of Andalusian Spanish and British English, sprinkled with Portuguese, Italian and Jewish influence.

For centuries, this tiny stretch of land has been the cause for dispute between Spain and England. After all, Gibraltar’s location is incredibly strategic. Right at the entrance of the Mediterranean.

After England invaded the rock in 1704, Spain gave it to Britain in perpetuity in 1713. But Spain has never been happy with this treaty.

There are no natural resources in Gibraltar. Just one huge rock — home to the only wild monkeys in Europe — and the coast.

Oh yes, there’s also an airport. A must to visit if you are an adrenaline junkie. It’s rated one of the most dangerous in the world.

The runway intersects Gibraltar’s busiest avenue. Which needs to close every time a plane lands or takes off. This happens 8–10 times a day.

And it’s too short. That’s why the runway slopes upwards. To help the plane pull up before the runway drops into the sea.

And did I mention there is a huge rock next to you as you take off?

Even though there are no natural resources, Gibraltar is self-sufficient.

Its main source of income is tourism and retail, which make up 25% of the GDP. It’s followed by the financial sector (22%) and the shipping industry (20%). The once military base now only accounts for 7% of the GDP.

There is no capital gains tax, wealth tax, sales tax or value added tax. And people have flooded in to take advantage of that fact.

Gibraltar is also home to many online gambling sites due to its low tax rate — gaming tax is 1%.

According to the Gibraltarian government, 11 million people visited Gibraltar in 2013. 96% of those visitors arrived by land. That is, they crossed the 1.5km border with Spain. The border has been the source of all disputes for years. And when tensions between Spain and Gibraltar run high, people can wait for hours to cross the border.

Gibraltar depends on Spain’s workforce. In 2016, 12,000 workers come in every day from neighbouring Spain — which equals one third of Gibraltar’s population.

The bordering town of La Linea provides many of the workers with key services and vital produce (food, meat, fruits and vegetables, among others). The two towns are co-dependent.

Spain’s Foreign Minister recently declared that, if the UK decides to follow through with the Brexit, they may have to consider closing the border.

The border closed once before, in 1969, during Francisco Franco’s dictatorship. He went on the offensive to recover the territory, closing off Gibraltar from Spain. He even cut off telephone lines, leaving Gibraltar completely without communications.

Gibraltarians had to take a boat if they wanted to speak with, or visit, relatives in Spain. The Spanish workforce was replaced by Moroccans and supplies from Spain were completely cut off. The border remained sealed until 1982.

La Linea also suffered during that time. Unemployment in the area increased and, as a consequence, impoverished the area.

To improve employment, Franco approved the installation of a large refinery in the area.

The refinery created employment, but also contaminated the water and air in the area. In fact, the large smog-producing chimneys are the first thing you see when you are nearing Gibraltar.

The refinery has been another cause for dispute between Spain and Gibraltar. Gibraltarian medical studies confirm the refinery has increased cancer in the area — while Spanish studies deny it, which attribute the increase in cancer to other factors.

Who’s right? It all depends on who you ask.

All we know is that La Linea would once again suffer high unemployment if the border closed. Maybe that’s why they are planning to build another refinery.

Spain’s foreign minister has recently proposed a joint British-Spanish government if Britain decides to leave the EU. He says it’s the only way for Gibraltar to keep enjoying freedom of movement.

Spain may be looking to take advantage of Gibraltar’s predicament.

Gibraltar has already had two referendums. On both occasions they voted against a joint Spanish-British government.

But if the UK leaves the EU, they may have to leave the past behind and work with Spain to find a solution.

Or Gibraltar may effectively become…an island.

Selva Freigedo

Analyst, Markets and Money

PS: Markets and Money’s Vern Gowdie says we’re already standing on the edge of this next financial crisis.

Vern is the award-winning Founder of the Gowdie Letter and Gowdie Family Wealthadvisory services. As one of Australia’s Top 50 financial planners, Vern believes there’s nothing we can do to stop what’s coming.

It won’t be only stock markets that crash when the crisis hits. There’s another multibillion dollar market that’s poised to collapse when the credit bubble pops. Australia’s gone through two such credit bubbles in its history. The third, and latest, has been building for the last 65 years. When it pops, it won’t be pretty.

The fallout of this crash could do serious harm to your wealth. Yet, with a little bit of work, you can safeguard your wealth from the worst effects of the crisis. Vern will show you how to do this in his brand new report. To download a free copy of ‘Global Financial Crisis 2016: 3 Crisis Scenarios, and How They’ll Impact Australia’, click here.

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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