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FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1887
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
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RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
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C O N F I D E N T I A L SECTION 01 OF 02 MADRID 000155

SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA, EEB/TPP/IPE
COMMERCE FOR 4212/DON CALVERT
TREASURY FOR OIA/OEE R.JOHNSTON AND OTP:M.CORWIN
STATE PASS USTR FOR D.WEINER

E.O. 12958: DECL: 02/04/2015
TAGS: ECON EFIN EINV ELAB KIPR SP
SUBJECT: AMBASSADOR SOLOMONT'S FEBRUARY 4, 2010 MEETING
WITH SPANISH SECOND VICE PRESIDENT AND ECONOMY/FINANCE
MINISTER ELENA SALGADO

REF: MADRID 148

MADRID 00000155 001.2 OF 002


Classified By: Ambassador Alan D. Solomont, for Reasons 1.4(b) and (d)

1.(SBU) Summary: In the Ambassador's February 4 courtesy
call, Economy and Finance Minister and Second Vice President
Elena Salgado described Spain,s economic challenges and said
the GOS would seek to gain public support for changes to
increase flexibility. The Ambassador emphasized the
importance of steps to improve the business climate,
including renegotiating our double taxation treaty and the
government's proposed legislative changes to fight internet
piracy. Salgado thought the bill containing the internet
piracy measures could be approved by the Congress before
August (though an opposition party legislator we spoke to the
next day was less optimistic). The Ambassador also explained
how the upcoming U.S.-Spain Forum in Washington could provide
an opportunity to address Salgado's aim of increasing
Spain,s profile in the U.S. End Summary.

Economic Difficulties
---------------------
2.(C) Minister Salgado said the current &risk fuss8 in
international markets (reftel) was hurting Spain a bit. She
said Spain,s public sector debt as a percentage of GDP was
just over half that of Greece and 10 percentage points below
the EU average. The government had run surpluses in the
years before the start of the crisis. Nonetheless, she
acknowledged the importance of the budget deficit.
Unemployment payments alone made up almost 3.5% of GDP and
would decline only gradually over the new few years. The GOS
had used money during the boom years to build lots of
infrastructure, so it could cut investment over the next few
years. It would continue funding research and development,
in which Spain was still below the EU average. Over the
medium term, the country's production model would have to
change, as construction could not employ as many people as it
had when Spain was building twice as many homes as it needed.
The GOS was seeking to increase tourism by attracting more
tourists to non-beach areas and throughout the year. She
mentioned health care (especially elder care), telecoms, the
auto industry, agriculture, and biotechnology as other
sectors in which Spain had opportunities.

3.(C) To address the economy,s problems, the GOS would try
to increase flexibility and had to convince society )-
including unions, citizens, industry, and the public sector
-- to accept changes. She said it was a myth that Spain,s
economy was inflexible, noting that a high percentage (Note:
about a third) of the economy,s jobs were temporary.
However, the rapid turnover meant that there was no incentive
to train this large segment of the labor force, while the
people with permanent jobs were very protected. Rather than
seeking to increase the ease of firing, it would be good to
increase flexibility within companies to take steps like
reducing hours or salaries instead of firing workers. This
had been accomplished within the auto industry, and Spain had
attracted production of a new model as a result, but it was
difficult to do in many cases because of industry-wide
bargaining.

Strengthening Business Ties
---------------------------
4.(U) The Ambassador explained the priority he placed on
strengthening business ties, including increasing investment
in both directions, helping U.S. companies increase exports
to Spain, and encouraging Spain to improve the business
climate in which U.S. companies operate. He said that
updating the double taxation treaty was important to
companies from both countries and offered any assistance he
could provide. He noted that Spanish companies had been able
to invest in the U.S. successfully despite their concerns
over Buy American requirements, and he described his advocacy
on behalf of two U.S. companies, proposed solar thermal
electricity investments in Spain. The Minister acknowledged
the importance of a level playing field. She said the GOS
was seeking to reduce its bureaucracy and expected to see
progress in the next three months. She promised to keep the
Ambassador informed.

IPR/Sustainable Economy Law
---------------------------

MADRID 00000155 002.2 OF 002


5.(U) In response to the Ambassador's emphasis of the
importance of the internet piracy measures in the
government's proposed Sustainable Economy Law (LES), Minister
Salgado said the thrust of the government's proposal had not
been disturbed by the recent change (Note: to require
judicial authorization before internet sites could be
blocked; this provision was added after the originally
announced proposal sparked opposition). She did not think
the proposal would be changed in the Congress, and she
thought the law could be approved before the August vacation.
(Comment: An legislator from the main opposition Popular
Party (PP) who met with visiting A/USTR Wilson the following
day was less optimistic. He predicted that the internet
piracy language could be acceptable to his party with some
amendment, but he said the LES as a whole would face
significant PP opposition, rendering it less likely that it
could be approved quickly. Septel on A/USTR Wilson's
meetings will provide more information on the status of the
proposed legislation. End Comment.)

U.S.-Spain Forum
----------------
6.(U) Minister Salgado welcomed the Ambassador's interest in
strengthening business ties and cited a need to increase
knowledge of Spain in the U.S. The Ambassador noted that one
opportunity to do this was the annual U.S.-Spain Forum, to be
held in Washington in July. The Embassy and U.S.-Spain
Council Chairman Sen. Menendez were seeking to increase the
level of participation by U.S. businesses and upgrade USG
participation. For Spaniards, the event would offer a
platform for telling Spain,s story.
SOLOMONT