The euro zone

A big deal

The Bank of Spain has been trying to predict the effect that the UK's withdrawal from the EU will have on the Spanish economy. Such a task is far from straightforward, not least because it remains uncertain what kind of Brexit, if any, will occur (Theresa May has requested a three-month extension to get the job done). Nevertheless, the Bank has stated that the effect on Spain's GDP over the next five years will be "significant" but not "excessive". What do these rather vague terms actually mean, though?

In the case that the UK divorces the EU with a deal next Friday, Spain's GDP will contract by 0.02% over five years, the Bank predicts. In other words, in an increasingly-unlikely scenario that everything goes more or less as it should do, the Spanish economy will barely register Brexit over the course of the medium-term future.

This forecast depends either on May being able to secure approval in the UK parliament for her existing deal in the next seven days, or being granted a three-month extension by the EU. The latter is the more probable of the two but still far from certain, with France requesting that Britain offer "guarantees" that it will deliver a deal in order for the deadline to be delayed. Brussels has every reason to doubt the UK's ability to make such promises, though: if May is unable to pull off Brexit in two-and-a-half years, what difference will an extra three months make?

According to the Bank of Spain, the "default option" is now that Britain will stroll (or, more accurately, stumble backwards) into the unknown without a deal on March 29th. The effect on the Spanish economy over the next five years, in this case, will be around 0.82%, says the Bank. Again, in terms of concrete impact, such a contraction is almost negligible.

Without wanting to be unduly pessimistic, one wonders if both these figures (especially the second one) are too optimistic. British expatriates and holidaymakers are hugely important to the Spanish economy: last year a record 18.8 million Britons visited Spain - the largest group, by some way, of all foreign tourists holidaying here - and spent over €17 billion in doing so.

If it becomes more expensive or difficult to visit or continue living in this beautiful country, many Britons will start to seek the joys of Mediterranean culture elsewhere - an exodus that would likely have a substantial impact on Spain's GDP. This is precisely why the Spanish government has been working to secure the rights of Britons in Spain and Spaniards in the UK, and why a no-deal Brexit would be the worst outcome for both countries. Let's hope it doesn't come to that.