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The European Council has suggested giving Spain a veto over Gibraltar's future trade relations within the bloc during Brexit negotiations.
The territory, located on the southern tip of Spain, has been under British rule for more than 300 years.
The Council's proposal has sparked outrage in the United Kingdom, with one politician going so far as to claim it could lead to war between the two nations.
That sounds serious. What's happened?
Neighbouring Spain has been trying to regain control of Gibraltar since it ceded the territory to Britain in 1713.
While it's not making an explicit claim for the land as part of recent Brexit negotiations, it did issue a formal request in October for joint sovereignty over the British territory, repeating a demand made on the day Britain voted to "Brexit".
This time around the European Council has proposed giving Spain the power to veto any trade deal between Britain and the EU that involves Gibraltar.
That would give Madrid sway over the fate of the enclave once Britain has left the bloc and the status of its overseas territory is no longer an internal EU matter.
But it would not give Spain sovereignty over the region — it remains under British control.
In Britain, battlelines are drawn
The proposal has sparked the ire of the British Prime Minister, Theresa May, who has contacted Gibraltar's Chief Minister Fabian Picardo to reiterate her support.
"The Prime Minister said we will never enter into arrangements under which the people of Gibraltar would pass under the sovereignty of another state against their freely and democratically expressed wishes, nor will we ever enter into a process of sovereignty negotiations with which Gibraltar is not content," a spokeswoman said.
"The Prime Minister said we remain absolutely dedicated to working with Gibraltar for the best possible outcome on Brexit, and will continue to involve them fully in the process.
So, who's threatening to go to war?
The issue has been exacerbated somewhat by a former leader of Ms May's Conservative party, who drew a link between the situation in Gibraltar and the Falklands War.
"Thirty-five years ago this week another woman prime minister sent a taskforce halfway across the world to defend the freedom of another small group of British people against another Spanish speaking country," Michael Howard told Sky News's Sophie Ridge.
"I'm absolutely certain that our current Prime Minister will show the same resolve in standing by the people of Gibraltar."
Spain wants EU on its side
Spanish Foreign Minister Alfonso Dastis told Spanish newspaper El Pais that Madrid insists it should get a veto over any agreements regarding the strategic enclave as Britain prepares to leave the EU.
"We have spoken to our fellow [EU] members and institutions in recent weeks and have made clear Spain's position," he said.
"When the UK leaves the EU, the member nation of the EU is Spain, and in the case of Gibraltar the EU is therefore obligated to side with Spain."
What does this mean for Gibraltar?
Gibraltar has strong ties to its Spanish neighbours, with many of those working in Gibraltar live across the border in the Spanish town of La Linea.
EU membership guarantees an open border — without it there is no guaranteed access to Spain from Gibraltar.
Spain's increased security checks last year, among other restrictions, has been a source of concern for the enclave's residents.
The country has so far committed to keeping its border open to the territory following Brexit.
But restaurant owner Bryan Zammit fears a falling out between Britain and Spain will affect those on both sides of the border.
"If employees can't get in to work, then businesses won't be able to open," he said.
"If businesses can't open, it is going to be a domino effect. So worst-case scenario, as a businessperson, is that we could find ourselves in an economic stranglehold."
Gibraltar not a 'political pawn'
Voters rejected the idea of Britain sharing sovereignty with Spain by 99 per cent to 1 per cent in 2002.
But they overwhelming backed remaining in the EU in the Brexit referendum — with 96 per cent of residents voting to remain in the EU.
Mr Picardo is confident his territory will remain a part of Britain.
"Gibraltar is not going to be a political pawn in Brexit," he said.
"Neither is it going to be a victim of Brexit. Gibraltar is going to be very prosperous, very successful and entirely British before, during and after Brexit."
ABC/Reuters
Topics: government-and-politics, world-politics, foreign-affairs, territorial-disputes, gibraltar, united-kingdom, spain
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