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Cablegate: Madrid Weekly Econ/Ag/Commercial Update Report -

VZCZCXRO0762
RR RUEHRN
DE RUEHMD #1510/01 2151449
ZNR UUUUU ZZH
R 031449Z AUG 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3141
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 3954
RUEHLA/AMCONSUL BARCELONA 2966

UNCLAS SECTION 01 OF 02 MADRID 001510

SIPDIS

SIPDIS

EUR/WE

E.O. 12958: N/A
TAGS: EAGR ECON EFIN EIND ELAB ENRG ETRD KIPR PTER
SENV, SP, EINV, UK
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
JULY 30

MADRID 00001510 001.2 OF 002


Table of Contents:

EFIN: VP & Finance Minister Solbes downplays IMF warning of
possible 2008 overheating in the economy
ECON/EFIN: GOS facing difficulties getting budget approved
ECON: IBEX 35 profits up 32% during the first half of 2007
ECON/ELAB: Spanish companies having difficulty attracting top
minds
ENRG: Iberdrola purchases gas power plant in Oregon
ENRG: Spain compromises with Algeria over natural gas
EAIR/SMIG: Easyjet to open more routes between Madrid and
Bucharest
ENRG/EIND: Minister of Industry responds to Barcelona blackout
ENRG/ENV: 2.4 billion euros budgeted to combat climate change

SOCI: Spanish life expectancy falls
ENRG: Gas Natural gets approval for power plant


VICE PRESIDENT AND FINANCE MINISTER PEDRO SOLBES DOWNPLAYS
IMF WARNING OF POSSIBLE 2008 OVERHEATING IN THE ECONOMY

1. (U) Both the GOS and the IMF agree on a 2007 growth
forecast of 3.8% and a 2008 forecast of 3.3%. However, the
GOS is somewhat less apprehensive of the possibility of
overheating in 2008 and plays up increased capital goods
spending and slight productivity improvements as evidence
that there is a "transition to a new model of growth."
Productivity growth was 0.8% in 2006, but is slated to
increase to 1% in 2007 and 1.1% in 2008, still very low by
U.S. EU standards. (Expansion, 7/28/07)

GOS FACING DIFFICULTIES GETTING BUDGET APPROVED

2. (U) The PSOE government does not have a parliamentary
majority and therefore relies on support from Catalan and
Basque nationalist parties to get its budget approved. With
general elections that must be held by March 2008 and more
demands for investment in Catalonia, gaining that support is
proving difficult this year. There is speculation that the
GOS may have to abort attempts to get a budget approved prior
to the elections and operate on what would loosely be the
equivalent of an American continuing resolution, i.e. the
same budget in nominal terms, until after the next elections.
(Expansion, 8/1/07).

IBEX 35 PROFITS UP 32% DURING THE FIRST HALF OF 2007

3. (U) Mergers, sales of assets, corporate stock purchases,
and the continuing strength of the construction sector
explain the extraordinary increase in profits for the IBEX 35
in the first semester of 2007. Note: The Spanish stock market
has displayed some of the same volatility as bourses around
the world, but if corporate profits remain strong throughout
2007, the IBEX 35 should close out the year with net gains.
Last year, the IBEX 35 was the best performer in Europe.
(Expansion, 7/31/07)

SPANISH COMPANIES HAVING DIFFICULTY IN ATTRACTING TOP MINDS

4. (U) Despite a growing economy, charming cities and
favorable climate, Spanish companies complain of difficulty
in attracting "top minds". Many of Spain's skilled graduates
in medicine, biotechnology, finance, consulting, and
engineering seek jobs abroad in pursuit of higher salaries
and better opportunities. Spain also has trouble attracting
skilled foreigners due to rigid foreign labor entrance laws.
As a point of comparison, the UK allows almost immediate
entry to foreign graduates of top 50 business schools, while
in Spain a similar candidate would face a 6-8 month wait for
a residency permit. (Expansion, 7/30/07)

IBERDROLA TO CLOSE 120 MILLION EURO PURCHASE FROM OREGON

5. (U) Spain's Iberdrola is close to concluding a deal on a
120 million euro purchase of a 506 MW combined cycle natural
gas power plant in Klamath, Oregon. The plant is expected to
complement Iberdrola's recent acquisition of Maine based
Energy East and will help ensure its customers' energy
supply. (Expansion 7/30/07)

SPAIN COMPROMISES WITH ALGERIA OVER NATURAL GAS

6. (U) Ministry of Industry Joan Clos and Deputy Foreign
Minister Bernardino Leon recently negotiated two natural gas
concessions with Algeria's Minister of Energy Chakib Khelil.
First, Clos and Leon agreed to increase the ceiling on the

MADRID 00001510 002.2 OF 002


amount of natural gas Sonatrech (Algeria's state energy
company) can sell to Spain. Second, Minister Clos agreed to
lift the restrictions placed by Spain's National Energy
Commission (CNE) on Sonatrech's membership to the Medgaz
pipeline consortium (a pipeline that will be constructed in
2008 between Spain and Algeria). Though these concessions
have helped smoothed over tensions with Algeria, Algeria
continues its dispute with Spanish companies Gas Natural and
Repsol over the construction delay of a liquefaction plant in
Algeria. (Note: Algeria is Spain's largest supplier of
petroleum and natural gas). (All Media, Embassy).

EASYJET TO OPEN MORE ROUTES FOR ROMANIAN IMMIGRANTS BETWEEN
MADRID AND BUCHAREST

7. (U) Perhaps as a sign of the increasing Romanian immigrant
population in Spain, Easyjet announced this past week that
the company would be opening up a low-cost route between
Madrid and Bucharest starting in November, 2007. The company
noted that the main thrust of these flights would be to serve
the burgeoning Romanian immigrant population in Spain,
currently estimated at 400,000. Arnaldo Munoz, Director of
Easyjet for Europe, signaled that this type of flight may be
just the beginning of its kind, with low-cost flights
targeting the Moroccan immigrant population potentially on
the horizon. (Cinco Dias, July 31).

MINISTER OF INDUSTRY RESPONDS TO CRITICS ON THE BARCELONA
BLACKOUT

8. (U) Minister of Industry Joan Clos assured opposition
party critics in Barcelona that the Ministry was actively
addressing the infrastructure deficiencies that led up to
last week's massive blackout in Barcelona. Clos assured the
Catalan representatives that the Ministry would move up the
implementation date of its infrastructure improvement plan to
2008, and would be placing particular emphasis on Catalonia.
He added that the National Commission on Energy (CNE) was
going to produce a study that would more clearly delineate
the factors and players at fault for the power outage. Note:
On July 24, the accidental collapse of a faulty power line
set off a chain reaction causing a blackout that initially
affected 90 percent of Barcelona, bringing traffic, public
transport and commerce to a halt. (All Media, August 1).

2.4 BILLION EUROS BUDGETED TO COMBAT CLIMATE CHANGE

9. (U) Secretary General for the Prevention of Climate
Change, Arturo Gonzalo Aizpiri, announced that Spanish
compliance with the Kyoto Protocol during 2008-2012 will cost
2-3 billion euros. The 2-3 billion euros will be used to
implement the 80 "urgent measures" recently announced as part
of the GOS's E4 Energy Savings and Efficiency Plan through
2012, as well as the required market purchase of excess CO2
carbon emissions. The GOS estimates its CO2 levels for the
period 2008-2012 will exceed the Kyoto Protocol limits by
20%. (El Mundo, Aug. 1)

SPANISH LIFE EXPECTANCY FALLS

10. (U) According to estimates calculated by the national
Statistics Institute, the overall health of the Spanish
population is gradually worsening. The 2007 report predicts
that the average Spanish woman will live to be 83.76, while a
Spanish man can be expected to live 77.33 years. In 2006 the
life expectancy was slightly higher at 83.90 years for women
and 77.38 for men. Analysts are not sure why the change has
occurred, but some say immigration may be a factor.

GAS NATURAL GETS APPROVAL FOR POWER PLANT

11. (U) Gas supplier Gas Natural won approval from the
Environment Ministry to build a power plant in Barcelona's
port area capable of producing 850 megawatts of electricity.
The plant is due to begin service in 2010 following an
investment of 500 million euros.
AGUIRRE

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