Brexit would be ‘negative for Spain’, say economists: exports to UK could cost up to 10% more

brexit10Economy experts have warned that a ‘Brexit’ could have negative consequences for Spain, given that the UK is its third-largest trading partner after France and Germany, and Spanish exports to Britain totalled nearly €5 billion in the first quarter of this year.

Although they urge traders ‘not to panic’ and to ‘put things into perspective’, key speakers say ‘extra hurdles’ could be faced for industries which export to the UK, mainly food, transport and manufactured goods.

In theory, commercial relations between the two countries may not need to be hugely different after a Brexit, according to two experts – Professor Santiago Carbó of Bangor University in Wales, who is also head of Financial Studies at the Savings Bank Foundation in Spain (FUNCAS), and Agusti Ulied, economics tutor at ESADE business school.

But customs tariffs and paperwork could cause headaches and increase prices, they both say.

The two professors comment that those British nationals who want to leave the EU, and the ‘Leave’ campaign itself, are basing their decision ‘more on trying to avoid free movement of people than of goods’ – or in a bid to prevent immigration from Europe rather than trade.

Companies in the manufacturing and industrial sectors will be the worst-hit, says Diego Zuluaga of the Institute of Economic Affairs (IEA), since cross-border tariffs for exporting to Britain could increase their prices but as much as 10%.

Zuluaga believes ‘uncertainty’ will reign, and will negatively affect trade, until such time as the UK and the EU have agreed on new trading terms – this, according to previous experience, may take up to 10 years, although the UK’s deadline once it decides to leave the EU is just two years, according to the Lisbon Treaty.

According to economist José Carlos Díez, one of the greatest problems faced by Spain in the event of a Brexit is ‘financial contagion’, given that Spain has the second-highest trade deficit in the world, after the USA.

“If market tensions increase, this could have a negative impact on employment and GDP – the European Central Bank (BCE) buying national debt is just a firewall, and if the fire is too intense, we’ll have problems,” Díez warns.

“In the short term, the market may become very unsettled and nervous.”

He does not believe Spanish financial entities, such as the Santander bank, in the UK will have too many problems, in the same way that US banks in Spain operate freely – although Spanish firms in Britain have already voiced grave concerns over their future in the country in the event of a Brexit.

Spain is also worried about the fact that 25% of its tourists come from the UK – in theory, a Brexit should not make a difference, but if the prices of holidays in the EU increase for British residents and their numbers declined as a result, Spain would feel the pinch.

“Another aspect which could affect the Spanish economy – although not in a particularly fundamental manner – is that British residents in Spain would not have so much money to spend if the Sterling falls by between 10% and 20%, as is very likely,” Ulied continues.

A census from 2015 showed 283,243 British nationals in Spain, but this does not include the still-numerous expats who continue to avoid – illegally – signing on the padrón, or census, nor those who spend several months of the year in Spain but not enough to count as a tax resident.

“Uncertainty in terms of taxes, finance and eligibility to use public services will also affect the 102,498 Spaniards currently living in the UK,” Ulied continues.

Their numbers rose by 12% in 2015 – one of the greatest increases seen in destination countreis of emigrating Spaniards.

Spaniards want Britain to stay

A recent poll showed that 80% of Spaniards do not want the UK to leave the EU and, if they were able to vote in the referendum, it would be against a Brexit.

A total of 79% believe a Brexit would have negative consequences for Spain, with 74% believing these consequences could be dire – and only 6% say they believe Spain would actually benefit from a Brexit.

Nearly two-thirds firmly believe that when it comes to the crunch, Britain will vote to remain in the EU when it goes to the polls on Thursday.

A referendum on EU membership looks very unlikely in Spain, since 78% believe being in the Union has been beneficial and only 14% think it has been bad for the country – in fact, 57% believe being an EU member has actually helped Spain deal with its recent financial crisis.

Nearly a half – 48% – believe Spain has become more pro-Europe since it joined the EU and that Spanish society in general feels more ‘European’, whilst around a third, or 34%, believe the exact opposite.

All Spain’s main political parties vying for election this month are keen for Britain to stay in the EU, and all of them are in favour of Spain’s own membership continuing.

Published Think Spain 20 June 2016

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