C O N F I D E N T I A L MADRID 001105
NSC FOR PAUL BROWN
STATE FOR E, EUR/FO, EUR/WE, EUR/ERA:KESSLER,
TREASURY FOR OIA, ALSO FOR INT'L BANKING AND SECURITIES
E.O. 12958: DECL: 10/20/2018
TAGS: EFIN, PREL, SP
SUBJECT: REQUEST TO INVITE SPANISH PRESIDENT ZAPATERO TO
THE GLOBAL FINANCIAL SUMMIT
Classified By: Ambassador Eduardo Aguirre, for Reasons 1.4 (b) and (d)
FROM AMBASSADOR AGUIRRE
1.(C) Spanish National Security Adviser Milagros Hernando
called me on the evening of October 17 to formally request
that President Zapatero be invited to the upcoming global
financial summit. She noted the size of Spain's economy and
its leading banks, as well as its influence in Latin America.
She added that Prime Minister Brown and President Sarkozy
2.(C) I strongly recommend that Spain be invited. Spain has
the world's eighth largest economy, and its experience in
recent years may provide valuable lessons. Because of
Spanish authorities' conservative regulation during the
country's housing boom earlier this decade, Spanish banks are
in relatively better shape than many of their counterparts
elsewhere in Europe. Although the severe housing slump that
started last year has left banks with troubled loans to
construction and real estate companies, none of the banks has
needed to be rescued, and the GOS does not anticipate needing
to inject capital into them.
3.(C) In addition, Zapatero is in a position to influence,
one way or another, some of the sorts of regulation that the
USG does not want to see result from the summit process.
Having been forced by other European governments' deposit
guarantee increases to raise Spain's own deposit guarantee,
his financial advisors understand very well the damaging
crossborder effects of uncoordinated governmental action.
Also, with one of the world's largest current account
deficits (over 10% of GDP), Spain is unusually dependent upon
crossborder financial flows and so has a great incentive to
avoid regulatory measures that would jeopardize such flows.
4.(C) The international stature of Spain's leading banks
provide another reason to invite Zapatero. Banco Santander
and BBVA are two of the world's largest banks. By market
capitalization, Santander is the largest bank based in the
Euro zone and the largest not from the U.S., China, or the
UK. The two have significant operations in Latin America,
the U.S., the UK, and elsewhere. As these banks would be
affected by any increase in crossborder monitoring of large
institutions of the type proposed by Prime Minister Brown,
Zapatero may share our interest in avoiding regulation that
would be counterproductive. Santander and BBVA also have
followed closely the impact of the crisis in the U.S.
Santander last week completed its purchase of Sovereign Bank
and had been in talks with Washington Mutual and Wachovia
before those institutions took other paths.
5.(C) Spain and Zapatero, by having a seat at the table, can
contribute greatly to a successful summit process. I
encourage a positive consideration of their request for an