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Cablegate: Vp Solbes Says Business Relations with U.S. Crucial

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 MADRID 002602

SIPDIS

STATE FOR EUR/WE

E.O. 12958: N/A
TAGS: ECON ETRD EFIN PREL SP
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

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