IV.  POLITICAL ENVIRONMENT

Bilateral Relationship with the United States

Spain and the United States enjoy an excellent bilateral
relationship suitable to close allies and industrial democracies.
The governments cooperate closely on a broad range of issues and
are allies in the North Atlantic Treaty Organization (NATO).

Major Political Issues Affecting Business Climate

Two political issues affect current business climate in Spain.
One of them is the need to make labor legislation more flexible.
The other is the ideological split that exists in the ruling
Spanish Socialist Workers Party (PSOE).

Labor regulations in Spain are still too rigid, despite recent
changes (June 1994).  Companies in Spain faced with economic
difficulties have problems downsizing their staff.  They are also
faced with high Social Security payments.  Every time the
Government has tried to pass legislation to eliminate these
rigidities, they have faced opposition from trade unions.

At present there are two different ideological opinions affecting
the ruling party.  One of them calls for increased liberalization
of the economy, while the other still defends traditional social
democrat policies of Government intervention.  This affects
legislation.  For instance, Minister for Public Works and
Telecommunications defends intervention and key projects such as
the second cellular bid and Cable TV are paralyzed.

Political system, schedule for elections, and orientation of
political parties

Based on its constitution of December 6, 1978, Spain is a
parliamentary democracy.  Following the June 6, 1993 general
elections, the Spanish Socialist Workers Party (PSOE - center-
left) heads a minority government.  The PSOE governed with
parliamentary majorities from 1982-1993.  President of Government
(Prime Minister) Felipe Gonzalez, Secretary General of the PSOE,
was first elected to his position in 1982.  Currently, the PSOE
receives the support of the Catalan regional party (CiU) and the
Basque regional party (PNV) in parliament on a case-by-case basis
to form the majority required to pass legislation.

The electoral term is a maximum four years, though elections can
be called before that term expires.  Elections will be required
on or before June 6, 1997.  In October 1994, there will be
elections for the Basque regional parliament.  Regional and
municipal elections are scheduled for 1995 except in Catalonia's
parliament where they will be held in Spring 1996.

The principal opposition party in parliament is the Popular Party
(PP - center-right).  Either the Socialists or the PP rule in
almost all of the 17 autonomous governments (similar to States),
except in Catalonia (where nationalist party CIU has majority),
Basque country (where Socialists and nationalist party PNV rule
in coalition), Aragon (governed by local party PAR) and Canary
Islands (run by local nationalists Coalicion Canaria).  A process
is currently underway to transfer authority further to these
autonomous governments.

On June 12, 1994, the Socialists came second after the PP in the
European parliament elections.  This was the first time the
Socialists lost a major election since 1982.  In the Andalucian
elections held the same day, the Socialists lost their absolute
majority and now form a minority Government.