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Aug 16, 2015 | 13:11 GMT

Can Gibraltar Stand on Its Own?

(OLI SCARFF/Getty Images)

By Mark Fleming-Williams

It is often said that nothing is certain but death and taxes. Today, a citizen of Gibraltar might partially agree, though considering the famously low rates in the British Overseas Territory, taxes actually are not that much of a problem. He may also wish to add another certainty to the list: Spain will try to reclaim Gibraltar as its own.

On Aug. 9, Spanish authorities pursued a suspected smuggling boat into Gibraltarian waters, eliciting a strong complaint from the British Foreign Office. The exchange is typical of the kind of minor confrontation with Spain that constantly colors the modern Gibraltarian experience, incidents whose timing can often be traced to temporary requirements of Spanish domestic politics — the need to either galvanize public support (as in this case, with an election imminent) or to distract attention from a difficult subject (for example the political scandal in 2013, which coincided with a fishing spat). For Gibraltar, this loud and demonstrative Spanish danger is actually just one part of the true threat to the little former colony: a changing geopolitical landscape that has left Gibraltar wondering how it is to survive in the modern world.

A Strategic Outpost

Life has always been somewhat precarious for the inhabitants of Gibraltar, a giant lump of Jurassic limestone thrusting 400 meters (1,312 feet) into the air at its highest point. The rock presents its sheer face to a narrow isthmus separating it from the Spanish border before sloping downward as it progresses out to sea, ending in a narrow coastal lowland. The entire territory makes up just 6 square kilometers (2.3 square miles). This small area now supports 30,000 residents, with space so constrained that traffic is stopped whenever a plane needs to land because the runway bisects the main road.

Remains found in a sea cave hewn into the eastern face of the Rock of Gibraltar suggest that it was the last bastion of the proto-human Neanderthal race about 24,000 years ago. Driven inexorably southward through Europe by global cooling, the Strait of Gibraltar provided an uncrossable barrier against which the species finally met its end. On the other side of the strait, the Moroccan mountain of Jebel Musa is clearly visible. The gap that separates Africa and Europe at this point is just 14.5 kilometers (9 miles) wide, but it connects the entire Atlantic Ocean to the Mediterranean Sea. Powerful currents flow predominantly from west to east, for many centuries discouraging a nautical exit from the Mediterranean; this sense of impenetrability led the Greeks to endow Gibraltar and Jebel Musa with mythical properties, enshrining them in legend as the twin Pillars of Hercules.

For a long time, Gibraltar's inhospitable geography (the lack of access to freshwater has always posed a challenge) inhibited native settlement, but its key strategic position meant that it saw plenty of traffic passing through. In A.D. 711, the conquering Muslim force under Tariq ibn Ziyad crossed the strait and landed close enough to the Rock of Gibraltar for it to known thereafter as Jebel Tariq, meaning "Mountain of Tariq," a name that over the years mutated into Gibraltar. As Muslim conquest turned into Christian reconquest over subsequent centuries, Gibraltar, now with a resident population, passed back and forth between Spain and the Moors until finally being captured by Spain for a final time in 1462. Although never able to feed as many mouths as much larger Algeciras across the bay, Gibraltar represented a strong defensive position, and 4,000 Spaniards lived there by the time Dutch and English marines attacked in 1704. The newcomers evicted the population, and just 70 remaining residents formed the beginnings of a new town populace, which Spain granted to Britain in perpetuity in the 1713 Treaty of Utrecht.

From a British perspective, Gibraltar represented a strategic opportunity. Along with Menorca, an island with a phenomenal natural harbor that could threaten the French port of Toulon, Gibraltar shored up British influence in the western Mediterranean. It then remained a key possession as the world's focus shifted from the Mediterranean to the Atlantic, and it is no coincidence that Britain won many of its great naval victories, such as Cape St. Vincent and Trafalgar, in nearby waters.

Over time, Gibraltar's population grew, and society became a highly mixed grouping that comprised a resourceful medley of British, Spanish, Jewish and Genoese residents who made a living both from the resident military presence and by hawking wares to travelers on the countless ships passing through. (In an 1867 diary, Mark Twain laments his naivete as a canny Gibraltarian saleswoman flatters him into investing in a pair of ill-fitting gloves.) 

But the global shift toward the Atlantic did not mean that the Mediterranean was forgotten. As the United Kingdom cultivated more trade with India, particularly after the opening of the Suez Canal in 1869, it became all the more important for the United Kingdom to maintain a strong influence in the Mediterranean to protect key routes through Egypt. At the same time, the Steam Age ushered in the importance of having well-dispersed coaling stations. Gibraltar, along with Malta and Aden, made up part of a chain of strategic possessions that helped to guarantee these routes. Ultimately, World War II provided the Rock of Gibraltar with its last act of military heroism when the port proved vital in the battle against German U-boats, both by discouraging them from entering the Mediterranean and by providing a mustering point for Atlantic convoys. Malta, a critical strategic island under heavy bombardment from the Axis powers, would surely have fallen were it not for Gibraltar's supply efforts.

For Spain, by contrast, the colony at Gibraltar represented a chronic challenge. In 1730, the Spaniards constructed a line of fortifications along the border designed to help Spain starve the colony into submission. This strategy was even more forcefully pursued starting in 1779, when a French-Spanish force besieged Gibraltar for three years, expending countless men and massive amounts of capital in a failed attempt at its capture, with the ultimate innovation being a chorus line of 211 floating cannons designed to bring the fortress down. But these efforts were to no avail; the fortress held out. 

Over time, communication between the Rock of Gibraltar and the Spanish mainland expanded as poor Andalusians increasingly found better wages across the border in Gibraltar. Spain was on a slow gradual decline throughout the centuries, but when Spanish Gen. Francisco Franco came to power after the Civil War ended in 1939, he, too, was deeply frustrated by the British presence. In 1954, Franco reacted to the British Queen's controversial visit to the colony (despite Spain's objections) by beginning to gradually close the border again, fully shutting it in 1969. This state of affairs lasted until 10 years after his death, when the border was finally completely reopened in 1985 and there was free movement between Gibraltar and the mainland once more.

Gibraltar Today

The years since 1986 have seen great changes taking place in the Gibraltarian economy. The United Kingdom's old trade routes have dried up, and the Royal Navy's global role of patrolling the sea-lanes is now being played by the United States, which established its own military base just up the Spanish coast in Rota in 1953, reducing Gibraltar's usefulness. The colony, which had long received substantial British subsidies, saw the military withdraw from the 1980s onward and the military's contribution to Gibraltar's GNP drop from 60 percent in 1984 to just 7 percent today.

As a result of these changes, Gibraltar has had to stand on its own two feet. It has played to its strengths and independently built an economy on four pillars: financial services, gambling, shipping and tourism. Using its links to the United Kingdom and its low tax environment, it has provided onshore opportunities for British companies to limit their tax exposure, while offering Internet gambling companies similar benefits for basing themselves in Gibraltar. The commercial shipping industry was always going to present an opportunity, considering Gibraltar's positioning and infrastructure, and its rich history has ensured a steady flow of tourists. The economy has boomed, most noticeably in the last decade while the developed world has struggled with the effects of the financial crisis. Between 2009 and 2013, while Spain shrunk 7.3 percent, Gibraltar was averaging growth of 9 percent per year. Gibraltar is one of the most densely populated spaces on Earth, but it is also now one of the richest, ranking behind only Qatar, Luxembourg, Norway and Switzerland in the International Monetary Fund's global GDP per capita calculations. 

But Gibraltar's innovative business model is coming under heavy pressure. The tax avoidance industry may be spun as a useful way to add flexibility to the United Kingdom's economy, but in fact it is depriving the British Inland Revenue of money. In current times of fiscal straitening and budget balancing, the government in Whitehall is looking to close loopholes. In 2013, British Prime Minister David Cameron wrote to 10 British Overseas Territories, including Gibraltar, expressing the need to, "get our houses in order" by increasing transparency to tackle tax avoidance schemes. In 2014, a law was introduced that would link tax in the betting industry to the gambler's location rather than the betting agency's location, which has the potential to undercut Gibraltar's advantage. Unsurprisingly the Gibraltar Betting and Gaming Association is challenging the law in the European Court of Justice. Whether or not these battles are won or lost immediately, the Conservative government is committed to trimming spending and curbing tax avoidance, and Gibraltar is likely to suffer.

Meanwhile, the tourist industry has suffered its own setbacks. Spain's center-right government under Prime Minister Mariano Rajoy, who was voted into power in 2011, has proved to be more Gibraltar-phobic than its predecessors, and relentless cigarette smuggling has led the Spanish to install substantial border checks that have slowed traffic to a snail's pace. This impediment seems likely to outlast the government's current term: Rajoy's party is currently leading in the polls for the next election at the end of this year. The party's border policy has the potential to severely disrupt Gibraltar's tourist industry; Gibraltar has already seen tourist expenditures drop by 40 percent between 2011 and 2014. 

Finally, the international port industry has become more competitive than ever, and Gibraltar faces direct competition from Tangiers (incidentally, Gibraltar's predecessor as Britain's foothold in the region), which has recently received a great deal of investment from the Moroccan government with the stated intention of creating the largest port in Africa; 2014 saw 17 percent year-on-year growth in shipment volumes as a result. Though still viable, the foundations for Gibraltar's economic growth may prove easily shaken.

Thus, today's Gibraltar faces unprecedented challenges. The people of Gibraltar voted resoundingly in 1967 and 2002 in favor of remaining British, and it is hard to imagine Spain or the United Nations taking assertive action and pushing through an annexation of the region against popular opinion. In 2002, the vote was almost comically skewed: a tenuous 187 "yes" votes to sharing sovereignty with Spain, versus over 17,000 "no" votes. In 2016, the British electorate faces a referendum that may spell its exit from the European Union, in which case Gibraltar could make the difficult decision to stay in at the cost of eroding links with the mother country. The Gibraltarian economy has seen strong growth, but it is currently under threat as forces move to close off its primary sources of success. 

Throughout Gibraltar's colonial history, its people have lived with the constant threat of Spanish annexation. But now they must manage a new threat altogether. Though its location at the mouth of the Mediterranean will give it lasting geopolitical significance, Gibraltar has lost its particular strategic utility to a much-altered United Kingdom. Because the British government, no longer the naval power it once was, lacks the incentive to subsidize Gibraltar's prosperity, the territory is now learning to fend for itself. Gibraltar's early successes have shown ingenuity and adaptability, and today's residents will need to show even more of both to avoid suffering the same fate as their ancient Neanderthal forbearers.

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