SCENESETTER FOR U.S.-SPAIN FORUM, OCT 9-11 IN

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