US embassy cable - 04MADRID2012

UNCLAS MADRID 002012 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PTER, ETTC, SP, Counterterrorism, Trade Issues 
SUBJECT: SPAIN'S ECONOMY MINISTER LOOKS FOR FISCAL 
DISCIPLINE AND PRODUCTIVITY, PROMISES SUPPORT ON TERRORISM 
FINANCE 
 
 
1. Summary.  Second Vice President and Minister of Economy 
and Finance Pedro Solbes described to Ambassador May 27 his 
role in the Zapatero government as finding a balance between 
the "excess enthusiasm" of his fellow ministers and 
maintaining the fiscal discipline committed to by President 
Zapatero.  Calling the recent model of Spanish economic 
growth built on domestic demand and construction exhausted, 
Solbes foreshadowed more government investment in education 
and research and development to improve Spain's  productivity 
and competitiveness.  The Ambassador transmitted the concern 
he was hearing from the American business community regarding 
recent statements by members of the Zapatero government which 
could be interpreted as anti-American, encouraging Solbes to 
reach out directly to the U.S. business community. Solbes 
signaled Spain's willingness to continue its close 
cooperation with the U.S. on terrorism finance, acknowledging 
the need for urgent passage of implementing regulations for 
Spain's terrorism finance law and better coordination on 
designations for terrorist asset freezing.  End Summary. 
 
Tone Down the Rhetoric 
 
2.  Ambassador opened the May 27 meeting by voicing the 
concern he was hearing from the U.S. business community over 
the rhetoric used by the Zapatero government in the runup to 
the June 13 European Parliament elections.  The Ambassador 
emphasized that for the past five years, the U.S. had been 
Spain's leading foreign direct investor, bringing in over $42 
billion in FDI.  This important constituency was nervous. The 
Ambassador noted U.S.-Spanish bilateral trade and investment 
still had much potential and room for growth.  The Ambassador 
encouraged Solbes to reach out, perhaps speaking to the 
American business groups at a luncheon.  Solbes concurred, 
emphasizing the Zapatero government wanted the best possible 
cooperation with the U.S., not just in business but across 
the board. 
 
Fiscal Discipline and the Need for Productivity Growth 
 
3.  Emphasizing that he had not participated in the 
development of the Socialist Party's (PSOE) economic program, 
Solbes described his job as a balancing act between the 
"excess enthusiasm" of some of his government colleagues and 
maintaining the fiscal discipline promised during the 
campaign by President Zapatero.  Solbes lamented the 
perception that the Aznar government had left everything in 
the economic sphere in wonderful shape.  In reality, there 
were still many structural reforms to be made.  Spanish 
economic growth in recent years was overly dependent on 
domestic demand, particularly the construction sector.  Spain 
needed more investment in education and research and 
development to improve productivity.  In response to the 
Ambassador's query on the vulnerability of the housing 
sector, Solbes said the government needed to introduce more 
transparency into housing policy.  Solbes noted that Spain 
spent 40% of GDP on social programs, relatively low compared 
to some EU countries, but probably still too high.  Health 
care costs amounted to 10% of GDP, but were steadily rising. 
The Ambassador noted the lack of flexibility of labor markets 
remained a major problem,  Solbes agreed, but observed  that 
it had been a problem for years and slowly but surely was 
improving.  A culture change was needed as well.  Judges 
always sided with the employee  seeing him as poor and 
exploited and the employer as wealthy.  Still, Solbes said, 
compared to France, Germany or Italy, while Spain's standard 
of living might be somewhat lower, its economy was much more 
flexible. 
 
Terrorism Finance:  A Strong Partner 
 
4.  The Ambassador noted our strong desire to continue 
working closely with Spain in the war against terrorism 
finance, and thanked Solbes for Spain's leadership in this 
area.  Solbes committed that Spain would continue to be a 
strong partner on terrorism finance.  It would work within 
the EU framework and encourage greater US-EU cooperation in 
this area.  He understood the importance of swift government 
approval of implementing regulations for Spain's 2003 
terrorist finance law given continued delays and acknowledged 
traditional attitudes exhibited by some parts of the 
government slowed our ability to work together on jointly 
designating and freezing suspect assets. 
 
 
 
 
ARGYROS