US embassy cable - 04MADRID2602

UNCLAS SECTION 01 OF 02 MADRID 002602 
 
SIPDIS 
 
STATE FOR EUR/WE 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EFIN, PREL, SP, Trade Issues, American - Spanish Relations 
SUBJECT: VP SOLBES SAYS BUSINESS RELATIONS WITH U.S. CRUCIAL 
 
1. SUMMARY:  AT a June 24 Embassy-hosted lunch, Second Vice 
President and Minister for Economy and Finance Solbes said 
the new Spanish Administration wants to foster U.S.-Spanish 
business relations.  He reiterated his intention to retain 
budget stability and increase productivity while devolving 
more spending decisions to Spain's 16 autonomous regions.  He 
told the group that while he may not always win in 
interministerial battles, he is satisfied thus far and 
intends to stay in his position for his four-year term.  END 
SUMMARY 
 
2. On June 24, Ambassador Argyros hosted a lunch in honor of 
Pedro Solbes, Second Vice President and Minister for Economy 
and Finance.  Over 30 CEOs from American and Spanish 
businesses were invited to hear Solbes' briefing on the 
overall economic situation in Spain.  Describing business 
relations with the United States as "crucial," Solbes said 
his goal was to reduce obstacles that impede foreign direct 
investment (FDI) and to bring more companies to Spain.  He 
applauded cooperative efforts by regulatory agencies on both 
sides of the Atlantic, and underscored the positive impact of 
U.S. businesses in Spain, estimating they employ 170,000 
Spaniards.  Additionally, Solbes said Spanish businesses see 
the United States as an excellent market for their goods and 
services. 
 
3. Minister Solbes brushed off one participant's concerns 
regarding anti-U.S. electoral statements made by Spanish 
government officials.  He told the group that many things are 
said during political campaigns, but it should now be clear 
that the new GOS administration is working towards improving 
relations with both European friends and the United States. 
Solbes later added that Europe is not the United States, and 
while Europe is interested in coordinating with the United 
States, in some areas Europe will always be different.  He 
cited the Financial Services Action Plan as an area where he 
had "deep conviction" that it is not possible for Europe to 
do exactly the same as the United States. 
 
4. Solbes also briefed the group on the lines of action of 
the new GOS administration.  Acknowledging that the previous 
government had left the economy in relatively good shape, 
Solbes said he would try to build on areas that were already 
going well.  He stressed the importance of budget stability 
saying that while discretionary fiscal policy for a certain 
amount of time can be acceptable, the GOS will be moderate in 
its spending so that it is able to meet future obligations 
including pensions.  The new team is very committed to 
increasing productivity, and will also focus on policies that 
increase capital flows into Spain and provide incentives for 
innovative and high-tech investments.  Solbes also made 
specific mention of competition policy, saying more attention 
needs to be paid to anti-trust issues in Spain. 
 
5. The minister was candid with the group when a participant 
asked if the Ministry of Economy was able to stand firm on 
spending when other ministries had competing interests. 
Solbes responded that while he might not be perfectly happy 
with all the decisions made by the GOS, he would definitely 
be happy enough to stay in his position for four years. 
 
6. One of the businessmen asked Solbes to consider a 
"Marshall Plan" to boost R&D in Spain.  Solbes said more 
public money for R&D is not the solution, better management 
and coordination is.  He also signaled that the new 
government will delegate more spending decisions to the 
regions.  He said that in the last Aznar administration, 
regions received 20% of the budget; today with the transfer 
of education and health spending to the regions, the regions 
get 35%.  He lamented that not all regions are able to take 
responsibility and some have a history of turning to the 
central government for help.  He summed up the relationship 
as, "We legislate responsibility to them and they ask for 
money." 
 
7. During the lunch Solbes also took the opportunity to 
comment on the economic situation in general.  He said it was 
clear that the global economy was recovering with the United 
States as the engine of growth.  While he acknowledged that 
European growth was significantly slower than U.S. growth, he 
boasted that Spain was better off than its European 
neighbors, with its strong capital formation and its 
estimated GDP growth of 2.8%.  Solbes listed inflation and 
the energy intensity of Spanish industry as two key weak 
points in the Spanish economy.  He lamented that oil, with 
its escalating prices, continues to play such a crucial role 
in the overall economy. 
 
8. COMMENT: Solbes was gracious in accepting the Ambassador's 
invitation to speak at this "off the record" lunch, was 
generous with his time and candid in his remarks.  He gave 
the impression that he is capable and confident in his role 
as manager of Spain's budget and economy.  During the lunch 
Solbes gave the assembled American and Spanish CEO's a clear 
message that the new administration is pro-business, 
favorably inclined towards U.S. investors, and intent on 
maintaining the budgetary stability and economic growth of 
the previous administration.  He is clearly popular with the 
business community --- the luncheon participants 
spontaneously burst into applause when he declared his 
intention to stay on as Vice President and Minister for his 
full term. 
MANZANARES