Spain Country Review.

Transcription

1 2018 Country Review

2 Table of Contents Chapter 1 1 Country Overview 1 Country Overview 2 Key Data 4 Spain 5 Middle East 6 Chapter 2 8 Political Overview 8 History 9 Political Conditions 12 Political Risk Index 92 Political Stability 107 Freedom Rankings 122 Human Rights 134 Government Functions 137 Government Structure 139 Principal Government Officials 151 Leader Biography 160 Leader Biography 160 Foreign Relations 161 National Security 176 Defense Forces 178 Appendix: The Basques 179 Appendix: Spanish Territories and Jurisdiction 203 Chapter Economic Overview 204 Economic Overview 205 Real GDP and GDP Per Capita 231 Nominal GDP and Components 235 Government Spending and Taxation 237 Money, Prices and Interest Rates 239 Trade and the Exchange Rate 241 The Balance of Payments 242

3 Energy Consumption and Production Standard Units 244 Energy Consumption and Production QUADS 248 World Energy Price Summary 253 CO2 Emissions 255 Agriculture Consumption and Production 257 World Agriculture Pricing Summary 265 Metals Consumption and Production 267 World Metals Pricing Summary 274 Economic Performance Index 277 Chapter Investment Overview 289 Foreign Investment Climate 290 Foreign Investment Index 296 Corruption Perceptions Index 309 Competitiveness Ranking 321 Taxation 330 Stock Market 331 Partner Links 331 Chapter Social Overview 333 People 334 Human Development Index 337 Life Satisfaction Index 340 Happy Planet Index 351 Status of Women 361 Global Gender Gap Index 363 Culture and Arts 373 Etiquette 377 Travel Information 379 Diseases/Health Data 388 Chapter Environmental Overview 394 Environmental Issues 395 Environmental Policy 395 Greenhouse Gas Ranking 397 Global Environmental Snapshot 408

4 Global Environmental Concepts 420 International Environmental Agreements and Associations 434 Appendices 458 Bibliography 459

5 Chapter 1 Country Overview Page 1 of 471 pages

6 Country Overview SPAIN Located in Southwestern Europe, the main body of Spain is a country that stands at the crossroads of the Atlantic Ocean and the Mediterranean Sea, Europe and Africa. Spain 's borders include the Atlantic Ocean and the Mediterranean Sea, as noted above, but also the Bay of Biscay, the Pyrenees Mountains, France, Portugal, and Andorra. Another border includes Gibraltar -- a semiautonomous overseas British territory, while the Spanish overseas territories of Ceuta and Melilla border Morocco. Through exploration and conquest, Spain became the most powerful nation in Europe in the 16th century, due to the immense wealth derived from its presence in the Americas. Spain's powerful world empire of the 16th and 17th centuries ultimately yielded command of the seas to England. Subsequent failure to embrace the mercantile and industrial revolutions caused the country to fall behind England, France, and Germany in economic and political power. Controversy over succession to the throne consumed the country during the 18th century, leading to an occupation by France during the Napoleonic era in the early 1800s. As well, a series of long, costly wars and revolts began a steady decline of Spanish power in Europe. The 19th century saw the revolt and independence of most of Spain's colonies in the Western Hemisphere. Spain remained neutral in World Wars I and II but suffered a bitter civil war in Following the victory of his nationalist forces, General Francisco Franco ruled as dictator of Spain until his death in After Franco's death, Spain made a peaceful transition to democracy and achieved rapid economic modernization. Spain joined the European Community, now the European Union, in January Spain's economy is dominated by the services sector, and the tourist industry holds particular importance since Spain is one of the most popular tourist destinations in the world. Today, the government continues to confront the Basque Fatherland and Liberty (ETA) terrorist organization, but its major focus for the immediate future will be on measures to reverse the severe economic recession that started in mid To date, that economic crisis has seriously challenged the Spanish financial system and the country's overall economic prospects. Page 2 of 471 pages

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8 Key Data Key Data Region: Europe Population: Climate: Temperate; clear, hot summers in interior, more moderate and cloudy along coast; cloudy, cold winters in interior, partly cloudy and cool along coast. Languages: Castilian Spanish Catalan Galician Euskera (Basque) Valencian Majorcan Currency: Holiday: 1 Euro = 100 cents National Day, 12 October Area Total: Area Land: Coast Line: 4964 Page 4 of 471 pages

9 Spain Country Map Page 5 of 471 pages

10 Middle East Regional Map Page 6 of 471 pages

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12 Chapter 2 Political Overview Page 8 of 471 pages

13 History Early History The Iberian Peninsula has been occupied for many millennia. Some of Europe's most impressive Paleolithic cultural sites are located there. The famous caves at Altamira contain spectacular paintings that date from about 15,000 to 25,000 years ago. The Basques are the first identifiable people of the peninsula and are the oldest surviving group in Europe. Iberians arrived from North Africa during a more recent period. Beginning in the 9th century B.C.E., Phoenicians, Greeks, Carthaginians and Celts entered the Iberian Peninsula, followed by the Romans, who arrived in the 2nd century B.C.E. Spain's present language, religion and laws stem from the Roman period. Although the Visigoths arrived in the 5th century C.E., the last Roman strongholds along the southern coast did not fall until the 7th century C.E. In 711, North African Moors sailed across the straits, swept into Andalusia and, within a few years, pushed the Visigoths up the peninsula to the Cantabrian Mountains. Efforts to drive out the Moors lasted until By 1512, the unification of present-day Spain was complete. Spanish Imperialism to The Spanish Civil War During the 16th century, Spain became the most powerful nation in Europe, due to the immense wealth derived from its presence in the Americas. A series of long, costly wars and revolts, however, capped by the English defeat of the "Invincible Armada" in 1588, signaled a steady decline of Spanish power in Europe. Controversy over succession to the throne consumed the country during the 18th century, leading to occupation by France during the Napoleonic era in the early 1800s, and to a series of armed conflicts throughout much of the 19th century. The 19th century saw the revolt and independence of most of Spain's colonies in the Western Hemisphere; three wars over the succession issue; the brief ousting of the monarchy and establishment of the First Republic ( ); and, finally, the Spanish-American War (1898), in which Spain lost Cuba, Puerto Rico and the Philippines to the United States. A period of dictatorial rule ( ) ended with the establishment of the Second Republic. It was Page 9 of 471 pages

14 dominated by increasing political polarization, culminating in the leftist Popular Front electoral victory in A republican style coalition government was established. Pressures from all sides, coupled with growing and unchecked violence, as well as uprising within the ranks of the military, ultimately led to the outbreak of the Spanish Civil War in July The Spanish Civil War lasted from 1936 through More than 350,000 were killed in the duration of the war. In 1939, Gen. Francisco Franco led the Nationalists into Madrid and on to victory over the Republican forces. Republicans were executed, jailed or exiled following the war. The Aftermath of the Spanish Civil War Following the victory of his nationalist forces in 1939, Gen. Francisco Franco ruled a nation that was both politically and economically exhausted. Spain was officially neutral during World War II but followed a pro-axis policy. The victorious Allies isolated Spain at the beginning of the postwar period, and the country did not join the United Nations until In 1959, under an International Monetary Fund stabilization plan, the country began liberalizing trade and capital flows, particularly foreign direct investment. Despite the success of economic liberalization, Spain remained the most closed economy in Western Europe, as evidenced by the small ratio of foreign trade to total economic activity. In addition, the pace of reform slackened during the 1960s, as the state remained committed to "guiding" the economy. Nevertheless, in the 1960s and 1970s, Spain was transformed into a modern industrial economy with a thriving tourism sector. Its economic expansion led to greater equality of income distribution, and helped develop a large middle class. Social changes brought about by economic prosperity and the influx of new ideas helped set the stage for Spain's transition to democracy during the latter half of the 1970s. Upon the death of Gen. Franco in November 1975, Prince Juan Carlos I de Borbón y Borbón, Franco's personally designated heir, assumed the titles of king and chief of state. Dissatisfied with the slow pace of post-franco liberalization, in July 1976 the king replaced Franco's last prime minister, Carlos Arias Navarro, with Adolfo Suárez González. Prime Minister Suárez took office promising that elections would be held within one year, and his government moved to enact a series of laws to liberalize the new regime. Elections to the "Cortes Generales" (the General Courts or National Assembly or parliament) were held on June 15, Prime Minister Suárez's "Unión de Centro Democrático," also known as the Union of the Democratic Center or UCD, a moderate center-right coalition, received 34 percent of the vote and won the largest bloc of seats. Under Prime Minister Suárez, the new Page 10 of 471 pages

15 assembly set about drafting a democratic constitution that was overwhelmingly approved by voters in a December 1978 national referendum.. The 1978 constitution established a parliamentary monarchy, with the prime minister responsible to the bicameral "Cortes Generales," comprised of the "Congreso de los Diputados" (Congress of Deputies) and the "Senado" (Senate). Note: Political developments from the time of the establishment of the parliamentary monarchy to the present are outlined in the section of this review called "Political Conditions." Special Entry: The Basques The Basque region is located in northern Spain and southwestern France, bordering the Bay of Biscay. More than two million Basques reside in four Spanish provinces (Alava, Guipuzcoa, Vizcaya, and Navarre) and three French provinces (Bayonne, Mauleon, and Navarre). Officially, for purposes of regional government, the Basque region in Spain consists of Alava, Guipuzcoa, and Vizcaya. The seat of the regional government is Vitoria, the capital of Alava. The government of Spain has been involved in a long-running campaign against "Euzkadi ta Askatasuna," also known as the Basque Fatherland/Homeland and Freedom or ETA, a separatist organization founded in 1959 and dedicated to promoting Basque independence from Spain and France. The ETA-led movement for Basque sovereignty is based upon the distinct Basque language, Euskera, and cultural identity. Although the 1978 constitution granted the Basque region substantial autonomy (as compared to other regions in Spain), many Basques have continued to call for greater decision-making authority. During its campaign for independence, ETA has targeted primarily Spanish security forces, military personnel and Spanish government officials. The group has carried out numerous bombings against Spanish government facilities and economic targets. To date, approximately 800 deaths have been attributed to the Basque separatist violence. In recent years, the government of Spain has had more success in controlling ETA, due in part to increased security cooperation with French authorities. Note: Later political developments involving the Basques are noted in the "Political Conditions" of this review. Note on History: In certain entries, open source content from the State Department Background Notes and Country Guides have been used. A full listing of sources is available in the Bibliography. Page 11 of 471 pages

16 Political Conditions Political developments from the late 1970s to the mid-1990s When General Franco died in late 1975, Prince Juan Carlos I de Borbón y Borbón, Franco's personally designated heir, assumed the titles of king and chief of state. Then, with an eye toward liberalization in the post-franco era, the king replaced Franco's last prime minister, Carlos Arias Navarro, with Adolfo Suárez González in mid Soon after Prime Minister Suárez took office, he promised that elections would be held within one year. He also began to enact a series of laws intended to liberalize the new regime. Parliamentary elections for the "Cortes Generales" (the General Courts or National Assembly) were held on June 15, Prime Minister Suárez's "Unión de Centro Democrático," also known as the Union of the Democratic Center or UCD, a moderate center-right coalition, received 34 percent of the vote and therefore won the largest bloc of seats. Under Prime Minister Suárez, the new assembly set about drafting a democratic constitution that was approved resoundingly by voters in a national referendum held in December In March 1979, new elections gave Suárez's party a large plurality. Soon thereafter, however, the coalition of parties backing Suárez began to disintegrate. In January 1981, Suárez resigned, and King Juan Carlos nominated Leopoldo Calvo Sotelo to replace him. On Feb. 23, 1981, while the Congress of Deputies was voting on Calvo Sotelo's nomination, rebel elements among the security forces seized the Congress building and tried to impose a militarybacked government. The great majority of the military forces, however, remained loyal to King Juan Carlos, who used his personal authority to put down the attempted coup d'etat. The bloodless coup d'etat attempt was over in 18 hours. With that drama resolved, on February 25, 1981 the Congress of Deputies reconvened to approve Calvo Sotelo's nomination as prime minister. Page 12 of 471 pages

17 In October 1982, the "Partido Socialista Obrero Español," also known as the Spanish Socialist Workers' Party or PSOE, led by Felipe González Márquez, swept both houses of the Spanish parliament, winning an absolute majority. The government was reconstituted following the June 1986 parliamentary elections. Prime Minister González called for a general election in October Although the PSOE retained control of the Senate, the party lost ground, both to the "Partido Popular," also called the People's Party or PP, on the right, and to the communist-led "Izquierda Unida," also known as the United Left or IU. González won a fourth term in 1993 and formed a minority government supported by the regional Catalan Party. Elections and the triumph of the Partido Popular In the parliamentary elections on March 3, 1996, no single party won a majority of seats in either house. The People's Party -- also known as "Partido Popular" -- received the most seats in the Senate, with 112 directly elected and approximately 20 designated senators. The Spanish Socialist Workers' Party won 81 directly elected seats and approximately 15 designated seats. Several other parties or party coalitions also obtained seats in the Senate, including: "Convergència i Unió," or the Convergence and Union; "Euzko Alderdi Jeltzalea-Partido Nacionalista Vasco," or Basque Nationalist Party; "Izquierda Unida," or the United Left; "Coalición Canaria," also known as the Canary Islands Coalition; "Partido Independiente de Lanzarote," or the Party of Independents from Lanzarote; "Eivissa i Formentera al Senat," also known as the Ibiza and Formentera in the Senate, or EFS. With 146 seats, José María Aznar's "Partido Popular" won a plurality in the Congress of Deputies. The second largest party, the "Partido Socialista Obrero Español," also known as the Spanish Socialist Workers' Party or PSOE, won 122 seats. The "Izquierda Unida," or the United Left, and Page 13 of 471 pages

18 the "Partit dels Socialistes de Catalunya," also called the Socialist Party of Catalonia or PSC- PSOE, formed a coalition with each party receiving 19 seats. The coalition "Convergència i Unió," or Convergence and Union, garnered 16 seats; the "Coalición Canaria," also known as the Canarian Coalition or CC, four seats; and the coalition "Iniciativa per Catalunya - Els Verds," or the Initiative for Catalonia - The Greens, two seats. Since Aznar's "Partido Popular," the PP, did not have an absolute parliamentary majority, it took two months to form a government with the support of the Catalan parties coalition, the Convergence and Union, and the Basque Nationalist Party, and the Canary Islands Coalition. Once in office after the 1996 parliamentary elections, Prime Minister Aznar gained the support of parliament for Spain's entry into NATO's integrated military structure and persuaded the European Union to toughen its stance toward Cuba. Aznar also undertook economic reforms that enabled Spain to meet the Treaty of Maastricht requirements to qualify as one of the first countries in the Economic and Monetary Union. On the domestic front, Aznar moved to transfer certain powers to the regional governments and continued the privatization of a number of government-held industries. During the "Partido Popular" government's first term in office, labor and management conducted successful negotiations to reform Spain's cumbersome labor laws. In the March 12, 2000, parliamentary elections, the "Partido Popular" or PP, led by Prime Minister Aznar, won an absolute majority of seats in the Congress of Deputies, increasing its seat share to 183 seats out of the total 350. The success of the Aznar government in improving the Spanish economy -- characterized by strong growth, reduced unemployment and Spain's success in joining the single European currency -- was widely cited as the reason for the PP's success at the polls. Although Aznar and the PP no longer had to depend on the support of small regional parties in parliament (as they did in their previous position as a minority government), Prime Minister Aznar signaled a willingness to seek a parliamentary alliance with some regional political parties, though not with any Basque parties. The electoral alliance between the "Partido Socialista Obrero Español," also known as the Spanish Socialist Workers' Party or PSOE, and the "Izquierda Unida," or United Left, alliance of leftist Page 14 of 471 pages

19 parties, led by the Communists, not only failed to gain seats for the Spanish left, but in fact lost several seats in the "Congreso." The PSOE lost 16 of its seats; the IU lost 13 of its seats. While the left lost seats, some of the smaller regional parties gained seats. The "Euzko Alderdi Jeltzalea- Partido Nacionalista Vasco," or the Basque Nationalist Party gained two seats and the "Bloque Nacionalista Galego," or the Galician Nationalist Bloc, won one additional seat. The election granted the renewed Aznar government a substantial mandate for pursuing further economic reforms. Although unemployment was significantly reduced under the first Aznar government, Spain's unemployment, at an estimated 13 percent, remained quite high. The Aznar government was expected to address this issue through legislation designed to provide greater flexibility in the labor market, in particular by revising the country's system of collective bargaining between workers and business owners and by encouraging part-time, more flexible, employment contracts. Other issues on the second Aznar government's agenda included dealing with an inflation rate of approximately 4 percent (higher than the European Union average and problematic because of Spain's membership in the Economic and Monetary Union or EMU); continuing economic reforms, including the further privatization of state-owned enterprises and the rationalization of the Spanish welfare state; and addressing both the violent and non-violent forms of Basque separatism. Perejil Island In 2002, bilateral relations with Morocco dominated the political scene. In the Moroccan capital Rabat, the foreign ministers of Morocco and Spain met in 2002 to discuss an agreement regarding the disputed Mediterranean island of Perejil. The tiny island, which is called Leila by Morocco, has been claimed by both countries and there has been an understanding between them that neither party would establish a permanent camp there. Page 15 of 471 pages

20 On July 11, 2002, when twelve Moroccan soldiers landed on the usually uninhabited island and set up both a camp and a national flag, the dispute was sparked and resulted in Spain's military landing on the island and ousting the Moroccans. The island is only one territory under dispute between Morocco and Spain; the African territory of Western Sahara, as well as the Spanish enclaves of Ceuta and Melilla, are also under dispute. Earlier, in October of 2001, Morocco had recalled its ambassador to Madrid, but following the Perejil dispute, Spain recalled its ambassador in mid An accord was brokered by the United States Department of State to resolve the dispute and was intended to restore the normal status to the island. Although the other outstanding territories may have been discussed, no accords on those issues were expected to result from the discussion. The war in Iraq In 2003, the international scene dominated Spanish politics. The Spanish government offered support for the United States-led war against Iraq, and co-sponsored various resolutions offered in the United Nations Security Council in this regard. At the time, Spain was a rotating member of the Security Council. The vast majority of the Spanish population opposed the war in Iraq and popular movements led activist marches in major metropolitan centers to campaign against Spain's endorsement of the war. The death of a Spanish photojournalist in the Palestine Hotel in Iraq's capital city of Baghdad by coalition forces sparked national outrage. In protest, Spanish journalists dumped their cameras and notepads in front of the Spanish Prime Minister's office and refused to cover proceedings in the Senate and Chamber of Deputies. It was unknown at the time how the Iraq issue would affect Aznar's popularity and standing in the Page 16 of 471 pages

21 Spanish political spectrum. (See below for results of next parliamentary elections.) Terrorism and its political effects in 2004 On March 11, 2004, simultaneous terrorist bombings on Spain's railway system killed 200 people and injured 500. The incident was the worst act of terrorism in Spanish history and was followed by massive demonstrations by the public in the streets of Madrid. Although the government of Prime Minister Jose Luis Maria Aznar initially stated that the bombings had been the work of ETA, which has historically waged acts of terrorism in order to advance its cause of Basque separatism, evidence strongly pointed toward Islamic terrorists organizations, such as al-qaida. Indeed, Spanish police detained five men in connection with the attacks. The Spanish newspaper, El Pais, reported that one of the men of Moroccan background was linked to the Salafia Jihadia group. Salafia Jihadia was thought to have been responsible for attacks in Casablanca in The rise of the political left In the aftermath of the acts of terrorism on Spanish soil, public anger over the handling of the situation by Aznar's government appeared to have shifted the balance in favor of the opposition going into parliamentary elections on March 14, First, Spaniards were incensed that the government had publicly tried to blame ETA when evidence indicated that Islamic terrorists were likely to be responsible. Second, Spaniards began to express the view that they had been made targets by virtue of the fact that Aznar had been a key ally to the Page 17 of 471 pages

22 United States in the war in Iraq in About 90 percent of Spaniards were against the war and their country's involvement, leading to Spain being the site of some of the world's largest anti-war demonstrations in At the polls, more than 77 percent of the electorate turned out to vote, presumably propelled by the terrorist attacks, effectively handing victory to the opposition Socialist Party and defeating Aznar's center-right Popular Party. Election results showed that the Socialists won 42 percent of the vote, while Popular Party won 38 percent. New orientation toward foreign relations Considered to be a moderate -- more akin to a social democrat than a socialist in terms of ideology -- Spain's new Prime Minister Jose Luis Rodriguez Zapatero vowed to continue the fight against terrorism, but said the Spanish troops must withdraw from Iraq unless there was a strong United Nations mandate. Indeed, Jose Luis Rodriguez Zapatero said that unless the United Nations took charge of Iraq and a new United Nations mandate was brought to bear, he would pull Spanish troops out of Iraq. In March 2004, there were more than 1,300 Spanish troops in the Middle East country. Describing both the war and the occupation of Iraq as a disaster, Zapatero called for a grand international alliance against terror and an end to "unilateral wars." Although he said that United States President Bush and United Kingdom Prime Minister Tony Blair might benefit from engaging in "some self-criticism" over their decision to invade Iraq, he noted that the incoming Socialist government would cultivate "cordial relations" with Washington. On April 16, 2004, it was announced that Socialist Party leader Jose Luis Rodriguez Zapatero was formally approved by the Spanish parliament to be the country's next prime minister. Zapatero won by an absolute majority in the first round vote and was scheduled to assume his duties on April 17, Page 18 of 471 pages

23 Zapatero soon declared he would recall the 1,300 Spanish soldiers based in Iraq "as soon as possible." Although Zapatero had earlier said that Spanish forces would remain in Iraq until the handover to sovereignty in June unless there was a new United Nations resolution, the Spanish leader instead opted for a more rapid withdrawal on the basis of popular opinion within Spain. The surprise announcement was confirmed by Spain's foreign minister who conveyed the decision to withdraw its forces "within 15 days" to the Egyptian foreign ministry. Developments related to the European Union In June 2004, early indications from the European Union (EU) parliamentary elections suggested there had been a record low turnout of only 44.2 percent for the overall EU. Early indications also suggested that turnout among the 10 new member states was even lower than the overall average at only 26 percent. Insofar as the actual election results were concerned, gains for opposition parties across Europe appeared to be on the horizon. Early results showed, however, that the only incumbent party that maintained its power share were Spain's Socialists, who garnered 43.3 percent of the votes compared with the Conservatives, who won just over 41 percent. In February 2005, Spain became the first European Union nation to ratify the regional body's constitution in a national referendum. Although turnout was only 42 percent, 77 percent -- a clear majority of voters -- backed the European Union's governing charter. The failure to ratify the body's constitution by some other EU member states derailed the process to some degree. In the Monarchy In the realm of the Spanish monarchy, Princess Letizia, the future Queen of Spain and wife of the Heir Apparent, Crown Prince Felipe, announced in May 2005 that she was three months pregnant with her first child. The child will be second in line to the throne after Prince Felipe -- the only son of King Juan Carlos and Queen Sofia. Page 19 of 471 pages

24 According to the Spanish constitution, if the child is a female, she will be in line for the throne after any sons that might be born to the prince and princess in the future. As such, Prime Minister Jose Luis Rodriguez Zapatero has said that the constitution will have to be changed so that it does not discriminate against female royals. Developments on the domestic scene In mid-2005, the Spanish parliament went against the principles of the dominant Roman Catholic Church by crafting legislation that would make gay marriage legal, and also in granting homosexual couples equivalent adoption and inheritance rights as heterosexual couples. In July 2006, a Spanish judge looking into the Madrid train bombings of 2004 said that he had completed his investigation and was sending the case to trial. Judge Juan del Olmo also confirmed the indictments against 29 individuals, which he had earlier issued. Six of the indicted individuals were to face charges directly related to carrying out the train bombings that killed hundreds and injured thousands. The remaining individuals were indicted on charges of terrorist collaboration. The trial was commenced in February 2007 and was expected to last for about one year. Developments related to the international scene In mid-2006, Spain was linked with the controversial "extraordinary rendition" program of the United States' Central Intelligence Agency (CIA). The process involved the alleged transfer of terror suspects to the custody of countries where intense interrogation procedures, such as torture, are the norm. The matter gained global notoriety when it was revealed that several European countries were used as "stop over" sites in what European authorities have deemed an "illegal practice." Page 20 of 471 pages

25 In this particular case, a report by the Council of Europe identified Spain as one of 14 countries that secretly worked with the CIA to conduct "extraordinary rendition." It cited the case of a Boeing 737 taking off from the Spanish territory of Majorca. However, the Spanish government vociferously denied the claims. Defense Minister Jose Antonio Alonso asserted that his government had "never had any evidence that any kind of illegality was committed" within its territory. As well, it was reported that Spanish Foreign Minister Miguel Angel Moratinos would address the European Parliament to publicly issue a denial of any Spanish association in the controversial and clandestine practice of "extraordinary rendition." Meanwhile, a court ruling called for an investigation into the matter. The ruling by National Court Judge Ismael Moreno essentially overturned a previous finding by state prosecutors that the matter was outside Spanish jurisdiction. Judge Moreno ruled that he had jurisdiction in the case and also noted that under Spanish law, crimes -- such as torture -- could be prosecuted in Spain even if they were committed in another country. In September 2006, Spain's Foreign Minister Miguel Angel Moratinos acknowledged that his country may have been a stopover for controversial secret Central Intelligence Agency (CIA) flights. In testimony before European parliamentarians investigating claims that the CIA established secret prisons or "black sites" where terrorism suspects were held, Moratinos said that the United States led Spain to believe that there was nothing untoward about the flights stopping in Spain, and certainly no secret passengers. At issue were 60 flights stopping at Palma de Mallorca and Tenerife. The revelation came just after United States President George W. Bush admitted that secret CIA jails did indeed exist. Developments related to Catalonia Meanwhile, voters in Catalonia voted in a referendum in support of greater autonomy. The result of the referendum, which was held in June 2006, would give a high degree of independence to Spain's north-east region, including more tax revenue, greater determination regarding expenditures, and increased control over immigration and travel. Earlier, in the year, Jose Mena Aguardo was fired as the head of the army for his intimations that the military might be compelled to take action if Catalonia acquired too much autonomy. Page 21 of 471 pages

26 Developments related to Basques separatism The political and militant wing of the Basque separatist movement -- "Euzkadi ta Askatasuna," also known as the Basque Fatherland/Homeland and Freedom or the ETA -- declared a permanent ceasefire on March 22, For four decades, the group had been ensconced in a fight for an independent Basque homeland stretching from northern Spain to southwestern France. Particularly active in the 1970s and 1980s, ETA has been blamed for the deaths of around 800 people over the years. As such, it was classified as a terrorist group by the United States and the European Union. In a statement read by a mask-clab female donning a Basque beret and flanked by two associates, ETA asserted that its new objective was to "start a new democratic process in the Basque country." A previous ceasefire was announced in 1998, however, the breakdown of subsequent peacetalks led to the resumption of violent action a year later. Still, ETA's bombings have decreased in recent years, with the last deadly attack occurring in There was speculation that the horror of the 2004 terrorist attacks in Madrid may have destroyed popular support for the agenda of any groups using violent tactics to achieve political ends. The government of Spanish Prime Minister Jose Luis Rodriguez Zapatero expressed cautious optimism regarding ETA's declaration. Given the bloody legacy of ETA, he predicted that possible peace talks would be "long and difficult." Nonetheless, he said: "Now I trust we will be joined in hope." He eventually signaled that his government was ready for direct talks with the Basque separatist group, which was responsible for acts of terrorism in recent decades. In previous statements, Zapatero noted that a permanent end to ETA's violent activities would be a requirement for any possible talks with his government. Spain's political opposition, however, had a different reaction. Opposition leader Mariano Rajoy said: "It [ETA] does not repent of anything and it does not ask the victims of terrorism for Page 22 of 471 pages

27 forgiveness." Likewise, Spain's Association of Victims of Terrorism rejected ETA's declaration, calling it, "a new trick by the murderers to achieve their political objectives." In June 2006, about 200,000 people marched in the streets of Madrid to protest anticipated talks between the Spanish government and the Basque separatist group. The protest was organized by Spain's right-wing opposition, led by the Popular Party (PP), in an alliance with victims groups, such as the Association of Victims of Terrorism (AVT). Some demonstrators sported signs saying "Negotiations, not in my name" while others decried "talks with terrorists." Other ramifications resulted from the proposed talks between the government and ETA. Notably, the PP stopped cooperation with the Socialist government following an announcement by the Basque faction of the "Partido Socialista Obrero Español" or Spanish Socialist Workers' Party that it intended to pursue talks with Batasuna, the banned political wing of ETA. In response to criticism by those opposing talks with ETA, Zapatero said, "The great majority of Spaniards know what it means to submit to the pain and horrors we have experienced and at what point it is worth making peace." Just as the prime minister said that he was ready to open talks with ETA, however, a Spanish court sentenced two members of the group to 50 years in prison for the 1997 kidnapping and murder of a local politician, Miguel Angel Blanco. The timing of the sentencing was expected to negatively affect the government's decision to convene talks with ETA, since the case evoked negative memories of the group's legacy of violence. In early 2007, on the heels of a bombing in the Spanish capital of Madrid, the Spanish government said that peace talks with the militant wing of the Basque separatist movement -- "Euzkadi ta Askatasuna" or ETA -- were effectively ended. The bombing of a parking lot at the Barajas airport left one Ecuadorean man -- Carlos Alonso Page 23 of 471 pages

28 Palate -- dead and a second Ecuadorean -- Diego Armano Estacio Civizapa -- missing. The authorities said that it would be several days before all the wreckage could be cleared, possibly revealing other casualties of the attack. The government of Prime Minister Jose Luis Rodriguez Zapatero blamed the attack on ETA and the country's interior minister made it clear that peace talks were "finished." Alfredo Perez Rubalcaba said, "Eta has evidently broken off the peace process." He went on to note that the prospects for peace were now "broken, liquidated, finished." The political wing of ETA, known as Batasuna, claimed that the "permanent ceasefire," which it had called several months earlier, was still in effect. To this end, Xabi Larralde of Batasuna said the peace process "is not broken." However, it was clear that the government would no longer pursuing engagement with the Basque separatists. Instead Rubalcaba was set to meet with representatives from the country's main political parties to discuss further initiatives on ending terrorism in Spain. For his part, Prime Minister Jose Luis Rodriguez Zapatero visited the site of the bombing and said that he was committed to expunging violence from the Spanish landscape. To this end, he said, "I am more determined than ever to devote my energy to seeing an end to violence and achieving peace." He went on to note that all citizens "have a right to a life without bombs or violence." On June 5, 2007, Basque separatist group, ETA, announced that its ceasefire with the Spanish government would come to an end. ETA's announcement contradicted its commitment to the aforementioned permanent ceasefire in March Some critics of the Basque separatist movement noted that the bombing at Madrid's airport in late 2006, which was attributed to ETA as noted just above, was also a clear violation of its expressed permanent ceasefire. That incident ultimately contributed to the decision by the Spanish government to end peace talks with the group. For its part, ETA said in a message printed in the Basque newspaper, Berria, that it had made its decision because "minimum conditions for continuing a process of negotiations" no longer existed. It also accused the Spanish government of meeting its announcement of a ceasefire "by pursuing detentions, torture and persecution" -- presumably a reference to the authorities' efforts to deal with security threats by extremists. ETA later issued a rather ominous warning in which the group Page 24 of 471 pages

29 stated that it would defend its interests with weaponry and on all fronts. On the other side of the equation, Spanish Prime Minister Jose Luis Rodriguez Zapatero condemned ETA's position saying, "ETA's decision goes totally in the opposite direction of the path that Basque and Spanish society want, the path of peace." As discussed above, Zapatero had commenced talks with ETA in 2006, in the hopes of charting the course of peace, and despite vociferous objections from hardliners, victims rights groups, and the conservative Popular Party. The Spanish leader also acknowledged high level talks with ETA, which he said were ultimately unproductive due to the nature of the Basque separatists' demands. In October 2007, after key members of the banned Basque political party, Batasuna, were arrested, Basque separatists called for mass street protests. Reports sated that more than 20 top Batasuna leaders were detained during a night time raid in the town of Segura in the Basque region of northern Spain. Authorities said that Batasuna was holding a leadership meeting. Among those arrested was Batasuna's main spokesperson, Joseba Permach. The detainees were set to be transferred to Madrid where they would be questioned and ultimately face charges involving an investigation into the financing of terror activities. The raid had been orchestrated by an anti-terrorism judge, Baltasar Garzon and appeared to be part of a wider operation aimed at cracking down on militant Basque separatists. Garzon was well known for leading the effort to ban Batasuna from the political domain, charging that it was the political wing of ETA. While Spain's Attorney General, Candido Conde Pumpido, supported the crackdown and said that some of those arrested were believed to have cooperated with terrorists, Basque activists accused the Socialist government of Prime Minister Jose Luis Rodriguez Zapatero of trying to take a hard line for political reasons ahead of forthcoming elections in Meanwhile, the pro-batasuna publication, Gara, characterized the arrests as "a declaration of war." It should be noted that an apparent attack on a newspaper publication in the Basque area was blamed on ETA in June 2008, months after the country's elections took place and a year after ETA said that it was ending its ceasefire. Page 25 of 471 pages

30 In mid-july 2008, four bombs exploded at resort areas in northern Spain. Two bomb blasts took place on the promenade in the resort of Laredo in Cantabria, while another two bomb blasts were reported in Noja, located close to Laredo. There were no reported casualties, indicating that those responsible were attempting to make a statement more than to exact maximum carnage. As such, the blame quickly was placed on ETA. In mid-november 2008, the French government announced that it had arrested the suspected military leader of ETA. French Interior Minister Michele Alliot-Marie said Garikoitz Aspiazu Rubina, who gained notoriety via the alias "Txeroki," had been detained in the Pyrenees. Alliot- Marie said that Txeroki was believed to have orchestrated the murder of two Spanish civil guard officers in the French town of Capbreton in Alliot-Marie also noted that the arrest of the ETA military leader was illustrative of strong cooperation between France and Spain in the fight against Basque terrorism. The arrest of Txeroki constituted the most significant coup in the efforts against ETA since the May 2008 arrest of a senior commander, Javier Lopez Pena or "Thierry," in Bordeaux. For his part, Thierry was alleged to have been behind the December 2006 bombing of Madrid's airport that left two people dead and brought an end to the ceasefire between ETA and the Spanish government. See Editor's Note below as well as Appendix of this Country Review titled "The Basques" for more details related to the matter of Basque separatist inclinations. Diplomatic Imbroglio In early November 2007, a diplomatic imbroglio was brewing in the Mediterranean when Morocco recalled its ambassador to Spain. At issue was a scheduled visit of Spain's King Juan Carlos and Queen Sofia to the coastal Spanish enclaves of Ceuta and Melilla in the second week of November Morocco, which has made claims on Ceuta and Melilla, characterized the plan for a rare visit to the enclaves as "regrettable" and recalled Ambassador Omar Azziman for "consultations" -- a frequently used rationale in diplomatic circles to deal with bilateral disputes. Page 26 of 471 pages

31 The Spanish government insisted that the visit was taking place as a result of requests by the people of Ceuta and Melilla. The Deputy Prime Minister Maria Teresa Fernandez de la Vegas also noted that it should not impact positive ties with Morocco saying, "Relations with the kingdom of Morocco are extraordinarily good... based on sincere affection and mutual respect." But her overture of goodwill was not well-received in Morocco where the government criticized the planned visit. A spokesperson for the Moroccan government also asserted "its strong rejection and total disapproval of this regrettable initiative, whatever the motivation or intentions." Special Note: Election of 2008 A parliamentary election was scheduled in Spain on March 9, The parties in contention for the Spanish Cortes Generales were: the Spanish Socialist Worker s Party (PSOE), the People s Party(PP), United Left (IU), Convergence and Union (CiU), Republican Left of Catalonia, Basque Nationalist Party (EAJ-PNV), Canarian Coalition, Party of Independents from Lanzarote, and other independents. Spain's Prime Minister, José Louis Rodríguez Zapatero, was hoping that his party -- the Spanish Socialist Workers Party -- would be re-elected to power. (Note: There were several different branches of this party in multiple areas of the country, which were expected to contest the election as one unit.) Key members of the party included Deputy Prime Minister María Teresa Fernández de la Vega, the leader of the branch in Valencia, and former Minister of Defense Jose Bono, the leader of the constituency in Toledo. Also contesting the election was the conservative People s Party, led by former Vice Prime Minister Mariano Rajoy. The PP also included the sub-party, Navarrese People s Union, which would run in concert with the PP. A third party in contention for parliamentary seats was the United Left party, which was in coalition with the Communist Party in Spain. They were running in all areas of the country under Page 27 of 471 pages

32 the leadership of Gaspar Llamazares. In the latest poll, the PSOE and the PP were in an extremely tight race, with the PSOE taking 39.7 percent of the vote, and the PP with 37.4 percent. The United Left fell way behind with only 5.5 percent of the vote. The main issue dominating the election was the matter of the economy. The Spanish housing market was down, while prices of common goods were up, and the country was suffering from a highest unemployment rate in years. Along with the economy, the PSOE and PP were campaigning on the basis of tax proposals that were intended to lessen the blow of the struggling economy. The PP also accused the PSOE of being soft on immigration and terrorism. After a bitter campaign between these two leading factions, Spanish voters went to the polls on March 9, Zapatero's ruling PSOE managed to claim victory with 169 seats in parliament. As such, Zapatero's Socialists would be returned to power, albeit just short of the 176 needed for an absolute parliamentary majority. It was expected that the PSOE would form a coalition government with the largest Catalan nationalist party. On the other side of the equation, the opposition PP was projected to take 153 seats. In his victory speech outside PSPE headquarters in Madrid, Zapatero expressed his gratitude to supporters for giving his party a "clear victory." He took a conciliatory tone by saying, "The Spanish people have spoken clearly and have decided to open a new period without tension, without confrontation." Meanwhile, his defeated rival, Rajoy, said he had called Zapatero to convey good wishes "for the good of Spain." His PP colleague, Pio Garcia Escudero, expressed satisfaction in the PP's increased representation in parliament from the last election in Special Entry: Global credit crisis; effects felt in Europe Page 28 of 471 pages

33 Summary: A financial farrago, rooted in the credit crisis, became a global phenomenon by the start of October In the United States, after failure of the passage of a controversial bailout plan in the lower chamber of Congress, an amended piece of legislation finally passed through both houses of Congress. There were hopes that its passage would calm jitters on Wall Street and restore confidence in the country's financial regime. However, a volatile week on Wall Street followed, most sharply characterized by a precipitous 18 percent drop of the Dow Jones. With the situation requiring rapid and radical action, a new proposal for the government to bank stakes was gaining steam. Meanwhile, across the Atlantic in Europe, with banks also in jeopardy of failing, and with no coordinated efforts to stem the tide by varying countries of the European Union, there were rising anxieties not only about the resolving the financial crisis, but also about the viability of the European bloc. Nevertheless, European leaders were able to forge an agreement aimed at easing the credit crunch in that region of the world. Following is an exploration, first, of the situation in the United States, and, second, of the situation unfolding in Europe. Report: On Sept. 28, 2008, as the United States was reeling from the unfolding credit crisis, Europe's banking sector was also hit by its own woes when the Dutch operations of the European banking and insurance entity, Fortis, was partly nationalized in an effort to prevent its ultimate demise. Radical action was spurred by anxieties that Fortis was too much of a banking and financial giant to be allowed to fail. The Netherlands, Belgium and Luxembourg forged an agreement to contribute more than 11 billion euros (approximately US$16 billion) to shore up Fortis, whose share price fell precipitously due to worries about its bad debts. A day later, the mortgage lender -- Bradford and Bingley -- in the United Kingdom was nationalized when the British government took control of the bank's mortgages and loans. Left out of the nationalization scheme were the savings and branch operations, which were sold off to Santander of Spain. Earlier, the struggling mortgage lender, Northern Rock, had itself been nationalized. The head of the British Treasury, Alistair Darling, indicated that "big steps" that would not normally be taken were in the offing, given the unprecedented nature of the credit crisis. Page 29 of 471 pages

34 On the same day, financial woes came to a head in Iceland when the government was compelled to seize control of the country's third-largest bank, Glitnir, due to financial problems and fears that it would go insolvent. Iceland was said to be in serious financial trouble, given the fact that its liabilities were in gross excess of the country's GDP. Further action was anticipated in Iceland, as a result. On Sept 30, 2008, another European bank -- Dexia -- was the victim of the intensifying global banking and financial crisis. In order to keep Dexia afloat, the governments of France, Belgium, and Luxembourg convened talks and agreed to contribute close to 6.5 billion euros (approximately US$9 billion) to keep Dexia from suffering a demise. Only days later, the aforementioned Fortis bank returned to the forefront of the discussion in Europe. Belgian Prime Minister Yves Leterme said he was hoping to locate a new owner with the aim of restoring confidence in Fortis, and thusly, preventing a further downturn in the markets. Leterme said that the authorities were considering takeover bids for the Belgian operations of the company (the Dutch operations were nationalized as noted above.) By Sept. 5, 2008, one of Germany's biggest banks, Hypo Real Estate, was at risk of failing. In response, German Chancellor Angela Merkel said she would exhaust all efforts to save the bank. A rescue plan by the government and banking institutions was eventually agreed upon at a cost of 50 billion euros (approximately US$70 billion). This agreement involved a higher cost than was previously discussed. Meanwhile, as intimated above, Iceland was enduring further financial shocks to its entire banking system. As such, the government of Iceland was involved in intense discussions aimed at saving the country's financial regime, which were now at severe risk of collapse due to insolvency of the country's commercial banks. Meanwhile, on Sept. 4, 2008, the leaders of key European states -- United Kingdom, France, Germany, and Italy -- met in the French capital city of Paris to discuss the financial farrago and to consider possible action. The talks, which were hosted by French President Nicolas Sarkozy, Page 30 of 471 pages