Cablegate: Scenesetter for U.S.-Spain Forum, Oct 9-11 In

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FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1297
INFO RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
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UNCLAS MADRID 000981

SIPDIS

STATE - EUR/WE, EUR DAS BOYER, WHA:S.WILLIAMS/J.GONZALEZ, H
STATE/H PASS OFFICES OF SEN. MARTINEZ, REP. GRIJALVA
TRANSPORTATION FOR EDDIE CARAZO AND OFFICE OF THE DEPUTY
SECRETARY
ENERGY FOR EERE: A/S ZOI, D.BIRNS, A.LEVER, U.ROHATGI
TREASURY FOR TREASURER OF THE UNITED STATES:R.RIOS
STATE PASS SEC FOR COMMISSIONER AGUILAR AND E.TAFARA

E.O. 12958: N/A
TAGS: ECON EINV PGOV PREL SP
SUBJECT: SCENESETTER FOR U.S.-SPAIN FORUM, OCT 9-11 IN
VALENCIA

1.(U) Embassy Madrid warmly welcomes your visit to Valencia
to participate in the fourteenth U.S.-Spain Forum.
U.S.-Spain relations are strong and based on shared global
interests, including our association in NATO, the fight
against terrorism, and growing economic ties. Spaniards are
enthusiastic about President Obama and his administration,
and within the government there is a general sense of
goodwill and optimism for increasingly closer bilateral
relations and enhanced engagement. The Forum takes place
just before the high-profile October 13 meeting between our
two presidents, which will be President Zapatero,s first
White House meeting in his five years in office. It also
takes place less than three months before Spain assumes the
presidency of the European Union. We are confident that your
participation in the Forum will help strengthen our bilateral
relations.

BILATERAL RELATIONS

2.(U) Spain is an important friend and ally that has achieved
a remarkable political and economic transformation since the
Franco dictatorship ended in the 1970s. We value its
cooperation on security issues and in the fights against
terrorism and narcotics. Spain values its relations with the
U.S. and is a strong bilateral defense partner, despite
differences in the past over Spain,s sudden withdrawal from
Iraq in 2004 and its withdrawal this year from the NATO force
in Kosovo. Spain has about 1000 troops in Afghanistan,
including a recently announced additional commitment of 220,
and it operates a Provincial Reconstruction Team. It also
allows us the use of two military bases that are crucial
transit points between the U.S. and Afghanistan and Iraq.
Counter-terrorism and law-enforcement cooperation is strong,
as are commercial relations. Since winning a second term in
March 2008, and even more strongly since the election of
President Obama, President Zapatero has stressed his desire
to further improve bilateral relations.

POLITICAL CONTEXT

3.(U) President Zapatero won reelection to a second term in
March 2008, but his center-left Spanish Socialist Workers
Party (PSOE) is seven seats shy of a majority in the 350-seat
Congress and has suffered reverses this year in regional and
European Parliament elections. Zapatero has come under
increased criticism in recent months for Spain's worsening
economic condition and what are perceived as the government's
inadequate and inconsistent efforts to reverse it. An April
cabinet shuffle that included replacement of the Economy and
Finance Minister has not noticeably improved the situation.
Zapatero has sought to show that he is taking a leading
international role in the response to the economic crisis,
and he has advocated vigorously for permanent Spanish
membership in the G-20; over the past year, Spain has been
invited to G-20 summits on an ad hoc basis, and it is likely
to continue to be invited at least until its EU presidency
ends in mid-2010. The conservative opposition Popular Party
(PP) has not been able to capitalize on Zapatero,s
unpopularity. The PP has suffered internal divisions and has
been dogged by corruption accusations that have implicated
Valencia regional president Camps, who will host the Forum,s
Saturday dinner.

ECONOMIC CONTEXT

4.(U) Spain underwent a remarkable economic transformation in
the years following its entry into the European Union. Over
the 15 years through 2007, it posted economic growth rates
well above the EU average to become the world's 9th largest
economy. The economy's strong performance was driven by a
housing and construction boom that came to a halt in late
2007, after which the global financial and economic crisis
aggravated the country,s woes. Spain has been in recession
for 18 months and is expected to be the last large economy,
and among the last in the EU, to resume growth. The economy
is expected to contract by around 4 percent this year and to
contract slightly in 2010. While the banking system was not
exposed to instruments based on U.S. subprime mortgages, and
there have been no major failures, some savings banks
( cajas,) are in trouble because of overreliance on
construction and real estate loans; the government is

encouraging mergers and has developed contingency rescue
plans. Unemployment is above 18 percent and is expected to
pass 20 percent in 2010.

5.(U) The government has responded with a major fiscal
stimulus. This includes extending already generous
unemployment benefits, funding major public works projects at
the municipal level, and providing targeted assistance to key
sectors and industries. The combination of increased
government spending and reduced tax revenues has boosted the
budget deficit to around 10% of GDP in 2009. While Spain's
low level of public debt enables it to run such deficits in
the short term, it will have to find a way to curb spending
in the next few years to get its deficit back down. The
government,s proposed 2010 budget hikes the value-added tax
and other taxes and is widely unpopular; lacking a
legislative majority, Zapatero will need to compromise with
small parties to gain approval.

6.(U) Spain is a major investor in the United States,
particularly in banking, road construction, and wind and
solar power. Spanish companies are interested in
participating in infrastructure projects in the U.S.,
especially in the development of high-speed rail. Spanish
businesses have invested heavily in Latin America and are
among the region,s most important banking, electricity, and
telecommunications firms.

THE U.S.-SPAIN COUNCIL AND THE U.S.-SPAIN FORUM

7.(U) The United States-Spain Council, based in Miami, was
established in 1996 by then-Vice President Gore and
then-President Aznar to encourage Spanish and U.S. corporate
leaders, government officials, and educational and cultural
leaders to promote better relations between the two
countries. It seeks to stimulate international trade and
investment and to increase educational exchanges and cultural
programs. Its Spanish counterpart, run out of the Foreign
Ministry, is the Fundacion Consejo Espana-Estados Unidos.
The Fundacion sponsors annual visits to Spain by young
American and Hispanic-American leaders, places recent
American graduates in Spanish companies for six-month
internships, and arranges conferences and art exhibits on
topics related to U.S.-Spanish relations. The Council and the
Fundacion meet at annual Fora that alternate between the U.S.
and Spain.

8.(U) This year's Forum, held in Valencia October 9-11, will
include a Friday night dinner at which Foreign Minister
Moratinos will speak, Saturday sessions on the economy,
renewable energy, transportation, and Latin America, a
Saturday lunch at which Crown Prince Felipe will speak, and a
Saturday dinner hosted by the Valencia Autonomous Community
(region) President Camps. On Sunday, the executive boards of
the Council and the Fundacion will meet separately and then
jointly, followed by a lunch for the boards hosted by the
Mayor of Valencia. The importance the Spanish give to the
Forum is demonstrated by the high level of GOS participation,
and they welcome the number and level of official
participants from the U.S. as a sign of our desire for a
close relationship.

FORUM SESSION TOPIC - RENEWABLE ENERGY

9.(U) Renewable energy is an increasingly important part of
the Spanish economy and of our bilateral relationship.
Abundant wind and sun and generous feed-in tariffs have
helped make Spain a world leader in wind and solar power.
Iberdrola is the world's largest producer of wind power, and
Acciona is the second largest. Gamesa, partially owned by
Iberdrola, is one of the world,s largest manufacturers of
wind turbines as well as operating wind farms. Spain is also
the world,s third largest generator of solar power, and many
firms are seeking approval to build photovoltaic and
concentrated solar projects. While U.S. companies are
investing in (AES) and supplying (GE and others) renewables
projects in Spain, Spanish investment in renewables in the
U.S. is much greater.

10.(U) Spanish companies own wind farms in about 20 U.S.
states and continue to expand. Iberdrola,s

multi-billion-dollar acquisition of Energy East last year
reportedly was delayed over the company,s insistence that
New York regulators allow it to keep Energy East,s wind
assets. Iberdrola plans to invest another 6 billion dollars
in U.S. renewable projects by 2012. Iberdrola-owned wind
projects have received over $500 million in stimulus funds in
grants it took in place of production tax credits, and
Acciona expects to receive significant amounts as well.
Gamesa and Acciona own four wind turbine manufacturing plants
in Iowa and Pennsylvania. Acciona owns the world,s third
largest solar plant, the 64-MW Nevada Solar One concentrated
solar (parabolic trough) project. Abengoa Solar is building
a 280-MW concentrated solar plant in Arizona that will be the
world,s largest. Abengoa Biofuels has several ethanol
plants in the U.S. In addition to the many investments
mentioned above, Spanish companies and government bodies
collaborate with DOE,s National Renewable Energy Laboratory
on research. Abengoa Solar has received five DOE or NREL
contracts to develop parabolic trough and power tower
technology. Abengoa has won DOE grants for second-generation
ethanol projects.

FORUM SESSION TOPIC - TRANSPORTATION

11.(U) With several population centers on the coast averaging
350 miles from Madrid, Spain is well suited for high-speed
rail. Its high-speed train service, the AVE, boasts
punctuality and prices competitive with airline travel, and
Spanish officials say it is on track to pass China, France
and Japan next year to become the world,s largest network.
The AVE between Madrid and Seville has greatly reduced air
traffic on this route, and since service between Madrid and
Barcelona was inaugurated last year, rail has taken much of
the market for this route as well. High-speed rail is also
popular with the government because it generates fewer CO2
emissions per passenger-mile than air travel.

12.(U) The development of the AVE has benefitted from EU
subsidies as well as strong GOS support. The Infrastructure
Development (&Fomento8) Ministry has purview over all
federal transportation issues, and its two sub-organizations,
ADIF and RENFE, are responsible for rail. At present, lines
connect Madrid to Seville and Malaga, Zaragoza and Barcelona,
and Segovia and Valladolid. Service from Madrid to Valencia
is expected to begin in 2010. The Zapatero government
welcomes U.S. interest in the AVE as a sign of support from
our very popular president. It has welcomed visits by
Transportation Secretary LaHood, a Federal Railway
Administration delegation, and a Congressional staff
delegation in the last four months. The GOS also sees U.S.
interest as an opportunity for Spanish railway, construction,
and infrastructure companies to sell to the U.S. market.

13.(U) Spanish companies are world leaders in highway
construction, and they operate toll roads around the world,
including in the U.S.

FORUM SESSION TOPIC - LATIN AMERICA

14.(U) Because of investment, language, immigration in both
directions, and cultural ties, Latin America occupies a
special place in Spanish foreign affairs. The U.S. and Spain
are in broad agreement on Latin America: both of us are
interested in democracy, the rule of law, and free markets.
However, we have disagreed on approaches towards Cuba and
Venezuela. Spain participates in annual Iberoamerican
summits, and the Iberoamerican Secretariat General is in
Madrid. Spain also participates in biannual EU-Latin America
summits and in biannual EU-Rio Group summits. Spain is
influential within the EU on Latin American issues. 40% of
Spain's 2008 development assistance budget of 5.5 billion
euros went to Latin America.

PERSONAL SECURITY

15.(U) In general, Spain is safe. However, Madrid and other
large cities, including Valencia, attract a large number of
criminals and pickpockets, and frequent crimes of opportunity
against the unwary do occur. It is best to carry only
essential items, including a photocopy of your passport's
photo page. Visitors can protect themselves against crime by

being street-smart, alert, and aware of their surroundings.
Travelers are encouraged to review the most recent Worldwide
Caution issued by the Department of State. As the Department
of State continues to develop information on any potential
security threats to Americans overseas, it shares credible
threat information through its Consular Information Program,
available on the Internet at http://travel/state.gov.
Additional information regarding safety and security in Spain
is available on the U.S. Department of State's website
(www.embusa.es).
CHACON

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