Gibraltar deal ends isolation from EU

Britain and Spain signed a new deal over the status of Gibraltar yesterday, ending a long-running battle between the two countries and unblocking a logjam of stalled EU legislation.

The agreement in Brussels, which does not affect the sovereignty of the British colony, settles important diplomatic issues. It has Europe-wide significance because Spain had blocked Britain's attempt to sign up to new areas of police and judicial co-operation under the Schengen Agreement.

Britain, Spain and Gibraltar made concessions, and each praised the breakthrough as a deal "without winners or losers". At the heart of the problem lay a dispute over whether Gibraltar's local authorities were competent to apply European directives.Spain - wary of the sovereignty implications - said they were not, and insisted on dealing directly with London.

Spain and Gibraltar will now open communications using a special "postbox" in the Foreign Office to conduct their business. This allows EU directives to be applied by London.

Gibraltar-issued ID cards will henceforth be recognised by Spain for travel within Europe. And EU companies operating on the Rock can register subsidiaries elsewhere.