VZCZCXYZ0000
RR RUEHWEB

DE RUEHMD #0794/01 2001547
ZNY CCCCC ZZH
R 181547Z JUL 08 ZDK
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5111
INFO RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L MADRID 000794

SIPDIS

TREASURY FOR THE OFFICE OF INTERNATIONAL TAX COUNSEL
(BKISSEL)

E.O. 12958: DECL: 07/18/2013
TAGS: ECON EFIN PGOV PTER SP
SUBJECT: AMBASSADOR MEETS WITH SECOND VICE PRESIDENT AND
FINANCE MINISTER

Classified By: Deputy Chief of Mission, Hugo Llorens, 1.5 (b) and (d)

¶1. (C) Summary: Ambassador met with Second Vice President and
Finance Minister Pedro Solbes on 7/17/08. The minister
acknowledged the serious economic difficulties that Spain was
facing. He said that he would review the issue of granting
the same tax benefits to religious denominations such as the
Mormons as other groups receive. Solbes was also willing to
review the 1990 double taxation treaty between the U.S. and
Spain again. He was fully on board with respect to
maintaining tough economic sanctions against Iran. End
Summary

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PARTICIPANTS
------------

¶2. (U) Minister Solbes was accompanied by Senior Adviser
Fernando Valero San Paulo. Ambassador was accompanied by
EconOff.

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GENERAL ECONOMIC CONDITIONS
---------------------------

¶3. (C) Second Vice President and Finance Minister Pedro
Solbes said that Spain was facing a "perfect storm" of
adverse economic circumstances. He said that in the medium-
to long term it was "easy" to do what Spain needs to do (he
did not specify what), but that in the short-term, things
were difficult. He said that he expected the next couple of
quarters to be tough. The Ambassador noted that with
unemployment rising, Spain may have greater difficulty in
integrating immigrants. Solbes responded that it depended on
where the immigrants were from. Latin Americans had no
cultural problems. Romanians (the second largest immigrant
group in Spain) might return to Romania where the economy is
growing quickly or go to other EU countries. Solbes
acknowledged, however, that North Africans would likely stay,
and should there be large numbers of unemployed youths in
urban areas, that could pose a problem. Solbes emphasized
that high oil prices were a particular burden on Spain
because it was so dependent on imported petroleum products
(more so than most other EU countries). In the long-term,
that had to change. He said his immediate problems would be
much easier were oil prices to drop to USD 100 a barrel!

-----------------------------------
TAXATION OF RELIGIOUS DENOMINATIONS
-----------------------------------

¶4. (C) In Spain, religious groups such as the Mormons,
Jehovah's Witnesses, and Buddhists are recognized as
religions with "well-known deeply-rooted" beliefs. However,
they do not receive the same benefits and privileges as other
religions that are also recognized as such. The Ambassador
asked whether it would be possible to provide the same
status. Solbes said that he was open to reviewing the issue,
although he said that this year was not the best year to
change something that might have negative revenue
implications, marginal as he acknowledged they would probably
be. The Finance Minister added that Spain was changing
rapidly with respect to religious matters. Ten years ago, he
said, it would have been "out of the question" to consider
this topic.

---------------------------------
U.S.-SPAIN DOUBLE TAXATION TREATY
---------------------------------

¶5. (C) The Ambassador asked whether the GOS would consider
amending 1990 double taxation treaty between the U.S. and
Spain along the lines suggested by the American Chamber of
Commerce. Solbes said that his staff had had conversations
with General Electric and General Motors, and that they had
not indicated that this was such an urgent priority.
However, he said he was willing to review the matter again.

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IRAN
----

¶6. (C) The Ambassador emphasized that the U.S. was seeking a
diplomatic solution to the Iranian nuclear issue as the
decision to send U/S. Burns to Geneva demonstrated. In order
for diplomacy to succeed, however, Iran needed to be
presented with a stark choice with respect to its economic
future. Solbes agreed and noted that in Spain there was no
disagreement with respect to the fundamental "justice" of the

American stance on Iran.

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COMMENT
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¶7. (C) The Second Vice President seemed surprisingly relaxed
for somebody in the eye of the Spanish economic storm. He
was also somewhat philosophical and mentioned with the
Ambassador that at 66 "he was getting on in years and was a
bit tired." Embassy will be following up with Valero with
respect to the religous taxation and double taxation matters.

Aguirre