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Tuesday, 8 March 2016

A Brexit could be particularly bad for Spain. “How bad?” is the question that I try to answer here!

Although most people realize that the chance of a Brexit is above average at this very moment, it is less known what the consequences of such a step will be for the countries within the Euro-zone.

There have been messages of doom and gloom from some insiders inside the EU and the United Kingdom, while others kept their cool with a ‘who cares’ glance in their eyes?! I am somewhere stuck in the middle.

Last weekend I had one of those typical, pleasant Twitter discussions with @WEAYL – we follow each other – about the consequences of a Brexit for say... Spain.

Twitter discussion that I had with
@WEAYL about the consequences of a Brexit
Picture courtesy of Tweetdeck
Click to enlarge
His statement was that a Brexit could cause Spain a lot of pain; especially for the tourist industry and the real estate market at the costa’s. Actually, I thought that @WEAYL made a good point, when he reckoned with considerable damage for Spain after a Brexit would have occured.

All depends, however, from the nature of the consequences of a Brexit for the United Kingdom and the European Union, as both partners in this marriage going awry. And that is not known yet...

Will it be a friendly divorce in which both parties do their best ‘to save and protect the children’ (i.e. to preserve the good relations and economic bonds between both parties)?

Or will it be a hostile divorce in which both parties do their best to aim at each other where it hurts most?! For instance, by imposing all kinds of import and export duties, service levies, trading and transaction taxes, tourist taxes, visa duties and other measures meant for ‘tormenting and revenge’? In other words: will the Brexit become a divorce battle?

This is a question that Spain did not dare to ask itself officially yet, as far as Pablo Rodriguez (aka @Suanzes on Twitter), the savvy correspondent of El Mundo in Brussels, was concerned. One thing is clear, however, and in that sense @WEAYL was right yesterday. The United Kingdom is an important factor in the Spanish economy.

Two of the Spanish industries hit most by a hostile Brexit, would be a. the Spanish tourism industry and b. the Spanish Residential and Commercial real estate industry.

Here are some data:

According to the EU ObserverOne million British citizens live in Spain, of which 400,000 pensioners’.  And according to another quote in the same issue ‘The government reply indicates the real numbers could be higher, due to “a high evidence of non-registration” in France, Portugal and Spain’.

On a Spanish population of in total 46 million, it would leave a significant scar in the Spanish economy when a significant share of these 1,000,000 + British citizens felt forced to leave and sell their Spanish homes and appartments for one reason or another.

And there is more: no less than 12 million Britons visit Spain as tourists every year, according to the Daily Mail. Combined these Britons spend €7.58 billion, or 21% of the total tourist spendings in Spain, according to this article in The Local:

Spain has received a record number of tourists so far this year at 37.9 million, who have in turn been spending record amounts of cash each day - dropping on average €113 per person daily.

And each tourist spent nearly a grand - €978 - over the course of their vacation under the Spanish sun.

Tourists from the UK lined the coffers of Spain’s tourism industry the most, spending a total of €7.58 billion. But although one in four tourists you may see poking around gift shops hail from the British Isles, the British only contributed a fifth of the total tourist spend.

The Distribution percentage of tourists in Spain,
as of  July 2015
Picture courtesy of
Click to enlarge
The Spanish online website El Cinco Dias had a more elaborate article from August 2015 about the importance of the (British) tourists for Spain, which I translated to English:

Between January and July 37.9 million foreign visitors came to Spain, a rise of 1.7 million year on year. When all forecasts are indeed confirmed, Spain will beat the last record of 2015 regarding the number of visiting tourists. The objective for 2015 is set with 68 million tourists, which seems plausible when we look at the number of tourists visiting Spain during the first seven months.

The statistics of the tourist industry reveal a varied behaviour between the three greatest emitters of tourists to Spain (the United Kingdom, France and Germany), which deliver more than 55% of the total number of tourists. The British market, stimulated by the appreciation of the Pound Sterling against the Euro, has flourished and maintained its position as most important market, with 8.7 million visitors year-to-date, or a market share of 23%.   

All these data show that especially a hostile Brexit would do much harm to the Spanish economy, as it would put fierce pressure on the already very fragile Spanish Residential and Commercial Real Estate market (RRE & CRE).

When a hostile Brexit would lead to a diminished number of British tourists to Spain of for instance 9 million – instead of 12 million – this could easily mean that f.i. 10 – 15% of the Spanish hotels, appartment complexes, bars and restaurants with a mainly British tourist base could get into dire straits. This is because of the simple fact that such hotels and catering companies cannot totally earn back their constant costs anymore within the tourist season and get stuck with more debt than they can bear.

This would deal an enormous economic blow to Spain again: a country that already suffered from poor economic development during most of the crisis years and still massive unemployment.

On top of that, it could lead to more negative price pressure on the Spanish Commercial Real Estate market, as defaulted hotels, appartment complexes and restaurants need to be sold again, in order to earn back some of the outstanding debt for the Spanish banks and large investors.

The fact that the most important tourist groups do traditionally flock together in a limited number of hotels, appartments, hotels, pubs and campings within the holiday hotspots does not help here to prevent damage to the tourism industry.  For this is the following reason: British tourists are mainly booked in ‘British’ hotels and appartment complexes and they are pushed to visit ‘British’ pubs and restaurants, just like French, German and Dutch visitors have their ‘own’ hotels, appartments, restaurants and pubs. This phenomenon is spurred by both the travel organizations and the local authorities.

The former enter into massive contracts with such hotel(chain)s, restaurants and pubs, out of cost efficiency, to have a good position for negotiations and in order to get a fair share of the sales revenues from these companies; especially the pubs and restaurants, which almost have a guaranteed number of visitors per evening, due to such business cont(r)acts.

The latter want to separate the most important tourist groups, in order to prevent from large brawls and arguments on the streets of the tourist hotspots, as the British and the Germans or the French do not always go together alright (too much alcohol, love interests, football and the Second World War are still reasons for massive battles on the nightly streets of Spain).

Although this is a sensible policy in general, it would play out particularly badly in case of a Brexit. Instead of all Spanish hotels and other food and hospitality companies carrying the burden of the Brexit combinedly – leading to a manageable loss of sales revenues for all companies involved – the full burden would be carried by a limited number of companies, that see a large share of their sales revenues evaporate.

And things would even become worse when say 30% of the 1,000,000+ British inhabitants in Spain would sell their (second) home or appartment, as a consequence of their need to apply for a visa or to pay strongly elevated tourist taxes and other costs emerging from their country’s Brexit. Such an one off event would litterally flood the RRE market in Spain with houses, kicking the Spanish economy back into a deep recession.

Thinking about a Brexit that way, shows that there is a lot at stake for Spain in the British referendum; perhaps even more than for the other European countries, which are not so much dependent from tourism as a source of income and employment. Unfortunately, this will not change the short-sightened attitude of many Britons, who are in favour of the Brexit and accuse the EU of everything that is bad to their eyes.

What both the EU and the United Kingdom CAN do in case of a Brexit, however, is trying to go for the ‘friendly divorce’; in this situation both parents respect each others interests and privileges, in order to make the separation easier for each other.

One thing must be clear for the Britons, however: once they have left the European Union, there is probably no way back anymore. Simply too many feelings get hurt in a divorce: friendly or not friendly.

One can count on it that Spain will spill its share of tears in case of a Brexit. So let the Britons make the right choice, for heaven’s sake! 

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