There are concerns in Gibraltar about the knock-on effect of Spain's recession
By Steve Kingstone
BBC News, Gibraltar
At the Gibraltar border, a steady stream of pedestrians and vehicles enters the territory. It is mid-morning, and the Spanish are coming.
Overhead, the Union flag flutters nervously, as it has, in one form or other, since Spain ceded the Rock to the UK in 1713.
But in 2009 there is no cause for alarm. The incoming Spaniards are here not to demand sovereignty, but to shop.
Many head straight for the Gibraltar branch of the supermarket Morrisons, to take advantage of an exchange rate which has shifted dramatically in their favour.
Over the past two years, sterling has lost almost a third of its value against the euro, giving Spanish day-trippers considerable clout at the check-out.
"I do much of my weekly shop in Gibraltar and so do a lot of my friends," says Manuela, who lives across the frontier in the Spanish town of San Roque.
"Today, I've come to buy cheese, sugar, cigarettes and whisky - because they're far cheaper here."
Exchange rate tourism became especially popular in the lead-up to Christmas, as the pound sank perilously close to parity with the euro.
Increasingly, Spaniards have added a supermarket run to more traditional shopping excursions for perfume or electronic goods.
"In November and December last year, what we saw for the first time were Spaniards coming in almost as a matter of habit," says Edward Macquisten, chief executive of the Gibraltar Chamber of Commerce.
"This was previously unthinkable, because food was never cheaper here," he continues. "But now, because of the strength of the euro, Spaniards are voting with their wallets."
The currency is one of several factors which have given tiny Gibraltar a certain buoyancy in a sinking world economy. Another strength is its increasing diversity.
"Until the mid-1980s our economy was effectively dependent on Ministry of Defence activity in Gibraltar," says the territory's Chief Minister, Peter Caruana.
"But today, we are one of the most diversified micro-economies in the world. Tourism, shipping, online gaming and financial services all make an important contribution."
He reels off a list of supporting statistics: recent economic growth ranging from 8-12% a year; a 45% increase in the size of the job market over a decade; and GDP per capita which, if it were a sovereign state, would rank Gibraltar 13th in the world.
So does that make Gibraltar recession proof?
"Nobody is recession proof," admits Mr Caruana.
"We've already been affected by the credit crunch, and our banks are tightening their lending. But although we may well suffer reduced rates of growth, we do not expect our economy to get smaller."
Testament to that is the relative resilience of the local housing market.
Unlike the neighbouring region of southern Spain, where construction of second homes has all but ground to a halt, Gibraltar still echoes to the hum of the construction sites.
One soon-to-be-completed development is The Anchorage, a gated community of 96 luxury apartments, overlooking the bay where Lord Nelson's body was brought ashore after the Battle of Trafalgar.
Buyers have been a mixture of wealthy Gibraltarians and international investors.
"We're relatively well-positioned to ride out the storms," explains Louis Montegriffo, a sales consultant for the site.
Gibraltar is a limestone outcrop on the southern tip of the Iberian peninsula
"Back in October, at the height of the financial crisis, there was certainly a confidence issue; but since then, we've maintained a good level of interest - because of the finance centre and what it provides to individuals and companies."
Gibraltar's horizon is not without clouds.
Most immediately, there are concerns about the knock-on effect of what is likely to be a long and deep recession in Spain.
The neighbours share a range of business links - meaning Spain's pain could be felt by sectors including tourism, real estate and the legal community in Gibraltar.
'Little Britain in the sun'
The other lurking fear is of further instability in the global financial system, given that finance-related activity accounts for around a third of Gibraltar's GDP.
The worldwide tremors have coincided with a period of upheaval in tax rules: during 2010, the tax-exempt status enjoyed by a select group of companies will be abolished, to be replaced by a flat-rate corporation tax of 10%.
But Mr Caruana is optimistic that, if the recent turmoil produces greater scrutiny of global financial systems, Gibraltar stands to benefit.
"If the crisis ushers in greater harmonisation of standards, we welcome that," he says.
"We live by EU rules on transparency and the exchange of information; and we would like to see others adopt higher standards."
Back at the supermarket, business remains brisk - and it is not just Spaniards who are crossing the frontier to shop.
Gibraltar has become an economic safe haven for British expatriates living in Spain, many of whom receive pensions and hold savings in sterling.
"We're feeling the pinch, we've lost almost a third of our income," explains 70-year-old Christina Woodward, who is originally from Surrey but now runs a social club for English-speaking expats in Estepona.
"It's in no way Spain's fault," she stresses, "but we're lucky that we've got Gibraltar so close. It makes life a little bit easier."
Her social group - the Ice Club - will soon begin regular shopping excursions to Gibraltar.
It is all welcome business for a Little Britain in the sun, which has so far avoided the storm.