Spain country brief

Bilateral relations

Overview

Relations between Australia and Spain are steadily expanding. Spain offers significant potential as a partner, both in business and in international relations. While Spain's foreign policy traditionally focuses on the European Union (EU), the Mediterranean and Latin America, it is broadening its diplomatic and commercial presence in the Asia-Pacific. In recent years, the Australian and Spanish Governments have reinforced growing trade and investment links by developing policy dialogue on areas of shared interest.

The Spanish Government's Asia Pacific Action Plan set out practical areas for increased Spanish engagement in the Asia-Pacific region, including the opening of a branch of the Cervantes Institute in Sydney in 2009, which will contribute to expanding knowledge in Australia of modern Spain, its language and culture. In June 2009, Australia and Spain signed a Joint Action Plan which provides a framework for current and future cooperation on global, regional and bilateral issues.

Defence Cooperation

Cooperation on large-scale military projects (worth $A13 billion) lies at the core of expanded bilateral engagement. Two Royal Australian Navy LHDs (landing helicopter docks) have been built and launched in Ferrol in February 2011 and July 2012, a significant milestone in strengthening bilateral relations. This followed the award of two major Australian defence acquisition contracts, for two amphibious vessels and three air warfare destroyers, to Spanish company Navantia, the world's ninth-largest shipbuilder. When commissioned, the LHDs will be Australia's largest-ever warships in the service of the Royal Australian Navy, with impressive helicopter and amphibious capacity and surgical facilities, configured for humanitarian and combat missions. The Spanish-designed air warfare destroyers will also be among the most capable ships of their size in the world. The Navantia contract complements that won in 2004 by EADS-CASA, the Spain-based division of Airbus Military, to provide the Royal Australian Air Force with five tanker transport aircraft. These projects are also providing commercial flow-on to Australian firms.

Cooperation on defence acquisition projects has led to increasingly close links between the Royal Australian Navy and Spain's Armada, which have gradually evolved into a strategic partnership. This is epitomised in the agreement between the two navies for the deployment of the Spanish frigate Cantabria to Australia in 2013, where it will exercise and train with Australian naval ships for eight months. The Cantabria will also represent Spain at the Australian International Fleet Review, which will commemorate the centenary of the entry into Sydney Harbour of the first ships of the Royal Australian Navy in 1913. In preparation for the induction into Australian service in coming years of Spanish-designed ships, the Armada has also provided considerable training and operational assistance to the Royal Australian Navy.

People-to-People Links

There is a modest upward trend in the number of Spaniards visiting Australia (around 23,100 in the year ending May 2012). Approximately 86,000 Spanish visas were issued to Australians in 2010 but, with many entering Spain through other visa arrangements, the total number of Australian visitors is estimated to be much higher.

Spanish enrolments in Australian education institutions have grown over the past five years, a trend sustained through the financial crisis. An estimated 3,000 Spaniards studied in Australia last year, mostly in short-term ELICOS (English language study). In 2012, Spain became one of Australia's top 10 source countries for ELICOS students. In the 2011 Census, 92,959 Australian residents claimed Spanish descent. The Spanish community in Australia comprises principally those who migrated to Australia in the 1960s under a government-to-government assisted-migrant-passage program, and their children, but includes the descendants of nineteenth-century, primarily agricultural, immigrants. New South Wales has, by far, the largest number of Spain-born persons in Australia.

In the most significant bilateral cultural exchange to date, the Queensland Art Gallery in Brisbane is hosting an exhibition of masterpieces from the Prado Museum, 'Portrait of Spain', in July-November 2012.

Bilateral Agreements

Bilateral agreements include an Extradition Treaty (1988), a Social Security Agreement (1991 and 2003), a Treaty on Mutual Assistance in Criminal Matters (1991), an Agreement on Cultural, Educational and Scientific Cooperation (1991), a Double Taxation Agreement (1992), and an Air Services Agreement, which entered into force in April 2011.

High-level Visits

The strength of the relationship has been enhanced by a significant number of high-level visits. The Governor-General, Ms Bryce, visited Spain in June 2011, Minister for Defence Materiel Jason Clare visited in August 2011 and Minister for Foreign Affairs Stephen Smith visited in February 2010.

Australia was represented at the level of Chief of Navy at the February 2011 and July 2012 launches of the two landing helicopter docks being built by Navantia for the Royal Australian Navy (see 'Defence Cooperation' above).

Their Majesties King Juan Carlos and Queen Sofia made an official state visit to Australia in June 2009, visiting Canberra and Sydney.

Bilateral Economic and Trade Relationship

Trade

In 2011, Spain was Australia's 26th largest merchandise trading partner. Trade in 2011 reached A$2.71 billion. Australian merchandise exports to Spain were around A$907 million, including coal, zinc ores and concentrates and nickel. Australian imports from Spain in 2011 stood at around A$1.8 billion, with the biggest import items being medicaments. Other Australian imports from Spain included goods vehicles, rubber tyres, treads and tubes, and passenger motor vehicles.

See also the section on 'Defence Cooperation'.

Investment

Spanish infrastructure companies are increasingly significant players in the Australian infrastructure, water and renewable energies sectors. They are prominent participants in the internationalisation of the Australian construction sector. Most of Spain's infrastructure companies now have a presence in Australia. Sacyr Vallehermoso and Tecnicas Reunidas won a major desalination project in Western Australia in 2008 and have since been contracted to double the capacity of the original plant. Tecnicas Reunidas has also won specialist contracts for nitrate plants. In 2008 Acciona won a desalination contract in Adelaide; it is also the lead partner in the consortium selected to build the A$1.5 billion Legacy Way tunnel in Brisbane. OHL and Acciona have won projects for post-flood reconstruction in far North Queensland.

Spanish firms have also won contracts to build renewable resource infrastructure, including Gas Natural Fenosa and Acciona with investments in windfarms. The Waubra windfarm, operated by Acciona, is the largest in the southern hemisphere.

Australian investment in Spain was worth A$3.2 billion in 2011. The Australian geothermal company Petratherm is involved in the Madrid Geothermal District Heating project. Worley Parsons is partnering Spanish companies in solar projects in the Iberian peninsula and North Africa, and Bovis Lend Lease has managed major projects in Spain in partnership with local infrastructure players, including construction of a new airport terminal in Barcelona, redevelopment of Barcelona's bullring, and oil company Repsol's new headquarters in Madrid. Macquarie Bank has a number of varied investments in Spain and maintains an office in Madrid, to promote both its investment and advisory functions.

The Australia-Spain Business Association is headquartered in Madrid with branches in Barcelona and La Coruña (Galicia). The Spanish Government and Catalan regional Government maintain trade promotion offices in Sydney, where there is also an active Spanish Chamber of Commerce. Austrade has a resident Trade Commissioner in Madrid and provides export assistance to Australian companies.

Political Overview

System of Government

Spain is a parliamentary monarchy. The head of state is His Majesty King Juan Carlos I, who is also commander-in-chief of Spain's armed forces and head of the Supreme Council of Defence. The head of the government is the prime minister, currently His Excellency Mr Mariano Rajoy. Legislative power is vested in the Cortes Generales, comprising two houses, elected by direct universal adult suffrage for four years. The Congress of Deputies has 350 members, elected by proportional representation. There is also a less powerful but nevertheless important Senate, with powers of legislative amendment. It comprises 259 members (208 directly elected and 51 appointed as regional representatives).

The Spanish constitution recognises the right of the various regions of Spain to autonomy while emphasising the indissoluble unity of the Spanish state. Spain is divided into 17 autonomous communities, each with its own elected assembly and executive government, together with two North African enclaves, Ceuta and Melilla, called autonomous cities. The powers of the autonomous communities vary considerably, with the Basque Country, Catalonia and Galicia having special status and extensive powers, including over regional policing.

Major Parties

Spain's major political parties are: the centre-left Socialist Party, the centre-right People's Party (PP); and the United Left (IU) - a coalition of left wing and green parties, dominated by the Communist Party (PCE). Other parties include, in Catalonia, the Catalan Convergence and Union (CiU) - a coalition of two Catalan nationalist groups, the populist centre-right "Convergence" and the Christian Democratic Union; and in the Basque country, the Basque Nationalist Party (PNV), made up of moderate democratic nationalists favouring self-determination for the Basque region.

Political Developments

In general elections held on 20 November 2011, the People's Party (PP) led by Mariano Rajoy won a resounding victory. It now controls both houses of parliament, taking power from the Socialists, who had been in power under José Luis Rodríguez Zapatero since 2004. The PP was considered to have benefited from the Socialist government's failure to address the fragile economic situation, the debt crisis and the high unemployment rate. Mr Rajoy was sworn in on 21 December 2011 and subsequently announced a 14-member, largely technocratic cabinet. The government's focus is overwhelmingly on the economy. Mr Rajoy personally chairs the Executive Committee for Economic Affairs.

Terrorism

The high-profile terrorist group Basque Homeland and Liberty 'Euskadi ta Askatsuna' (ETA), declared a unilateral cease-fire in January 2011 and, in October 2011, the 'definite cessation of its military activity'. It appealed for a direct dialogue with the Spanish and French governments, however the Rajoy government has repeatedly said it will not open discussions with ETA until the group disbands and outlines plans for a surrender of arms.

ETA had, since the late 1960s, sought full independence for all the Basque-speaking territories in both Spain and France. It had mainly, but not exclusively, targeted Spanish political figures, business figures, judges, military, and security personnel and moderate Basques for assassination. Over 50 years, it was responsible for the deaths of some 860 people. The most recent ETA bomb attack in Spain was in Mallorca in 2009. Spain remains a target for Islamic extremists, who in 2004 perpetrated a series of bomb attacks on Madrid's train network, killing 191 people and injuring more than 2,000 others.

Foreign Policy

Since emerging from relative international isolation during the Franco era, Spain has assumed a growing role in international affairs. It joined the European Community in 1986 and is strongly pro European.

Spain became a member of the North Atlantic Treaty Organization (NATO) in 1982, with its full integration into the military structure of NATO completed in 1997. It has around 1,500 personnel involved in the NATO-led ISAF operation in Afghanistan, and has sent troops on peace-keeping missions in Afghanistan, Bosnia, Kosovo, Haiti and Lebanon, and as observers in the former Yugoslavia, Ethiopia, Eritrea, the Congo, Kosovo, Burundi and Sudan.

In 2004, then prime minister Zapatero launched the Alliance of Civilizations (AoC), an initiative formally taken up by the United Nations and co-sponsored by the Turkish Prime Minister in 2005. The Alliance encourages dialogue principally between the western and Muslim worlds, with activities in the areas of politics, media, education, youth and migration. Australia has been a member of the AoC Group of Friends since 2007.

Relations with the US, which improved following the election of President Obama in 2008, remain a priority. Spain has close relationships with Latin American and Spanish-speaking countries, based on history, a common culture, language, religion and strong investment and trade ties.

A further priority is the Mediterranean rim, where a number of countries have important political and economic links with Spain. The Union of the Mediterranean has its headquarters in Barcelona. Relations with Morocco have often been dominated by the issues of sovereignty of the two Spanish enclaves of Ceuta and Melilla, illegal immigration, drug-trafficking, fishing rights and countering terrorist activities. Spain continues to dispute British sovereignty over Gibraltar. It has good relations with Arab states and Israel, and has offered to act as mediator in the Middle East conflict.

Economic Overview

Following its accession to the EU in 1986, Spain's economy grew rapidly and it adopted the euro on 1 January 2002. The EU, United States, OPEC countries, Latin America and Japan are its most important trading partners.

In the period leading to the global financial crisis, the Spanish economy attracted appreciable levels of foreign capital. While other sectors have suffered since 2008, services, particularly tourism, continue to play an important role. Manufacturing has been dominated by textiles and apparel, motor vehicles, shipbuilding, machinery and pharmaceuticals. Spain is a significant producer of agricultural products, including grain, poultry, olives and olive oil, grapes and wine. Fishing is a major industry; Spain's fishing fleet is one of the largest in the world.

Economic Developments

The Spanish economy was hit hard by the late 2007 collapse of a speculative housing boom as well as by the global financial crisis. Following a sustained period of economic reform and adjustment, and GDP growth averaging around 4 per cent per annum, the economy formally went into recession in 2009. Spain's pre-crisis budget surplus of 3 per cent of GDP became a deficit of 11.1 per cent. Spain posted -0.1 per cent growth in 2010 and 0.7 per cent growth in 2011. The economy is once again in recession in 2012, with the IMF estimating negative growth of 1.5 per cent for the year. Unemployment has soared to 24 per cent, and is not expected to decrease significantly in the next few years. Youth unemployment has reached 52 per cent.

Responding to the crisis, the Government embarked in 2010 on a substantial program of reforms and austerity measures aimed at correcting imbalances in the economy and encouraging recovery, improving public finances, and reassuring international markets. Spain achieved its deficit reduction target of 9.3 per cent of GDP for 2010, though its 2011 deficit of 8.5 per cent was 2.5 per cent above target. Eurozone finance ministers (the 'Eurogroup') have set the Rajoy government a budget deficit target of 6.3 per cent of GDP for 2012 and 4.5 per cent in 2013, with the desired target of 3 per cent by 2014. The Eurogroup is also providing a euro 100bn line of credit to Spain's banking sector, in a bid to stave off insolvency, largely due to problematic property assets. Successive austerity measures, which have become the subject of popular protests, aim to cut the deficit through spending reductions to public administration and public sector wages, social security payments, healthcare and education, and increases to high-income tax rates and indirect taxes.

Updated August 2012