Brexit drags on and keeps hogging all the headlines almost three years after the referendum. For months, the date 29th March 2019 was marked in red on everyone’s calendar, but now there’s going to be a new Brexit deadline. We just don’t know when it will be yet and we may see more delays.
After twice overturning the London-Brussels agreement and 'snatching' control of the process from Prime Minister Theresa May, the British Parliament is voting today on several different options. As Bankinter's analysis department explains in Spanish, "any outcome is possible. Our most likely scenario is an early general election and the extension of the exit deadlines. Some Brexiteer MPs, such as Jacob Rees-Mogg, now seem more willing to support Theresa May in the face of the possibility of not leaving the EU.”
In general terms, the market is preparing for four possible Brexit scenarios:
- a disorderly exit with no deal;
- an exit without an agreement, but orderly;
- a negotiated and orderly exit that honours a deal with the EU;
- or the cancellation of Brexit.
Depending on what eventually happens, one or the other of these situations will come true, and Spanish banks, companies and institutions have been getting ready for all of them.
A recent report by the Bank of Spain calculates that, in the worst-case scenario, the hard Brexit on 12th April 2019 could cause a loss of up to 9 billion euro from the Spanish GDP over five years, and would lead to "disruptions in the production chains and financial instability". The impact would be between one and two tenths of a percentage point of growth per fiscal year and would occur at a time of global economic slowdown.
If there is no deal between the UK and Europe, but the exit is ordered (being activated on 22nd May, but with a transitional period until 2021), it is estimated that it would cost the Spanish economy some 6 billion euro. That equates to half a GDP point over a five-year period. This is assuming that, in the absence of an agreement, trade relations between the EU and the United Kingdom would be subject to the general rules of the World Trade Organisation.
In the best scenario for Spain (a soft Brexit with an extension that could last several months), the impact would be testimonial, according to the regulator of the Spanish financial sector: barely 200 million euro would be subtracted from the domestic GDP. This would entail a trade treaty similar to the one Britain has already signed with Canada.
In addition to GDP, the banking regulator also estimates effects on investment, consumption, employment, prices, exports and imports. These are their forecasts for each scenario:
Pending the results of the votes, The Guardian newspaper assures that Brussels is looking for an alternative plan that contemplates an extension until 31st March 2020. For this to be the outcome, Westminster will need to approve this proposal before 12th April 2019.
Spanish exports to UK will suffer most
Figures from the Bank of Spain place sales abroad as the economic variable most affected in the event of a hard Brexit. We cannot forget that the United Kingdom is an important market for Spanish exports. In 2018 they made up around 19 billion euro, around 7% of the total, while imports are around 11 billion, according to the Bankia blog.
Experts warn that, without trade agreements, export companies in Spain could face paying tariffs and even delays in customs due to increasing controls on goods over borders. Furthermore, as the Ayming group points out, VAT will become a financial cost and the suspension of excise duty will come to an end.
Bankia also points out that Spanish companies with headquarters on British soil could also be affected: there are some 40 of them, of which only ten are listed on the stock exchange.
The devaluation of the pound sterling against the euro would also have an effect, especially for Spanish Small and Medium-sized Enterprises (SMEs) operating or exporting in the United Kingdom, because it could reduce their activity and generate losses. This devaluation could also affect another of Spain's main economic engines: tourism.
This is because the exchange rate could decrease the amount that British tourists spend in Spain, as well as the number of visitors, because holidaying abroad after Brexit may become more expensive. As if all of this weren’t enough, there would be added a new complication: "the administrative formalities necessary to enter the European Union (passport, visas ...) and long queues at customs posts, which would discourage British travellers," says Bankia.
In addition to these unknowns, there is also the question of what will happen to the 10,000 Spaniards who work daily in Gibraltar and the 70,000 Spaniards who work in the rest of the British territory, and whether there will be a specific agreement to protect British citizens who live in Spain and the Spaniards who live in the United Kingdom. In this matter, the Pedro Sánchez’s Government has taken preventive measures by creating a temporary contingency plan in the event of a hard Brexit. These include issuing new residence documents to citizens of British origin, maintaining pension payments and health care.