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A Conversation With Mariano Rajoy

Speaker: Mariano Rajoy, President of the Government, Kingdom of Spain
Presider: Ruth Porat, Executive Vice President and Chief Financial Officer, Morgan Stanley; Member, Board of Directors, Council on Foreign Relations
September 26, 2013, New York
Council on Foreign Relations

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PORAT: Good afternoon. My name is Ruth Porat. I am a new board member of the council and CFO of Morgan Stanley. And I'd like to welcome you to today's Council on Foreign Relations meeting with Mariano Rajoy Brey, prime minister of Spain.

Our next meeting is with Najib Razak, the prime minister of Malaysia. That will be at 3:45 to 5:00 p.m. today.

By way of introduction of Prime Minister Rajoy, he began his career in politics at just 26 when he was elected a regional deputy, and since then has served in numerous leadership capacities, including as minister of public administration, minister of education, and deputy prime minister.

He was elected president of the People's Party in 2004, led the opposition party from 2004 through 2011, and then was elected prime minister in 2011, a clearly challenging time for Spain. Since then, he has implemented a number of market reforms which we will discuss today, and are reflected in early signs of positive momentum in Spain.

On a more personal note, he is an avid sportsman, a cyclist, a Real Madrid fan, and also an ardent supporter of bullfighting.

I look forward to our discussion. The president of the government, Kingdom of Spain, Mariano Rajoy Brey, thank you very much for being with us. Muchas Gracias.

(APPLAUSE)

RAJOY (THROUGH TRANSLATOR): Ladies and gentlemen, thank you for the (inaudible) come here last year to talk about (inaudible).

I said then that Spain would stay in the euro, that we would not default on any of our debt, and that the (inaudible) reform program would put us back on the path to growth.

Those were times of uncertainty for Spain, and uncertainty about the European project. The magazine of this journal, of this council wondered whether Europe was kaput. A year later, European project remains firmly on track and I can announce that Spain has achieved two of these three goals, and that the third, that of economic growth, will not be long delayed.

Our financial and labor market reforms have a solid foundation. Foreign trade data speak for themselves. Exports rose by 8 percent in the first half of the year, faster than ever before in our history. The trade deficit has virtually disappeared. These results, together with an extraordinary balance of services surplus, have enabled Spain to advance from an 11 percent foreign trade deficit to a surplus of 2.5 percent forecast for this year.

Accordingly, our foreign debt is now decreasing. Moreover, our risk premium has plummeted in just one year from almost 640 basis points to just 250. Few countries can boast of such an achievement. It has not been easy, but the reforms are beginning to bear fruit.

As proof of this, last week one of the major U.S. investment banks recommended buying Spanish debt in a report titled "Viva Espana." However, the reform agenda is far from concluded. The problem of unemployment remains very serious. Government is still too big. And so we plan to undertake an ambitious, unprecedented process of rationalization and downsizing of the public sector in Spain, as has never been done before.

These reforms have generated confidence in our country and we will continue to work in this direction without wavering, in the knowledge that the benefits of reform cannot be achieved without hard work. My policy purpose is clear and the stability of my government, which has an absolute majority in both houses of parliament, is the guarantee that Spain will complete its ambitious reform agenda to put the country back on the path to investment growth and job creation.

Ladies and gentlemen, as the president of this council (inaudible) foreign policy begins at home. We have put our house in order. We have done our homework and we will stick to this path, as I've just said. At the G-20 summit in Mexico last year, Spain was part of the problem. At the recent G-20 summit in St. Petersburg, Spain showed itself to be a country with the ability and the will to tackle the big challenges and to provide solutions to the problems that face us all.

And this is my subject today. That's what I want to talk about. Spain, like the United States, holds its foreign policy to be the defense of solid universal values -- the individual, peace, freedom, democracy, justice, the rule of law and human rights. These principles govern and guide our policies at home and abroad because Spain is not a mere bystander to global realities, but is committed to their transformation.

Ladies and gentlemen, the Syrian crisis is starkly revealing the limits of an international system that was created more than 60 years ago when the world was divided into two antagonistic blocs and when many states -- of today's states had not even gained their independence. My country signed in St. Petersburg a declaration committing us to working towards a political solution within the Geneva framework, while recognizing that the use of chemical weapons against civilians must not go unpunished. This is a moral imperative to which my country is firmly committed.

Diplomacy and pressure from the international community, with the United States at its head, are finally giving rise to some hope of bringing an end to a conflict that has gone on far too long and cost far too many lives.

Ladies and gentlemen, what we are seeing once again is the need to make the U.N. a decisive, efficient tool. Neither Spain, nor the rest of the international community, wants to see a reform that is -- we want an urgent reform, one that is able to meet the needs of the rest of the international community. There is no alternative.

In the 21st century, no country can face global problems alone. Multilateralism today is not a choice. It is unavoidable. And that is why we must make the organization an efficient, decisive body. Neither Spain, nor the rest of the international community is interested in a reform that responds to the wishes of just a few countries to increase their quotas of power.

Far from solving the stalemate we're seeing today, it would make it deeper. Spain has opted with determination and ambition to become a non-permanent member of the Security Council for the period of 2015 to 2016, with the intention of helping to resolve the great challenges facing us and defending international peace and security.

Moving on to another topic -- the world is moving in inexorably towards regional consensus, towards more integration, towards more interdependence. Union, not disunion is the sign of our times. And the European Union is, by a longshot, the clearest evidence of this.

The pressure for integration, however, must stop being rhetorical, and become practical. This drive to reform in the European Union responds to a historical imperative. But the quantum leap now being achieved in our economic integration must be accompanied by another in the political sphere. A tighter integration of our economic and fiscal policies must necessarily be linked to the strengthening of the democratic legitimacy of our institutions and to extending the channels for civic participation in European political life. In other words, there should be greater political union.

The coming year, 2014, is one of elections in Europe. In the new European Parliament, the Spanish and their European colleagues, must do battle for integration and reforms, combating the surge of exacerbated nationalism, newly-minted populism, and openly anti-European projects that the crisis (ph) has helped to fuel.

Integration has its detractors who emerge most strongly when the situation is critical and material progress is wanting. European policy makers must live up to their name by making policy, by being creative in the defense of integration.

One way to work with this could be to have a single electoral list, and a single responsible, recognizable candidate per political party for the first time in these 2014 European elections.

It is important for reformism and integration to be grounded in a solid democratic foundation, one that will legitimize the reforms to be made, both economic and political.

These reforms and this integration are also important because, as I said before, Europe needs to speak with one voice if its words are to count, to be able to influence the management and resolution of the global challenges facing us today. Again, the issue is that of union or disunion. A single voice speaks louder and has more influence than a chorus of conflicting messages. We've just seen that in the crisis with Syria.

Finally, and, though not without difficulties that have revealed the shortcomings of our political integration, we have managed to preserve a common European position that is at the same time a tangible defense of the TransAtlantic relationship that Spain defends and champions.

The E.U., in sum, must accelerate its integration. Ladies and gentlemen, from experience -- from our own experience -- we know that the welfare of our citizens is increased by greater integration in Europe and by greater openness to the outside. Therefore, we are staunch defenders of free trade agreements, especially with the United States.

TransAtlantic free trade will have multiplier effects on global economic growth. This initiative, which has the capacity to transform global reality, has been driven, and will continue to be driven, by the government of Spain during the long process we are now undertaking.

Ladies and gentlemen, the challenges we face go beyond the modernization of the United Nations, or the processes of regional integration or of free trade agreements. Terrorism, failed states, the proliferation of weapons of mass destruction, cyber threats, organized crimes -- all of these put at risk the lives and safety of our citizens. These perils define an uncertain scenario which the economic crisis, changes in (inaudible) political priorities, and an end to major military interventions impose a shift in the strategic model.

Energy, and the new ways in which it is generated and distributed, is also sparking geopolitical changes that, as yet, we can only guess at, but which will undoubtedly change relationships among international stakeholders.

Our models of production are being transformed, but energy is still the essential fuel for growth. This reflection on the present and the future that awaits us is at the heart of the new National Security Strategy, a document recently approved by the government of Spain. It enjoys overwhelming consensus among the main political forces in my country. And in this scenario, Spain is a solid ally of NATO, on which we rely for our collective security.

NATO, with its new commitments and responsibilities, is increasingly becoming a global player. And this regard (ph) brings to NATO and its partners and allies not only loyalty and political solidity, political certainty, but also, a resolute involvement, as was evidenced in the Libyan operations in 2011, and others in the past.

Spain has shown its willingness to see the integration of countries that share our values, and wish to form part of a new model of association with NATO in its drive to enhance our cooperative security. Furthermore, and of overriding importance, Spain has a crucial geostrategic position that enables it to contribute to the NATO Missile Defense Shield, for which purpose four U.S. destroyers are stationed at the Spanish base of Rota.

Furthermore, the United States also relies on Spain for the rapid deployment of its units from our base at Moron. Among other tasks, these units seek to prevent any repetition of such heinous acts as the murder of Ambassador Chris Stevens in Benghazi.

Ladies and gentlemen, this geostrategic position locates Spain very prominently within a Mediterranean scenario that has been significant, and seen political renovations, and which has expanded geographically to include the Sahel and the Middle East.

During the Cold War, Spain was peripheral. Now, we are at the forefront.

Ladies and gentlemen, the Arab Spring would not have been as wide-ranging, nor as immediate, if it weren't for young people who are educated, connected to the Internet, and with a capacity to mobilize. Today's citizens have shown how these new technologies are transforming the nature of power. Today's citizens have shown that they want to determine their own future, and that nothing is beyond them. Because knowledge knows no bounds.

In taking this new direction, the international committee -- international community cannot let them down. All of us have so much at stake. The Arab world has changed profoundly, and will continue to do so. The status quo of the past cannot be perpetuated indefinitely. Yesterday's conflicts must be addressed by today's leaders, leaders who show themselves capable of rising to this historic occasion that we are living through right now.

Here, I'd like to refer also to the questions of the Middle East peace process.

Today, the Middle East peace process, which arose from the 1991 Madrid Conference, is now entering a new phase aimed at overcoming an unacceptable stalemate.

The present regociations (ph) represent an opportunity, perhaps the last one, to reach a fair, comprehensive, and lasting settlement to achieve two states, Israel and Palestine living in peace, security and prosperity. Spain will work towards that goal, aware of the positive effects it will have on the entire region at this crucial juncture in its history.

For several decades the main concern of our policy -- almost the only -- was that of security. We can't hide our concern about the existence of extremist groups -- affiliates of al Qaida -- that are attempting to exploit the fragility of these new governments. But our outlook must be broadened. The future must be build on three pillars: security, yes, but also democracy and development. All three are essential if we are to ensure peace and economic progress, because without them, this peace and this progress will be fragile, and the entire building will collapse sooner or later, as we've seen on various occasions in the past two years.

A clear example of this was the recent crisis in Mali, which demonstrated how fragile a state can be when one or more of these pillars is lacking.

In the Sahel, we have seen how Jihadist-inspired terrorism is threatening the expanded border of this enlarged Mediterranean area.

Spain, which is 800 kilometers from that area, has made great efforts to prevent Mali from becoming a sanctuary for terrorist groups, and today, we are the second largest contributor to the E.U. training operations set up to provide Mali with a sustainable means of security.

A year ago, I met with other leaders to address here in New York an imminent challenge. The triumph of terrorist groups should they manage to seize control of an African state and impose a regime of terror and continuing violations of fundamental human rights, this would be a failed state and one that could become a fresh threat to international peace and security.

Today, through our joint endeavors that imminent threat has been neutralized. So what I want to tell you is that this physical security needs institutions that are open and democratic.

The recent presidential elections are the first -- in that country -- are the first and most important step on that path. Spain will continue contributing to economic development in Mali, and throughout the Sahel region as the best means of securing their long term stability.

Ladies and gentlemen, as a Mediterranean country, we enjoy privileged relations with the countries in this region and we will make use of this opportunity to work for greater integration and more opportunities. This will not only benefit the citizens of the Maghreb -- from the Maghreb to the Arab Gulf, but also the rest of the international community.

I want to also tell you, further south, Sub-Saharan Africa, is also noting these winds of change. For decades, our African policy was focused on provision of assistance to combat poverty and illegal immigration.

Spain and Africa share these human tragedies which are played out before our eyes on our shores, nevertheless, reality has shown that this policy was insufficient. Africa will only develop its full potential through the strengthening of open, inclusive institutions, only the creation of space as a physical, legal and institutional security will companies -- both African and foreign -- be able to invest and to create well.

The best development assistance is higher per capita income.

Africa is a land of opportunity. Its recent growth has been the highest in the world. Only in 2012 -- last year -- Spain's exports -- our exports to the continent increased by 30 percent. Within a few years many will find the reality of these African lions and that will be the trigger for a race -- a race will be on to invest in this new frontier.

Many will be surprised -- Many will be caught by surprise, but not Spain.

Ladies and gentlemen, I spoke earlier about the relationship between democracy and development. Going towards Asia, I believe the national community's main interest in this region is to contribute to China's peaceful rise within a new stable order embraced by all, and in particular, by the neighbors of this new colossus. This is also in China's best interest. Its stability depends both on its neighborhood and on the gradual opening up of its own society.

Looking, towards Asia, we can also see how that has changed the geographic -- the geo-strategic situation of Latin America, located between the Asian growth engine, the American giant and the European trading power. I have no doubt that if this triangle can be articulated effectively, we will make a quantum leap in terms of growth, prosperity and stability.

Spain is a bridge between the E.U. and Latin America, and that's why it will play a key role in articulating this triangle. Latin America is, moreover, a fundamental pillar of the Western world, and vital to the strength of trans-Atlantic relations.

The United States and Spain are the leading investors in the world in Latin America. The accumulated investment by Spanish companies which have always had a firm belief in Latin America no matter how many problems we may have had in the past now account for $200 billion a year, and are still rising.

Spain in legal certainty and in opening up trade, therefore we sought to participate in the Pacific Alliance, and we were the first European Country to be admitted as an observer to the Pacific alliance. The United States recently followed suit as have Japan, Canada and France.

This process of economic integration which is reminiscent of that which began in Europe in the 1950s has the added value of its focus on Asia. The Pacific Alliance is, moreover, the Latin American aspect of the Trans-Pacific Partnership Agreement, which will undoubtedly become a keystone of the new global architecture.

All of this shows how central Latin America is in the world of today. The Hispanic world is growing, and the United States is an undeniable reflection of this new reality.

Ladies and gentlemen, I'll -- I'll wrap up now, the citizens of our countries constitute the primary bond with America and our most valuable asset. Many Americans speak Spanish, and more and more Spaniards are arriving here either as entrepreneurs or working with Spanish companies that are investing in the United States.

Spanish scientists, Spanish engineers are collaborating with NASA on the Mars mission. They're taking part in advanced international projects such as the CERN Particle Accelerator in Geneva. Spanish multi-nationals are working in the fields of energy, banking, infrastructure, telecommunications or fashion. They're fully competitive global leaders in the most demanding markets in the world, such as that of the United States.

Let me recall one of those Spaniards who gave the best in this welcoming land, the Spanish-American philosopher, George Santiana (ph) who died on this day exactly 61 years ago. Santiana (ph) left us (sic) wise teaching, and he said, "Those who cannot remember the past are condemned to repeat it."

On many occasions, Spain has shown that it is a country that has the strength and vitality to overcome any challenge. Our wealth of diversity makes us strong, stable, democratic, a country that is wholeheartedly and generously engaged in the new international society.

Dear friends, I've described a modern Spain which is active in Europe and in the Mediterranean, a country that has strong ties with America, with the Pacific as did the early Spanish navigators into the Atlantic. The Spain of today whose language is the second most present on the internet and which enjoys a front line geopolitical position is ready and able to address the global reality with renewed entrepreneurial spirit.

Spain has taken on board the lessons of the past. We know where we're going. We have a plan. And, we have the determination to carry it out and a majority that supports us. Spain is back and it's back to stay.

Thank you very much.

(APPLAUSE)

(UNKNOWN): Thank you very much for those comments (inaudible) very powerfully and eloquently addressed the...

(UNKNOWN): (OFF-MIKE).

(UNKNOWN): ... issue of the importance of global collaboration both for political peace and security as well as for economic upside. What I'd like to do though is really start the questions where you began and where you ended, which is the strength and momentum in Spain.

This -- this one.

Before I pose the question, we'll make sure you can have the translation.

So I'd like to start, as I said, the question where you began -- doesn't work?

Can you hear -- is it now in English -- Spanish?

No?

Yes, we're solving world problems but not technology.

So the first question is economists are estimating that GDP in Spain has troughed -- no?

(LAUGHTER)

(UNKNOWN): Nothing?

Well we'll try the other one.

Is it good now?

Excellent.

So, economists are estimating that GDP growth in Spain has troughed, and that, in fact, they'll deliver 1 percent positive GDP growth next year, and really point to many of your policies that took the economy from consumer driven to export driven. And in fact, exports in Spain are now growing at a rate faster than global exports.

And, one of the areas often pointed to is what you've been able to accomplish in the automotive sector, really attracting foreign investors due to improved wages and price competitiveness.

So when we think about the strength in Spain, can you give us other -- give investors other examples of the impetus behind -- the power behind this move to more of an export market?

RAJOY (THROUGH TRANSLATOR): Well it's true that the foreign sector as I said during my speech is doing very well and it's been doing very well in recent months.

Spain had a foreign exchange -- foreign deficit of 11 percent and we're ending this year with a 2.5 percent surplus of GDP. The trade balance has been very important which is in balance.

As you said, it's export-driven. No other country in the European Union can say that right now. And very diversified exports, because traditionally, we exported to the Eurozone, but we've increased our exports to the Americas, to Asia, to Africa, as I said in my speech.

We've also seen -- this has been a consequence of the reforms that the government of Spain has put in -- that is now underway -- very important reforms. We approved a budget stability law to control public accounts, which is working out very well. We've done labor reform. We've restructured the banking sector. We've launched an energy sector reform, a very important energy reform. We've had reforms in the public administration, which has led to the fact that there are now 300,000 less civil servants than there were before in our country. And logically, all of these things are enabling us to streamline to improve our competitiveness.

We've had a civil servant salary freeze. And we have -- exports are rising, as I said. And when I came into government, there was no foreign investment. There just wasn't any. No, there wasn't direct investment, there wasn't real estate investment.

The first six months of this year, foreign investment has gone back the -- to the level it was at six years ago. Look at the level of investment when -- just recently when everybody was leaving Spain. And now, we've recovered, and that's been very positive. And also, in the real estate sector, we've seen major investment from foreign investors.

Now, what's going on here? It's a question of good governments, of having cleaned up accounts, of being competitive, of meeting our commitments, and to have legal certainty.

A lot of people think that the most export sector in Spain is that of the automotive industry. That's not true. Above all, Spain is exporting manufactured products, equipment. Second is chemical products. The agro business is very important in Spain. We've had so much investment there recently.

So, Spain has an economy that's highly diversified. We still have a lot to do. We have to improve consumer spending, obviously. We need to have a better flow of credit. But at the end of the day, I would say that the only thing you can do in life is to do things as seriously as you can. And when you do that, you get a good -- a good effect.

PORAT: Excellent.

I think that takes us to the next question I have, and then we'll turn it over to our members here.

"A key element of your platform was clearly reducing unemployment in Spain. And it's difficult for foreigners to gage really what is that unemployment level. Reports suggest it's around 26 percent. But there are two issues that are often discussed. One is the size of the underground economy -- the percentage of people gainfully employed, but not paying taxes. And the other is the magnitude of the problem of youth unemployment, which is estimated to be double whatever that real number for Spain's unemployment level.

"Can you help us understand what actual -- how should we think about unemployment? And are more measures needed, in particular, to address the elevated levels of unemployment among youth"?

RAJOY (THROUGH TRANSLATOR): Let's see. In the first place, this is a really interesting debate we're seeing. And there's opinions for everybody. But the first measure that needs to be carried out in order to create youth employment, or even employment for anyone, is economic growth. A country where there's no economic activity, where there's no growth, where there's no investment -- well, it's very difficult to resolve its unemployment problems.

And so, all of the policies that the government of Spain are carrying on -- all of them have as their basic goal that of growth. Because growth means creating jobs. And when you create jobs, you have people who are contributing with their salaries. That improves public services, health, pensions, whatever. And so, all of the measures that are being taken by this government have a single goal. All of our efforts are eyes on the prize -- one goal: let's create jobs.

And moving on from that, you have said many really interesting things, and every one of them -- well, I could give a whole speech about each one, but, alas, that isn't possible. But I would like to say a few things here.

You referred to the underground economy. You see a lot of statistics about the underground economy in my country, in other countries. I would really like for them to back those up with proof, because if I knew that there were people who weren't (sic) working, but they weren't paying their social security, they weren't paying their taxes, I'd go after them.

I am concerned with this. There's 27 countries in the European Union -- no, now there's 28 with Croatia. So, Spain, when you look at the -- that revenue as a proportion to -- to our GDP -- well, we need to make an important effort here. And that's one of the issues that my government is focusing on to put an end to the underground economy so that everybody pulls their own weight as far as paying their taxes are concerned. So, combating fraud is very important.

Now, there's another issue here, which is youth unemployment. That depends on a lot of things. You know, in my opinion, the most important is that there's economic activity and growth. But it also depends on their training. It's not the same to look for a job if you have really good training than if you have almost no training. And anyone can understand that. So we are making major efforts in this area, as well.

And also, in Spain, we approved recently a plan that's called the Young -- Youth Employment and Entrepreneurial Strategy. And some of these have already been put into effect, and others not. For example, they've had a vacation from paying social security. We've had rebates. We've had subsidies for young self-employed persons. We've established some important regulations as far as training is concerned, and this has been working.

And there's a really interesting figure. In Spain, unemployment for people under 25 has fallen by 5.7 percent in the last year. The rest of employment, (inaudible) no, alas (ph). But youth employment, yes, has fallen 5.7 percent -- youth unemployment has fallen 5.7 percent, and we need to do all these things. We need to do them all together.

And I'm -- in sum, one, we have to keep working towards growth and job creation, whether for young people or for anyone. Two, we have to combat fraud -- tax fraud. And three, we have to continue to approve regulations and measures for favoring youth employment. And fourth, we have to convince others in the European Union that we are moving in the right direction. And it's very to have fiscal consolidation. It's very important to have the single market. But it's also very important to respond to the real problems of our citizens. Because you know that macroeconomics is the prologue of everything good that happens in life, but once in a while, you have to combine the macro side with -- you know, the good side with the micro side, because people live their lives on the microeconomic model.

PORAT: Thank you.

At this time, I'd like to invite members to join the conversation with questions.

Please wait for the microphones to come to you. Speak directly into it. And when you stand, please, do give your name and your affiliation, and, please, do limit yourself to one question. Keep it concise so we can have as many people have the opportunity to speak as possible.

So, if we (inaudible) -- I think the second row had -- woman right there had her hand up first.

QUESTION: I'm Lucy Komisar. I'm a journalist.

What is your view, your concerns, about the international electronic spying by the United States?

RAJOY (THROUGH TRANSLATOR): Well, I am concerned, the way anyone would be. Logically, the right to privacy -- the individual's right to privacy -- country's right to privacy is perfectly understandable. It's a right that we all aspire to.

Now, having said that, it's also true that often, there's security reasons that do justify taking certain decisions. And it's always been that way, and it will continue to be that way in the future. In any case, the most important thing is that we know very clearly who we're targeting, and that we don't make mistakes as to what our targets are. Because that could cause added difficulties.

PORAT: Two rows behind. (inaudible)

QUESTION: Thank you. Giovanna (ph) (inaudible) with Security Council Report. (IN SPANISH)...

(THROUGH TRANSLATOR): Thank you very much for your speech. (inaudible)... for the Security Council (inaudible).

Could you tell us what your main goals are there? And could you give us some more details about how you think you're going to use these two short years that the membership of -- the non-permanent membership would last?

RAJOY (THROUGH TRANSLATOR): Well, Spain aims to become a member of the Security Council to defend the values and principles that Spanish society shares -- that we share with all of the countries that are called the Western World, and many other countries in the world, as well. And we believe that these principles and values are more and more important throughout humankind: peace, security, freedom, democracy, human rights, dialogue as an instrument to resolve our conflicts.

We also believe that we are country that has long experience in international policy. We form part of the European Union. We are -- the European Union is 25 percent of world GDP. These are all countries that have their history and have a great future ahead of them. And so we, Spain, have a privileged relationship for any number of reasons with Latin America, which is not a negligible part of the world. We also have a strong relationship with the United States. We're -- have a high profile in the Mediterranean, in Africa. We're very close to the Middle East.

So, that's a role that we can play. We can play a very important role because we have contact with so many countries in the world for historical and cultural reason, and that's why we aspire to be a member -- a non-permanent member of the U.N. Security Council.

PORAT: (inaudible), how about a question up in the front here?

QUESTION: Hi. Marty Feldstein.

You spoke about chemical weapons. And you said the use of chemical weapons needs to be punished. And so, I'd like you to comment on what you think that means now that there's agreement that the Syrian government used those weapons and also what you make of the new proposed agreement between Russia and the United States that there be -- I can't remember the precise language, but that there'd be some consequences if Syria doesn't live up to its agreement.

RAJOY (THROUGH TRANSLATOR): As you know even better than I do, this is no easy matter. Probably if we were talking about something easy, it would have already been resolved, and you wouldn't even have had to ask me that question here today.

But besides not being easy, there's never a perfect solution, ever in any aspect of life. And of course, we're talking about something as complicated as this -- you -- you can't have a perfect solution (inaudible). That's very complicated, obviously, Syria's tragedy. More than 100,000 people have died.

There's hundreds of thousands of refugees, for example, in Jordan. Nobody's talking about that. There's nearly a million people. You can see the same in Turkey soon. This is a world where there's so many stake holders. Everyone has its own interests and its own way of seeing things.

There's an opposition that's supported by one country, and another opposition group that's supported by another country. They're completely different. And, as I said, it's not easy.

So having said all this, what is it in Spain we think needs to be done and what we're working on ourselves now? First of all, a good solution could come out of this meeting in Geneva. We've tried to set that up. It doesn't have a date yet, as far as I know. But it is soon (ph) to be held.

And at this meeting, I think we shouldn't exclude anyone. Because to try and resolve a conflict based on excluding one of the key stake holders in the conflict, I don't think that could work out ever. So we, at the last G-20 meeting signed at (ph) the proposal of the United States all of the European countries in the G-20 except one, which signed the next day. We signed an agreement, which basically was political support. We made it clear there are certain points that we all agreed on.

First of all, we all criticized the use of chemical weapons. It's a crime (ph) -- it's an attack on humanity.

Second was the obligation to destroy these chemical weapons on the part of the country that had used them when we saw the U.N. report that showed that they had been used.

Now based on this, what we believe needs to be done (ph) is a resolution from the U.N. Security Council. As you know, there's five permanent members, and with only one that has a veto -- well, so that's not possible. So we've got two points we can agree on: the criticism of the use of chemical weapons and compelling Bashar al-Assad to destroy them. Now, but we have to wait for us (ph) to see if that isn't -- you know, if he's not pulling our leg. We're waiting months and months later after he's made a commitment, and he hasn't done it.

And then there's another thing, which is what would happen in the event that Bashar al-Assad didn't destroy these chemical weapons? So I think here what we need to do is diplomatic effort. But what I have to say to you today is that in my opinion, that should not go unpunished. Because that's not a good system for the international relations today.

I think it would be very positive, as was the agreement between China and the United States, but I think if one is going to, you know, make a move, then someone else has to. We need to -- we need to condemn the use of these weapons. We need to destroy them.

MODERATOR: Gentleman on the aisle in the towards -- towards the back there in the blue shirt. Thank you.

QUESTION: Thank you.

Jeffrey Lavinty (ph), senor (ph) presidenta (ph), in your remarks, you faintly (ph), hopefully spoke about Israeli-Palestinian peace negotiations. And you also spoke about the need for Europe to speak on Unosoluwealth (ph) with one single voice.

Now on Israel-Palestine, the Europeans were all over the map with regard to recognizing Palestine as an observer state at the U.N. They did this year agree on excluding goods from the post '67 occupied territories (ph) from the Israeli trade access, which infuriated the Israeli right, who suggested that you all are, at best, useless, if not an obstacle.

How can Europe speak with a single voice in a way that gives a credibility and weight in finding a solution and in under -- underpinning it? Excuse me.

RAJOY (THROUGH TRANSLATOR): I agree with what you said. What I'd like to see is figureup (ph) to speak with one voice. Today, I have advocated greater European integration and greater openness to the outside and also for the agreement that we've already started working on. And there, we have indeed spoken with a single voice in concord with the United States on the trade agreement.

So Europe, as we know it today, is the result of a process that's been going on for many years now and which isn't over yet. Think: in 1957 -- was it '57? Yes. They created this sort of sketch of the European Union with the treaty of (inaudible). It was Benilax (ph), Netherland, Holland, Belgium, Germany, Italy.

So Europe had at this -- moment of its birth, it had a political origin because we had the treaty, the European treaty on carbon and steel so they could put together everything. They wanted to stop fighting over just that anyway. Europe has always fought over these things.

And so, I think that the project of the European Union has been a project that has had very important success stories. For example, think about this. Since 1957, 56 years have gone by. And in those 56 years, there've been problems. There've been conflicts, but look at what happened in the 56 years before 1957. Let's (ph) -- better to forget.

So Europe advanced. Europe moved forward. And in the beginning, there was some economic decisions, free (ph) moment of persons, of goods, of services. They were taking steps for (ph) creating the Euro.

I'm the president of the government of a sovereign country, and I can't make monetary policy. I can't make exchange rate policy. I have to wait and see what the ECB says. You know, imagine how that ties my hands right now.

But you look at the integration process in Europe. It's been very useful for all of us in every way. Of course my country is a deeply pro-European country. But it's not over yet. The economic union isn't completed. It's taken steps, but it still needs to be done. Banking union isn't completed. Important steps have been taken, but there's still a lot to go. And look at the fiscal union. Look at political union. Look at the security defense policy, a common security defense policy.

What I would like to see is for Europe to speak with a single voice, the voice of Europe in foreign policy.

Now, going back to Syria. There was a meeting after G-20 of foreign ministers. I think it was in Lithuania where Europe cobbled together a common position. It wasn't that clear, but it was such an important issue.

And so, what I'd like to tell you today is here you have a European, myself, who is committed to the integration process. I think it's best for the Europeans, and I think it's best for the rest of the world.

MODERATOR: Gentleman right up in the front here.

QUESTION: Hello, David Malpass (ph) with nseema (ph).

Could you discuss two topics. One is banking union. And one is the rationalization of the state that you mentioned, including the regions in Spain. Thank you.

RAJOY (THROUGH TRANSLATOR): Well, those are two enormously important issues. And, of course, I could give a whole speech about each one of those and, well, we just don't have time.

But I'll try to just refer to what I think are the basic points here. The take-home message is that banking union is going to need the following. First, you're going to have a single supervisor for all the European banks. That's already been approved. And that, in theory, is going to take effect next year in 2014. And that single supervisor is going to be our (ph) European central bank.

Now, if this had existed before half of the problems that the financial entities had in Spain would have been avoided. Cyprus, that wouldn't have been in the news. It wouldn't have happened.

So the process that we're looking at now is that before the action of the supervisor, this new supervisor, there's going to be a stress test of the principle financial entities. And I have asked for these stress tests to be done and all of them to be done as it was in Spain. Spain, as you know, had -- its financial system was reviewed by the European Commission, by the IMF, by the ECB by independent auditors. I think even the bank of France, everybody came and audited us.

But that was very useful for us because now we can say that we have a financial system that is more transparent and more solvent than ever. And so, I would like all of the others to have a banking system as solvent and as transparent as Spain's is today. So that's banking union.

It's also very important to have a single resolution mechanism, not a national one, a European mechanism. This is being debated right now in the Eurogroup, in the ECOFIN, and I hope that before the end of the year, the European resolution mechanism exists. That's more integration, which, at the end of the day, is what I've been talking about all this time.

So when you look at the direct recapitalization of banks, that is an issue where we've seen substantial progress -- could have progressed more, we'll see this progress in the future. But I think it's also worked out very well.

And I believe in banking union, and I believe that it's going to be complete in 2014. I believe that's the case. We could (ph) moving forward with economic union, with fiscal union, which is obviously a lot more complicated. But we need to have some certain system of mutualization of debt. We need to have something like a European budget. This is something, obviously, in more long term, and then political union, which is essential.

Because what you're seeing in Europe, as everybody knows, is of the process of receding sovereignty. Spain, for example, doesn't have its own currency, to give you just one example. And so, all of this needs to be accompanied by political union and greater democratic control. And as I said answering your colleague, this is a process that's been going on for more than 50 years. It's taken more than 50 years to get as far as we are now. But we have our target set, and we are going to reach those goals.

I think Europe -- first of all, the problem of security. Last year, for example, debate was about the very existence of at least a single currency. And today that debate, it's gone. Because Europe has taken steps in the right direction. They've known how to help Greece, how to help Portugal, and that shows that there is political commitment to move forward with this project.

Now as to streamlining, the streamlining of the public administration, you know that Spain is a state that has three levels of administration. You have the national state administration, the government, the government that I preside.

Then there's the governments of the regions, which is very important because, among other things, they have authority in the major public services. So the regions in Spain manage education. They manage healthcare. And they manage social services. And so, as you know, that's a very high part of government spending. A lot of public servants are there.

So then we have the third level, which is the municipalities. So how are we working along these lines today? Because another criticism that we've heard last year about Spain was that government isn't going to be able to control the finances of the regions.

Well, we did. We did. We controlled the finances of the regions. And why? Because we made what's called an organic law of budgetary stability (inaudible). And everyone is compelled to have a certain deficit level. And if they go past that public deficit target, it gets them into trouble. So right now, you're looking at the social (ph) security in Spain. That's another problem, and we're working on that now.

Now, the operation that's underway now, we want to have an administration that is the right size with the right number of public servants and (inaudible) public servants. And great strides have been made in that direction. We want a public administration that doesn't have any duplicities, any overlapping, that each level of administration does one or the other thing. Because it's -- if you want to have three different levels doing the same thing, it's just not responsible.

So if while (ph) the region is responsible, they're 100 percent responsible. And if they can't take it on, then they have to cede that responsibility.

We're also looking at a process of modifying administrative procedures. We want to cut red tape. I'll give you a clear example of something that we've done recently. This is just one example, but it can work for you.

When somebody wanted to open a shop before, they had to go to so many different offices to see if it met the regulations for the electrical installations and, you know, the normal requirements for opening a business. But now, all they need to do is present a single document saying, "I state that I have met all my legal obligations." And they can open the next day.

Now logically, of course, they're going to be inspected and so on. And if they've -- if they've -- well, if they're committing fraud, well, they'll -- we'll go after them.

But when you look at this administration reform, that's one of the most difficult, one of the most complex, and it's one of the ones that gets the less attention. It's not something -- it's not sexy (ph). But it's so important. And it's one of the pillars of our structural reform.

I could bore you to death going on and on about this, but I don't think I should do that.

PORAT: On that note, there's a very strict rule, as most people here know, that we end promptly when we're scheduled to end at two o'clock.

I want to congratulate you on what you've accomplished so far and your vision for (inaudible). Thank you.

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