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In 1840-1 Charles Blomfield, Bishop of London, raised the question of the establishment of a new diocese in the Mediterranean. The need for effective episcopal supervision, ministry for congregations and clergy in south east Europe and the desire to promote relations with the Orthodox Churches led to the establishment of the Diocese of Gibraltar by letters patent dated 21st August 1842. The new diocese was to cover the southern part of Europe bordering the Mediterranean with the bishop of London retaining jurisdiction over the rest of Europe. A Foreign Office circular issued 20th October 1842 to Ministers and Consuls in the states bordering on the Mediterranean indicated the limits of the bishop's jurisdiction which extended over the colony of Gibraltar and the Anglican chaplaincies in Spain, southern France, Italy, the Balkan states, Greece, Turkey, the Mediterranean islands, part of North Africa and the Middle East, and the coastal regions of the Black Sea.
An 1869 Foreign Office circular extended the jurisdiction of the bishop to include chaplaincies throughout Spain and Portugal, on the coast of Morocco, the Canary Islands, Italy, the shores of the Black Sea and on the lower Danube. Some minor changes were subsequently made to the south and east of the diocese. The cathedral of the diocese was situated in Gibraltar but the bishop normally resided in England and the registry was in London.
The 1870s were a period of transition for the diocese. In 1873 changes were made to the appointment of colonial bishops. When Bishop Sandford was appointed by a mandate issued by the Sovereign in 1873 he ceased to be "a body corporate" and "a perpetual corporation" capable of holding property, acting in courts and having a corporate seal. This development led to endowments in property and churches being held by local families and trustees. The situation was not resolved until the creation of the Gibraltar Diocesan Trust in 1909 to hold property and funds on the continent on behalf of the diocese.
1873 also saw the discontinuation of the allowance granted under the 1825 Act to Regulate the Payment of Salaries and Allowances to British Consuls at Foreign Ports, and the Disbursements at such Ports for certain public Purposes, (known as the Consular Advances Act) which had provided for the support of churches and chapels abroad where a chaplain was appointed and maintained by subscription. Consuls were authorized to provide a sum equal to the amount subscribed. The grants were discontinued in stages,some in 1874 while others, to Trieste and Marseilles, continued into the twentieth century. This caused great financial strain in the mercantile chaplaincies of the diocese. Their fluctuating seafaring population and often small resident population meant they had few permanent resources to draw on. Bishop Sanford promoted work with seamen and the Gibraltar Mission to Seamen was "... established to provide for the moral and spiritual wants of British and American sailors, visiting the ports of the Mediterranean and neighbouring seas". Although begun by Bishop Sandford early in his episcopate it was not until 1882 that the Mission was formally established. The Mission founded Sailors Clubs and Seamen's Institutes all around the Mediterranean to provide an alternative to the traditional sailors' entertainment. In September 1921 the Mission changed its name to the Mediterranean Mission to Seamen.
The early twentieth century saw many administrative developments, the establishment of the Bishop of Gibraltar's Fund for Aiding Poorer Chaplainies in 1906, the Gibraltar Diocesan Trust in 1909 and the Gibraltar Diocesan Association in 1916. The latter was, in effect, a friends organisation. In 1922 the Bishop of Gibraltar's Fund for Aiding Poorer Chaplaincies, the Gibraltar Diocesan Association and the Mediterranean Mission to Seamen's committee amalgamated to form the Gibraltar Diocesan Council, although the Mediterranean Mission to Seamen remained a separate organisation. The Gibraltar Diocesan Council met several times a year and advised the bishop on matters relating to the diocese.
The 1968 Lambeth Conference called for consideration to be given to parallel jurisdictions, especially in Europe, and in October 1970 the office of the Bishop of Gibraltar was combined with that of the Bishop of Fulham on the appointment of John Satterthwaite. From 1970 to 1980 the jurisdictions of Gibraltar and North and Central Europe remained separate, although administered by the same bishop of "Fulham and Gibraltar". In 1980 the Bishop of London divested himself of all his jurisdiction overseas and a new Diocese of Gibraltar in Europe, known as the Diocese in Europe, was established to supersede both former jurisdictions.