VZCZCXRO8315
RR RUEHLA
DE RUEHMD #1277/01 3391120
ZNR UUUUU ZZH
R 041120Z DEC 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5717
INFO RUEHLA/AMCONSUL BARCELONA 3690

UNCLAS SECTION 01 OF 04 MADRID 001277 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE AND H:AMACDERMOTT 
PASS TO SENATE FOREIGN RELATIONS COMMITTEE FOR FULTON 
ARMSTRONG 
 
E.O. 12958: N/A 
TAGS: ECON OREP PREL SP
SUBJECT: SCENESETTER FOR CODEL DODD VISIT TO SPAIN DEC. 
10-12 
 
//INTRODUCTION AND SUMMARY// 
 
¶1. (SBU) Embassy Madrid welcomes your visit.  The Spaniards 
you meet will be eager to share their assessment of financial 
developments, Latin American issues, and bilateral relations. 
 Our elections were closely followed here, and a strong 
atmosphere of goodwill and optimism has emerged for 
increasingly closer bilateral relations and cooperation.  Our 
current relations on counterterrorism, counternarcotics, and 
military issues are strong.  The end of a long housing boom 
and the international financial crisis have led to a severe 
economic slowdown that the GOS has been unable to prevent, 
costing it public support.  The GOS believes Spain,s 
cautious banking regulation and the importance of its banks 
strengthen its case for continued participation in the G-20 
summit process even though it is not a member of the G-20. 
 
//BILATERAL RELATIONS// 
 
¶2. (SBU) As you are aware from your many years of leadership 
of the U.S.-Spain Council, Spain is an important friend and 
ally of the U.S., and we value its cooperation.  The fight 
against terrorism, narcotics, and human trafficking forms one 
of the cornerstones of our bilateral relationship, and 
Spanish troops are carrying out important missions in 
countries such as Afghanistan and Lebanon.  Spain has long 
fought a domestic terrorist threat from the Basque terrorist 
group ETA and suffered tragically from Islamic extremist 
terrorism in the 2004 Madrid train bombings.  We need to be 
innovative in finding new and improved avenues for bilateral 
cooperation with this trusted multilateral ally against the 
common threats we face.  Spanish officials closely followed 
our elections and expect relations at the senior levels of 
government to improve, giving us the opportunity to 
strengthen cooperation. 
 
//POLITICAL BACKGROUND// 
 
¶3. (SBU) President Zapatero's center-left Spanish Socialist 
Workers' Party (PSOE) was the victor in the March 9 general 
election, although it remains a minority government (seven 
seats shy of a working majority in the 350-seat lower house 
of parliament) that depends upon the support of other parties 
to pass legislation.  The opposition Partido Popular (PP) 
also gained seats and retained Mariano Rajoy as party leader, 
though the party has suffered from internal divisions. 
Zapatero kept most of the key players in his Cabinet in their 
posts.  First Vice President and Minster of the Presidency 
Maria Teresa Fernandez de la Vega is Zapatero's political 
deputy, while Second Vice President and Minister of Finance 
and Economy Pedro Solbes is his economic deputy.  Miguel 
Angel Moratinos remained in place as Minister of Foreign 
Affairs.  The most prominent change was that Carme Chacon 
became Spain's first-ever female Minister of Defense; she is 
described in the press as a possible eventual successor to 
Zapatero. 
 
//ECONOMIC CONTEXT// 
 
¶4. (SBU) Spain enjoyed one of the fastest growing economies 
in Europe for the 15 years through 2007, but the good times 
have come to an abrupt halt.  A housing boom that contributed 
greatly to growth for several years ended suddenly last year; 
housing prices have fallen, construction has almost stopped, 
and unemployment has risen rapidly to almost 13 percent.  The 
international credit crisis has aggravated the situation, as 
Spain,s high current account deficit leaves it dependent on 
now-scarce crossborder lending.  It is widely assumed that 
the economy is already in a recession, and GDP is expected to 
contract further in 2009.  Months of worse-than-predicted 
economic news have led to widespread criticism of Zapatero 
and his economic policymakers for their upbeat predictions 
during the campaign and for having downplayed the economic 
difficulties long after many others were saying Spain was in 
a crisis.  Public skepticism has been aggravated by the 
failure of a series of GOS measures to noticeably affect the 
slowdown and by Zapatero's initial efforts to blame the U.S. 
subprime mortgage crisis for all of Spain's troubles.  Now 
that the budget surplus of the previous four years has become 
a rapidly growing deficit, tensions have heightened over 
regional government financing issues and the proposed 
austerity budget for 2009. 
 
¶5. (SBU) Despite the economic difficulties, Spain has not 
faced the same financial turmoil that other developed 
countries have seen.  In part this is due to the Bank of 
Spain,s cautious regulation, including requiring higher 
 
MADRID 00001277  002 OF 004 
 
 
reserve provisioning in good times and not allowing 
off-balance-sheet SIVs.  Spanish financial institutions also 
do not own many instruments based on U.S. mortgages. 
Although many banks have problem loans to troubled 
construction and real estate companies, there have been 
relatively few mortgage defaults so far, and no Spanish banks 
have gone under, although there is talk that some of the 
smaller "cajas" (savings banks) may merge.  Spain,s largest 
bank, Banco Santander, has taken advantage of reduced bank 
stock prices to buy troubled UK banks and to buy the 75 
percent it did not already own of the Pennsylvania-based 
Sovereign Bank.  BBVA, the country,s other large bank, also 
has a significant presence in the U.S. through its ownership 
of Compass Bank.  (These are but two examples of Spain,s 
emergence as one of the leading foreign investors in the U.S. 
in recent years; other sectors that have seen significant 
Spanish investment include wind and solar power, ethanol, 
road construction, foods, and insurance.) 
 
¶6. (SBU) President Zapatero argued that the size of Spain,s 
economy, the significant international presence of Santander 
and BBVA, and the Bank of Spain,s successful regulation 
meant that Spain deserved a place at the November 15 G-20 
financial summit even though it was not a G-20 member.  He 
made it a matter of national pride to attend (risking 
political damage if he had failed to be invited) and 
succeeded in participating as a result of the intervention of 
French President Sarkozy.  While domestic press articles have 
suggested that UK Prime Minister Brown is likely to invite 
Zapatero to the followup summit next April, Spain is not a 
member of the Financial Action Task Force that is working on 
many of the regulatory recommendations from the November 
summit.  Zapatero has spoken often of the importance of 
coordinated European and U.S. action in facing the financial 
crisis. 
 
¶7. (SBU) The GOS has taken a series of measures over the last 
several months to address the economic slowdown.  Soon after 
Zapatero,s reelection, it implemented his campaign promise 
of a 400-euro tax rebate.  Since September, the GOS has 
increased deposit insurance (reluctantly, as a result of 
other countries, increases) and announced plans to buy 
Spanish banks, high-quality mortgage-backed assets, 
guarantee new debt, and inject capital if necessary.  Banks, 
reactions have been mixed.  Neither the GOS nor the banks say 
that new capital is needed, and banks only sold 2.1 billion 
euros out of a possible 5 billion in assets that the GOS had 
been willing to buy in its first round of purchases last 
month.  However, it appears that banks are actively seeking 
GOS guarantees for their new lending in a first round that 
ends December 3.  Zapatero also announced on November 27 an 
11-billion-euro spending package that features 8 billion 
euros for municipal governments for quick-starting new 
infrastructure projects aimed at employing many of those who 
have lost construction jobs.  The remainder will go to the 
struggling auto sector, environmental initiatives, research 
and development spending, the handicapped, and other sectors. 
 The aid package will amount to just over 1 percent of 
Spain's GDP and is aimed at creating 300,000 jobs in 2009. 
These and previous anti-crisis measures will put the public 
sector deficit close to 3 percent of GDP in 2008 and 2009. 
Press reports have speculated that Second Vice President and 
Finance/Economy Minister Pedro Solbes has lost influence with 
Zapatero as a result of frustration over the economic 
slowdown. 
 
//LATIN AMERICA// 
 
¶8. (SBU) Spain wields significant influence in Latin America, 
where its businesses have invested heavily.  Like the U.S., 
Spain wants strong democratic and free market institutions in 
the region.  We have sharply differing views on Cuba, as 
Spain believes it can encourage change via engagement with 
the Castro regime, but we seek the same end result.  On 
Venezuela, Spain appears to be going ahead with the sale of 
four ocean-going patrol ships and four Coast Guard-type high 
seas patrol ships; plans to sell aircraft to Venezuela were 
scuttled when the U.S. objected to the transfer of U.S. 
technology in the aircraft.  Spanish companies have had major 
problems with Argentina,s government, including the ongoing 
nationalizations of Areolineas Argentinas from the Spanish 
Marsans group and of the private pension funds, one of which 
is owned by BBVA.  Spanish officials have expressed hope that 
the USG will increase engagement with Latin America in the 
coming years, sometimes alleging that it was abandoned after 
9/11. 
 
 
MADRID 00001277  003 OF 004 
 
 
//MILITARY AND SECURITY COOPERATION// 
 
¶9. (SBU) Spanish military cooperation is important to the 
U.S.  The southern Spanish bases of Rota and Moron are 
strategic hubs, midway between the U.S. and theaters of 
operation in Afghanistan and Iraq.  Spain has troops in 
Lebanon (roughly 1,100), Afghanistan (780), Kosovo (500), 
Bosnia (260), and a smattering of others in various UN & EU 
observer missions.  Although the Afghan NATO mission is not 
popular with the Spanish public, the GOS clearly expects the 
incoming U.S. Administration to request an increased Spanish 
effort there.  Defense Minister Chacon has talked publicly of 
the need to remove the GOS, self-imposed cap of 3,000 total 
overseas military troops deployed, but at the same time GOS 
officials have stressed that the solution in Afghanistan 
cannot be purely military and that a new strategy is needed. 
Elsewhere on the diplomatic front, Spain in recent years has 
more often been a follower than a leader, looking to stay 
within EU consensus on issues such as Iran and missile 
defense.  Spain will not recognize Kosovo and is so far 
refusing to train or fund Kosovar security forces. 
Nonetheless, its commitment to KFOR remains firm. Spain is 
supportive of U.S. efforts towards Middle East peace.  Driven 
by the twin threats of terrorism and illegal immigration, 
Spain is also increasing its engagement with the countries of 
North and Western Africa.  The seizure by Somali pirates of a 
Spanish fishing ship earlier this year led to a ransom 
payment and sparked GOS interest in addressing piracy.  Spain 
is planning to send two warships to join an EU mission off 
Somalia and already has a patrol plane operating there. 
 
//COUNTERTERRORISM COOPERATION// 
 
¶10. (SBU) Spain is an al-Qaeda target and a critical player 
in U.S.-EU counterterrorism efforts due to its proximity to 
the Maghreb and a population that includes more than one 
million Muslims, mostly immigrants.  Senior Al-Qaeda leaders 
often call for attacks to recapture the medieval "Al 
Andalus," and the Spanish enclaves of Ceuta and Melilla in 
North Africa are a fixation for Al-Qaeda in the Maghreb and 
other extremists.  The March 11, 2004, train bombings killed 
191 persons and injured nearly 2,000 more, making it the 
second-deadliest terror attack in European history.  The 
Spanish government considers the threat from Islamic 
terrorism to be one of its top national security priorities 
and has identified numerous Islamic extremist groups 
operating within its borders.  The Spanish are actively 
pursuing Islamic extremism terrorism-related investigations 
and have scores of suspects in jail. Public opinion polling 
shows nearly three-quarters of Spaniards are worried about 
the threat of Islamic fundamentalism, more than in the U.S. 
or Europe as a whole. 
 
¶11. (SBU) Bilateral cooperation is strong.  Spain pursues an 
aggressive agenda in law enforcement, judicial, and 
information-sharing efforts, at least with us.  One example 
is the HSPD-6 agreement we signed in 2007 to facilitate the 
sharing of information between our national counterterrorism 
authorities.  Spain also is a founding member of the 
Proliferation Security Initiative and has participated 
actively during its five-year existence.  Spain has hosted a 
number of Global Initiative to Combat Nuclear Terrorism (GI) 
events in 2008 and has been at the forefront of efforts to 
expand membership.  Spanish officials recently have given 
indications that Madrid wants to deepen bilateral cooperation 
-- especially emergency preparedness operational exercises -- 
to combat nuclear terrorism in the coming year.  Our 
Consulate General in Barcelona is increasing its staff size 
as part of an inter-agency initiative to host a 
jointly-coordinated counterterrorism, anti-crime, and 
intelligence center to combat the target-rich environment of 
terrorist and criminal activities in the region, which has 
been the site of more than a dozen raids on suspected radical 
Islamists since 9/11, including the dismantlement in January 
2008 of a cell with ties to Al-Qaeda that intended to attack 
Barcelona's subway system 
 
//TOPICS YOU MAY BE ASKED ABOUT BY THE PRESS// 
 
¶12. (SBU) Overflights - The issue of so-called "illegal CIA 
flights" carrying terrorism suspects to Guantanamo has been 
prominent in the Spanish media in recent days.  The reports 
are muddled and contain a fair amount of innuendo.  They 
suggest that the Aznar government allowed the transport of 
terrorism detainees to Guantanamo via Spain.  The reports 
also confuse the so-called CIA flights with routine U.S. 
military flights via Spain (roughly 4,000 a year).  We and 
 
MADRID 00001277  004 OF 004 
 
 
the GOS have tried to make it clear that the U.S. military 
has done nothing illegal and has fully respected our 
bilateral agreements regarding military flights, which would 
include seeking the informed consent of the Spanish 
government for any flight carrying controversial cargo or 
passengers.  Unfortunately, this controversy often leaves us 
in the position of trying to prove a negative.  If asked 
about this by the media, we suggest making the point that the 
U.S. places a high value on relations with Spain and pays 
scrupulous attention to the notification and flight clearance 
requirements contained in our bilateral agreements 
 
¶13. (SBU) Possible VP Biden Visit - The Spanish press have 
reported extensively on President Zapatero,s lack of a 
meeting with President Bush and the lack of a Zapatero White 
House visit (until last month,s G-20 financial summit). 
They followed closely statements during the presidential 
campaign by Senators Obama and McCain and their spokesmen 
about the possibility of meeting with Zapatero.  The GOS has 
made clear its pleasure with the result of the election, and 
it may have unrealistic expectations about how soon Obama 
will visit Spain or Zapatero Washington.  Spanish officials 
told reporters recently that Vice President-elect Biden told 
Zapatero in a November 17 phone conversation that he would 
visit Spain shortly after taking office to discuss the global 
financial crisis.  The Vice President-elect also was said to 
have mentioned the importance the President-elect places on 
bilateral relations and highlighted the possibility for 
cooperation on Latin America.  We have not heard any 
confirmation of this from U.S. sources and have told 
reporters that we cannot speak for the incoming 
administration. 
 
//PERSONAL SECURITY// 
 
¶14. (U) In general, Spain is safe.  However, Madrid and other 
large cities attract a large number of criminals and 
pickpockets and frequent incidents of crime 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 
documents, 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). 
 
//CONCLUSION// 
 
¶15. (U) Again, we are looking forward to your visit.  Amid 
the current atmosphere of increased goodwill toward the 
United States, we want to set the stage for continuing 
improvements in bilateral cooperation.  There is much we can 
do together. 
AGUIRRE