MADRID WEEKLY ECONOMIC UPDATE, SEPT. 15-19

ID
08MADRID1003
SUBJECT
MADRID WEEKLY ECONOMIC UPDATE, SEPT. 15-19
DATE
2008-09-22 05:05:00
CLASSIFICATION
CONFIDENTIAL
ORIGIN
Embassy Madrid
TEXT
C O N F I D E N T I A L SECTION 01 OF 02 MADRID 001003
SIPDIS
STATE FOR EUR/WE, EEB/IFD/OMACOMMERCE FOR 4212/DON CALVERTTREASURY FOR IA/OEE W.LINDQUIST
E.O. 12958: DECL: 09/19/2010TAGS: ECON ECPS EFIN ELAB ENRG EWWT KNNP SOCISUBJECT: MADRID WEEKLY ECONOMIC UPDATE, SEPT. 15-19
REF: MADRID 985
Classified By: Deputy Chief of Mission Arnold A. Chacon for Reason 1.4(b)
Contents:

EFIN: Reactions to U.S. Financial TurmoilEFIN: 2009 Budget to be AustereELAB/SOCI: Immigrant Return Incentive ApprovedENRG/EFIN: Energy Commission Fears Problems Unless GOSIncreases Electricity ChargesEWWT/KNNP: GOS on Track to Implement Radiation DetectionMaritime Portals by Late 2009ECPS: Vodafone Launches 670 Million Euro Suit AgainstTelefonicaEFIN: Sabadell Sells Half of Insurance Business for 750M Euros

Reactions to U.S. Financial Turmoil

¶1. (SBU) Spanish government officials and press followed theU.S. financial turmoil closely during the week. PresidentZapatero and Second Vice President and Economy and FinanceMinister Solbes reassured Spaniards that Spain’s financialsector was safe and its financial firms solvent. Zapateroclaimed that the turmoil proved that the U.S. subprimemortgage crisis was the origin of Spain’s difficulties.Solbes later acknowledged that Spain’s housing and inflationproblems predated the international credit crisis but saidthey would have been manageable without the credit crisis.Some of Zapatero’s political allies described USG actions asproving the inadequacy of unregulated markets and the valueof economic intervention.

¶2. (U) Solbes’ ministry announced that Spanish financialfirms had only limited direct exposure to Lehman Brothers.62 insurance companies had 281 million euros in exposure,0.2% of the sector’s total exposure. 45 pension funds hadexposure totaling 0.07% of assets, and investment funds had300 million euros in Lehman bonds or shares, 0.13% of thesector’s assets. Solbes and visiting European Commissionerfor Economic and Monetary Affairs Joaquin Almunia called formore centralized EU financial supervision. (All Media)

2009 Budget to be Austere

¶3. (U) Secretary of State for Treasury and Budget CarlosOcana announced September 18 that because oflower-than-expected growth, the 2009 budget will be morerestrictive than the GOS had anticipated in June. Pressreports suggest that the 2009 budget proposal the GOS isnegotiating with parliamentary groups will include a deficitof 2% of GDP. (Europa Press, 9/18; El Pais 9/17)

Immigrant Return Incentive Approved

¶4. (U) The Council of Ministers approved Labor MinisterCorbacho’s proposal to allow unemployed immigrants to obtainall of their unemployment benefit if they agree to leave thecountry and not return for three years. Immigrants from the19 non-EU countries that have Social Security agreements withSpain will be able to participate, receiving 40% of thebenefit in Spain and the remaining 60% a month later in theircountry of origin. Of the 165,000 immigrants registered asunemployed in July, over half were from either Ecuador orMorocco. The incentive must be reviewed by the Council ofState before it can take effect. (El Pais, 9/19; Council ofMinisters, 9/19)

Energy Commission Fears Problems Unless GOS IncreasesElectricity Charges

¶5. (U) According to the National Energy Commission (CNE), ifthe GOS does not drastically increase electricity tariffs,then it runs the risk of accruing an additional debt of up to5 billion euros in 2009 to add to the 9 billion it alreadyhas with electricity companies. Under Spain’s partiallyliberalized electricity price system, tariffs for the captivemarkets are set by the government. Companies that serve thisportion of the market often must sell electricity toconsumers below cost, producing a deficit that runs intobillions of euros which the GOS is obliged to reimburse.With a deficit of 9 billion (partially financed by privatebanks), the CNE fears that additional debt may incur seriousfinancial difficulties. Energy Secretary-General Pedro Marin told reporters that the next tariff increase would not takeplace until January. Comment: Given Spain,s economic woesand rising unemployment, the GOS will find it politicallydifficult to raise electricity prices by too much. The GOS,which has been under pressure from the European Commission toabolish regulated tariffs and from the CNE to raise tariffs,has said in the past that it needs several years to raiseregulated prices enough to bring them fully in line withcosts. Recent GOS tariff increases have been above the rateof inflation but below CNE requests. (Expansion, 9/18; ABC,9/17, Embassy)

GOS on Track to Implement Radiation Detection MaritimePortals by Late 2009

¶6. (C) Spanish Customs officials told a DOE Megaportsvisiting team and Emboff September 15 that the GOS was onschedule to install radiation detection portals at themaritime ports of Valencia and Barcelona by late 2009. TheGOS will shortly solicit bids from companies interested inundertaking this Megaports project at each port. The biddingand award process is expected to take 6 months, followed bythe construction and installation, which is expected to takeup to 9 months. The visiting DOE Megaports team was inMadrid September 15 to add final technical suggestions to theRFP document prepared by Spanish Customs. Comment: The onlyobstacle the GOS may face in implementing Megaports may bethe upcoming year,s budget, which is expected to be strainedgiven the current economic woes. (Embassy)

Vodafone Launches 670 Million Euro Suit Against TelefonicaSubsidiary

¶7. (U) Vodafone has filed suit against Telefonica Moviles deEspana in Spanish court (1st instance court in Madrid)demanding reparation in the amount of 670 million euros.Vodafone asserts that Telefonica abused its dominant positionin the mobile phone market between 1995-1999, blockingVodafone,s Airtel from gaining access to its network andultimately blocking Airtel from hundreds of millions of eurosin profits. According to the Spanish press, Vodafone,s suitbuilds on the 2006 Supreme Tribunal,s decision thatdetermined that between 1996-1999, Telefonica engaged inconduct that blocked or hindered Airtel,s access to thenetwork, conduct which did not comply with Spain,s lawagainst anti-competitive practices (Ley de Defensa deCompetencia).This is the largest judicial suit presented inSpain against a Spanish multinational company. (El Pais, 9/15)

Sabadell Sells Half of Insurance Business for 750M Euros

¶8. (U) Banco Sabadell, Spain’s sixth largest bankinginstitution, will sell half of its insurance business toZurich Vida for 750 million euros plus the possibility of upto another 150 million euros over ten years, depending on theevolution of future business. Sabadell is following otherSpanish banks that have sold or are studying selling part oftheir insurance business to raise funds. Comment: Spain’sfinancial press gave this action very little coverage, whichsuggests that it was not a panic sale. Sabadell’s stockprice is down 40% from its peak of last year, but that isactually less of a drop than most Spanish banks havesuffered. (Expansion, 9/19)

Aguirre

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XTAGS: XTAGECON, XTAGECPS, XTAGEFIN, XTAGELAB, XTAGENRG, XTAGEWWT, XTAGKNNP, XTAGSOCI 08MADRID1003

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