Press conference by the President of the Government and the Chancellor of the Federal Republic of Germany

Santiago de Compostela (Galicia)

President of the Government.- Ladies and gentlemen, a very good day to you all and thank you very much for coming here today.

Here, in Santiago de Compostela, today and yesterday I have had the pleasure of receiving my very good friend, the Chancellor of the Federal Republic of Germany, Angela Merkel. In recent years Chancellor Merkel and I have met on many occasions, in Spain, in Germany, in Brussels and in other parts of the world. Our meetings are always characterised by their cordiality, they are always fruitful and they always serve to find shared paths towards satisfactory solutions to sometimes very difficult situations, particularly over the last few years, situations we have had to tackle together and indeed with our other European Union partners.

But I must say that my pleasure on this occasion is two-fold. On this occasion, I have had the opportunity to show the Chancellor some of the most emblematic sites of the city where I was born, Santiago de Compostela, a World Heritage Site. Moreover, yesterday we had the opportunity, as you all know, to walk together along a stretch of St. James's Way which, for so many centuries, has brought millions of pilgrims from all over the world to Santiago, with huge number of Germans among them; a St James's Way that many pilgrims travel for religious reasons, but along which all find some inspiration; a Way which has numerous routes, but only one worthy destination: Santiago de Compostela.

It was also special because this informal meeting gave us the chance to reflect on very important matters together, calmly and without the formal nature of a summit or a multilateral meeting, not only on our joint agenda, not only on matters of current affairs, but also on the future that we have to build together as partners, friendly nations and allies in our important shared project that is the European Union.

I would thus like to thank Angela Merkel for her visit here to Santiago de Compostela.

Ladies and gentlemen,

In Spain we are starting to reap the rewards of the reforms we have undertaken, many of them in close collaboration with Germany and with the rest of our partners in the European Union; the rewards, above all, of the efforts of the Spanish people. And I am sure, believe me, that these reforms and this hard work have not been in vain. We have managed, firstly, to avoid a dramatic situation it appeared we were approaching just two and a half years ago. We have also managed to correct the major imbalances that had been building up for many years. And after a long time in recession, Spain is once again enjoying growth, still not enough, but we have now enjoyed four consecutive quarters of growth and the last one, heading up the Eurozone leader board. But what is most important is that our economy is now creating net employment for the first time in seven years. In short we have managed, between all of us, to once again place Spain on the path of sustainable, sustained growth and job creation.

But we will not let self-complacency get the better of us. We know that we must continue down this reformist path and we know that this is the only guarantee not to fall in to the same traps and imbalances as before, and the only way of maintaining and developing the levels of well-being that Spanish society both demands and deserves.

As I said before, the Chancellor and I have had the opportunity to reflect together on many very different issues, both on the common agenda of the European Union and on international issues that concern us. We have discussed, as you would expect, the upcoming European Council on 30 August which, as you are aware, has been called to decide on the appointments of the new President of the European Council and to propose the new High Representative of the European Union for Foreign Affairs and Security Policy. It is also expected that we will discuss some of the more important issues on the international agenda.

We both agree that the European Council must be able to agree on these important appointments so that the European institutions can get to work as soon as possible with the aim of implementing the strategic priorities for the years to come and to implement the important reforms ahead of us.

You will have heard me say before that the European Union and all its institutions must do more, do it better and do it faster. This is fundamental to give greater strength and credibility to a project that has allowed us to live through the longest and most prosperous period in our history. The Chancellor and I also spoke about that.

We must continue to work and correct the defects in design of our economic and monetary union, and the path we agree on is that which leads us to greater economic, monetary, banking, fiscal and political integration.

The European Union and its institutions must work side-by-side with Member States and their measures and reforms that drive growth and job creation. We also agree on that. In this regard, the raft of measures aimed at investment and growth announced by the President of the Commission, Jean-Claude Juncker, can and must be part of this common action. But the re-establishment of the flow of credit to SMEs and to boost employment must become a fundamental priority of all the European institutions.

The European Union must, moreover, take greater advantage of the internal market and of the opportunities for growth and employment offered by transatlantic trade and investment as quickly as possible. To that end, we must drive the negotiations of both the Transatlantic Trade and Investment Partnership with the United States and the Association Agreement with MERCOSUR.

We have also spoken about the EU's immigration policy. As you are aware, in 2014 the migratory pressure on the Mediterranean shores has reached new heights in terms of intensity and drama. Upon an initiative from Spain and other countries, the European Council and the other institutions are implementing measures to avoid this human drama. Migration must be an option and not an obligation due to a lack of resources to live a dignified life in one's country of origin. Hence the European Union should tackle this issue at a global level taking into consideration all perspectives.

We have also tackled various international issues, such as the situation in Ukraine, Iraq, Gaza and Libya, as well as the upcoming NATO Summit.

As regards Ukraine, the European Union has shown its political support for the territorial integrity and Ukrainian sovereignty and its political support for the far-reaching reform process that must be undertaken by the authorities. Our priority in Ukraine is to achieve a ceasefire that avoids further bloodshed, guarantees the security of the people and opens up a window to negotiations. We must find a way to combine resolution with prudence. This crisis can only be resolved by a political solution.

Spain is extremely concerned by the events taking place in Iraq. The mass violations of human rights, the persecution of minorities and the well-publicised murders are repugnant to everyone. The international community must decisively tackle this serious crisis from a regional perspective, with the support of the neighbouring countries while preserving the unity and territorial integrity of Iraq. I trust that the new Iraqi Prime Minister will manage to form a national unity government that will lay the foundations to re-direct this situation.

As regards Gaza, we profoundly regret the renewal of hostilities and call on the parties to bring an end to the violence and return to the negotiating table. There have already been too many victims. We support the efforts at mediation, particularly those undertaken by Egypt. Given the circumstances, it is not enough to merely forge a ceasefire, but rather we must generate hope for the future. It is necessary to get back on to the path of the peace process and the European Union must contribute to this with a renewed impetus to defining a global solution to the Israeli-Palestinian conflict based on a two-State solution.

As regards Libya, Spain, in the same way as its European Union partners and the neighbouring countries, is following with particular concern the crisis that is a permanent source of instability for the country, for the region and for the whole Mediterranean basin. Weapons must give way to inclusive political dialogue that lays the foundations for stability in the country, and hence, in the region.

Finally, we reviewed the upcoming NATO Summit to be held, as you know, on 4 and 5 September. Specifically, we spoke about the culmination of the NATO mission in Afghanistan and its future commitment to the country, the repercussions of the crisis in Ukraine, relations with Russia, and the fact that NATO needs to pay special attention to its southern borders. Our two countries are in close agreement on these issues and on others to be dealt with at the Summit.

In short, we have taken full advantage of this meeting. Relations between our two countries are wonderful, as ever. You are aware that 15 million Germans honour us with their presence here in Spain each year. And you are aware that Germany is our leading supplier and second leading client, and I am absolutely convinced that this meeting will serve to improve, if indeed possible, these excellent relations in the future.

Once again I thank Chancellor Angela Merkel for coming here to Spain, and precisely to Santiago de Compostela.

Ms. Merkel.- Ladies and gentlemen, distinguished President of the Government, my dear friend Mariano,

To start off, I want to thank you with all my heart for this invitation; this invitation of friendship, and not just to hold political talks but also to see a part of Spanish history. What really moved me was the fact that we were able to walk together along a stretch, albeit short, when you take into account its total length, of St. James's Way. The atmosphere is very special. I will never forget it; it was a memory for life. The same can be said of this excellent Parador, the history of the cathedral and everything else related to it.

Thank you very much for the invitation to your home town, which has created a special backdrop for our talks and, hence, is a clearly different surrounding to our meetings in Brussels; the summits there where there isn't enough time to talk about events at a bilateral level, about the particular features of each country and European diversity. Thank you so much.

I can also reiterate that Spanish-German relations are very healthy, very close and there is great consensus on the majority of the issues. I am extremely pleased, and it gives me great satisfaction to see various quarters of growth in Spain and that the unemployment rate is dropping. This is the result of the difficult, tough reform projects, reforms that the government of Mariano Rajoy has undertaken with great impetus in light of the tough situation he had to take on board when he came to power as President of the Government. We can say here today that these reforms have laid the foundations for the prosperous development of Spain in the future. We respect this greatly and we are prepared to support this path, and I believe that we have always been able to find the right solutions.

We agree, and that was patently clear in our talks, that the financial soundness and the drive for growth through structural reforms are two sides of the same coin, and that these two aspects cannot be dissociated from one another. Hence, I think that there is a great deal of consensus in this respect.

Spain and Germany also agree that the economic and monetary union requires greater cooperation at an economic level. In other words, Europe must draw even closer together and, above all, this must be done to maintain our competitiveness in the future.

I am also in favour of ensuring that the new Commission undertakes the most important aspects needed for growth and job creation. What we spoke about were specific issues in this regard; on the one hand, the whole digital market, the extension of the digital market, from the regulations to broadband. We spoke about the need for the Commission to help in this area. The question is, where can new jobs in Europe come from? I believe that the digital sector is an important sector, because Europe is not a global leader in this market and we must make up ground. Germany and Spain are both determined to also encourage the new Commission to work on this area.

We also tackled the issue of the energy market in respect of converting it into a single energy market. For a very long time now, Spain has been asking for a single market and Germany has supported this proposal. For the Iberian Peninsula, this means interconnections with France, Germany, etc., because an integrated single market is, in turn, a fairer possibility for the energy market and for competition. We also need competitiveness in this field if we want to have a decent energy supply throughout Europe.

We also tackled the possibility of taking advantage of European programmes. The President of the Government has already mentioned doing more in term of supporting SMEs. We have programmes sponsored by the European Investment Bank, and the European Central Bank is also offering its support in this regard, but what is important is that the offers being made come to fruition because a resolution adopted by the European Council is of no use to the business owner of an SME; rather he needs concrete solutions. In other words, these resolutions need to be put into practice more quickly.

The same applies to the 6 billion euros made available to combat youth unemployment. We must also find ways to quickly help our young people make use of this fund, because our citizens view Europe through facts and not through declarations of intent. I am convinced that through close cooperation between the European Council, Commission and Parliament we can be successful in this regard.

We also agree on different issues at an international level. I don't want to repeat this here, but we are 100% in agreement on international affairs.

I want to finish by expressing my gratitude once again. It has been a very pleasant stay and we will continue talking during lunch.

Last night, I said to the President of the Government, to Mariano, that I would love to invite him to my small political home. Santiago de Compostela is a World Heritage Site. Templin, my city and constituency, is also a World Heritage Site. Hence, we practically cover a territory from close to the African continent to the Baltic Sea. That is Europe, it just goes to show the wonderful diversity of Europe and shows that we can increasingly discover new areas and aspects of Europe.

Q.- Madam Federal Chancellor, at the last meeting with the President of the Spanish Government, the German economic sector was in a very good situation while the Spanish sector was in crisis; the reverse is now true: the German economy is in decline while Spain is growing. We can almost say that the situations have been turned around. For Spain, this is surely a period of joy and satisfaction, because Spain has to export. Should Spain be fearful that the German engine is not firing on all cylinders?

Ms. Merkel.- We have spoken about this as well. Spain needs not to be concerned. Of course, we wish to see Spain enjoying economic growth, because when we look at unemployment, the unemployment figures, we can see that economic growth is the first sign of employment growth. In Germany, we have just suffered one quarter of negative growth, this is a singular effect. Growth over the winter was higher than expected because the winter wasn't too harsh and hence the reactivation in spring wasn't as profound as in other years but I don't want to brush aside the fact that there are other areas of insecurity. The whole situation in Ukraine and in other areas shows us that there is a lot of interest in maintaining constructive international relations. But I base things on the fact that the growth rate for the year as a whole, unless we suffer unforeseen circumstances, will be good.

We are also tackling the issue of how to create growth in Germany. For many years, increased exports gave rise to growth. However growth in Germany is currently a result of increased domestic demand firstly. I should state that we offer many opportunities because internal consumption is growing and we are thus a buyer market for those who export. For many years we were criticised because our growth was based on exports, but this has now changed and, deep down, this is good news for countries like Spain.

Q.- As my colleague mentioned earlier, not only Germany's economy, but other economies in the Eurozone are suffering a slowdown, such as France, Italy… And the French Government has just resigned, precisely because of internal controversies regarding austerity policies. I wanted to ask the two of you, in addition to a quick opinion about the political crisis in France, if you believe that the time has come to turn around this austerity policy as is being demanded in certain countries.

Specifically, I wanted to ask you about the upcoming summit and whether you, Chancellor, support the Spanish aspirations for Miguel Arias Cañete to become a commissioner and for Luis de Guindos to become President of the Eurogroup, and whether Mr Rajoy maintains these aspirations. Have you spoken about this?

President of the Government.- It is true that second-quarter growth in the Eurozone can be no great source of satisfaction to anyone, because in reality it stood at zero. Hence, it is true that we all need to make a great effort for things to improve in the future.

It is clear that things are going well in Germany. As the Chancellor explained, the second-quarter figures have nothing to do with how the German economy will evolve during the rest of 2014 and 2015. I believe that things are going better in Spain now. We have seen four consecutive quarters of growth and, moreover, each quarter has seen higher growth: from 0.1% to 0.2%, then 0.4% and 0.6% in the last quarter.

I am not going to get involved in the problems that may exist in France, which are obviously an issue solely and exclusively for its government and parliament. What I am absolutely convinced of, however, is the interest - this has been shown; he told me this because he was here just recently in Madrid - of their Prime Minister to undertake reforms and continue working to meet their commitments as Europeans. France is a great country and we are all absolutely convinced that things will go better in the future, which will also benefit the European Union as a whole.

You asked whether it is the right time to do away with the austerity policies. My position on this matter is exactly the same as I stated when I came to power, exactly the same. Firstly, we must persevere with fiscal consolidation policies. When we came to power, and you will remember this perfectly, we had a public deficit in excess of 9%. It is impossible to live these days with a public deficit in excess of 9%. The European Commission then relaxed the deficit objectives, the Spanish people made a great effort and I believe that this effort can be seen in a substantial improvement in the economic situation.

Secondly, what we said back then, we have made and we will continue making structural reforms. Sometimes structural reforms are tough, sometimes they are complicated and hard to explain, but they are what help increase the competitiveness of the economy, and hence, the levels of well-being and wealth. Spain has made many structural reforms and we will continue making them throughout the rest of this legislature.

Thirdly, it is important that Europe make progress in terms of economic union. The Chancellor, spoke, and rightly so, about the need for a single energy market, and we probably need one for services and in many other areas. And this is important.

Fourthly, we must, as has already happened, work to increase integration. We have implemented the banking union, we will need to speak in the future about fiscal union and political union, and this is also important.

And finally, I want to say that the European Central Bank has taken two important decisions: firstly, deposits with financial institutions will have a negative interest rate and, secondly, and more importantly, which we hope will show its effects as from the month of September, loans will be made available to financial institutions at an interest rate of 0.25% for three years, with the sole aim that money be made available to small- and medium-sized enterprises, which is undoubtedly one of the main needs in our country.

Hence, that is the position the Spanish Government has held for the last two and a half years and we will maintain this position. In other words, the public deficit must be kept at reasonable levels, in the same way as the levels of debt, reforms must be undertaken and that is what leads to job creation, well-being and wealth in the end, which is the raison d'être of governments.

As regards the appointments, I did indeed send a letter - we were asked to do so at the last European Council - to Mr Juncker, proposing Miguel Arias Cañete as a candidate for Spanish commissioner, and I believe that Luis de Guindos is a very capable individual with sufficient preparation to become President of the Eurogroup. He has headed up very important aspects of the Spanish economy, together with the Minister for the Treasury over the course of these last two and a half years, and he is someone who has shown, together with the rest of my government, that from an extremely difficult situation, Spain could find a way to becoming a country that is starting to grow and correcting its imbalances.

Ms. Merkel.- I share Mariano Rajoy's opinion regarding a combination of fiscal consolidation and reforms.

There is a misunderstanding. It is often said that in order to enjoy growth, more and more money is needed, but that is not always true. With less bureaucracy, extending the single market, free trade agreements and through investment in research and development, stable growth can be generated. In all our countries we have, on the one hand, the unemployed, but on the other hand, there is a demand for well qualified workers. Vocational training needs to be steered in the right direction. For example, we are working together on vocational training. These are important issues.

Europe is a continent that is not renowned for the speed of its authorisation processes, nor for a model without excessive bureaucracy; Europe was renowned as a continent with a great deal of regulations and directives. We have now changed direction in the sense that the next few years must focus on increasing Europe's competitiveness in order to see what regulations we need or not. For many years now we have been enjoying growth. No laws are repealed while there are certain European countries that do indeed repeal their laws.

In other words, this must all be controlled and revised to seek more efficient ways; on the issue of best practices, for example. Our colleagues in the Nordic countries have excellent experiences in terms of their labour reforms, and Spain has also taken into consideration the experiences of other countries. This is a path we must tread more firmly.

As regards France, I wish the French President all the best in his agenda of reforms. He has taken some very brave steps. Of course, we are not going to comment on events, but this is what France will do.

As regards the proposed appointments, it is the Spanish Government's decision to propose a candidate to become commissioner. We have no part in the matter. When the election of the next President, the head of the Eurogroup, comes round after the term in office of the present head expires, we will support the candidature of Luis de Guindos, because I fully share Mariano Rajoy's criteria in the sense that Luis de Guindos has been an excellent Minister for Economic Affairs for Spain during hard times. Our Finance Minister, Wolfgang Schauble, works closely with Minister De Guindos. Together, from banking union to other issues, we have resolved these superbly.

Q.- Madam Chancellor, you spoke about the single energy market. Is the idea that Germany and Spain are going to make the energy change by committing to renewable energy and will it also be possible for gas to be supplied from Algeria to Germany to make us more independent from Russian gas?

Ms. Merkel.- The aim of the single energy market is that Portugal and Spain have the opportunity to transport energy generated in the Iberian Peninsula beyond the Pyrenees. That is not possible at the present time. That is not possible for electricity or for the gas market. We must create more interconnectivity and the main issue for me is the single electricity market. We need to remove the barriers and the market will then create itself. By doing this we will also have greater opportunities to interconnect with Africa. I also support each of the Spanish demands in this respect.

This issue will be tackled at the European Council meeting on a framework for climate and energy. Germany will fully support Spain so that, within a short space of time it will be capable of supplying 10% of Spanish energy to the European electricity market.

Q.- For the President of the Government. On Friday, the Catalan Statutory Guarantee Council ratified the Catalan Referendum Act, which will be approved in the Regional Parliament in September. I wanted to find out your opinion on whether this decision will change the President of the Government's opinion as to whether Catalonia may legally hold a referendum on not and also ask Chancellor Merkel her opinion on the matter of Catalonia.

Question two. The PSOE has already said no to the Electoral Act. Does the Government of the Partido Popular still intend to go ahead with the reform?

President of the Government.- I have followed very closely, as I should, the decision of the Catalan Statutory Guarantee Council. Well, I am not going to get involved in a legal debate, as you will perfectly appreciate, because everything is a matter of opinion. In fact, I seem to remember - I am not absolutely sure, but I seem to remember - that there were five people who held one opinion and four people who held another opinion.

So, getting to the crux of the matter, as we should, I hold exactly the same position as I held when I found out through the media that an illegal referendum was going to be called and, moreover - you probably remember - I was with Mr Van Rompuy who had come to Madrid on another matter that particular day.

Hence, no illegal referendum will be held under any circumstances. You cannot ask a president of the government of any country in the world to authorise a referendum that is illegal, above all when the very national parliament of the country has said the same and, above all, when the Constitutional Court has also said the same.

Spain is a serious country; Spain enjoys the rule of law, Spain enjoys a constitution and a legal system, and one of the basic obligations of the President of the Government is to ensure that this is respected.

Aside from that, I would like to say another thing; laws apart, what is being planned at this time is ridiculous. What I mean is that it is hugely negative for the citizens that live in Catalonia and it is hugely negative for the rest of the people of Spain.

We have just spoken today about banking union, we have just spoken about fiscal union and we have just spoken about creating a single European market. That is the way the world is heading - towards processes of union and integration. In other words, where are they intending to go outside of the European Union, of the European Central Bank and of the single currency? They don't explain this to many of the citizens of Catalonia, which is one of the greatest perversions of this whole process we are witnessing.

Hence, my position has not changed and it would be worrying if it had changed on an issue of this magnitude. It has not changed, neither will it change. National sovereignty is out there and whatever Spain will be shall be decided on by the people of Spain as a whole. Not even our national Parliament, and obviously not the government, or anyone else. This is a power that belongs to the Spanish people as a whole and all the people of Spain are perfectly entitled to give an opinion on their country; and their vote is as important as mine or as the gentleman's who presides over the Regional Government of Catalonia. Hence, there is not, nor will there be any change on this matter and no illegal referendum will be held in our country.

The electoral reform? Indeed, it is widely criticised. It's curious because the proposal on the electoral reform has not even been formally made. In other words, some people are criticising it before it is even proposed.

I will say two things: this electoral reform was contained in an election manifesto of the Spanish Socialist Workers' Party and hence, either they got it totally wrong or it wasn't such a bad reform as they now say it is; furthermore, there are various peer countries in the European Union that use this procedure for directly electing mayors. Hence, this proposal cannot be so bad after all.

On this issue, I will meet with members of my party and we will try to speak with other political forces, but I believe that appointing a mayor by direct election of his constituents is much better than the mayor being chosen by pacts between three, four, five or even six different political parties, as has happened on many occasions. This is much more respectful of the will of the people.

Ms. Merkel.- The President of the Government has stated his position on the issue of Catalonia. This is a Spanish domestic affair. I can say everything he said previously and what he has repeated now seems very logical to me and something that should be supported. I say this with all the reservations that a Head of Government of another country should have at this time on an issue of this nature.