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

VZCZCXRO6167
RR RUEHRN
DE RUEHMD #1708/01 2431614
ZNR UUUUU ZZH
R 311614Z AUG 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3337
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3013

UNCLAS SECTION 01 OF 02 MADRID 001708

SIPDIS

SIPDIS

EUR/WE

E.O. 12958: N/A
TAGS: ECON EFIN EIND ENRG ETRD SP EINV EAGR SMIG
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
AUGUST 27

MADRID 00001708 001.2 OF 002


Table of Contents:

EFIN/ELAB: Ford to invest 400 million euros in Valencia
EFIN: Madrid growth to remain unaffected by global crisis
TBIO/ENRG: UN Food and Agriculture Organization in favor of
renewable fuels
EFIN: Preliminary budget negotiations drawing to a close
SOCI: Housing Minister attempts to promote renting to younger
workers
ETTC: Economist study ranks Spain 24th in technology
competitiveness
EINV: Iberdrola granted approval to sell shares on U.S.
securities market
ECON/SOCI:Spain's Average household debt exceeds average
annual household income by 15 percent.

FORD TO INVEST 400 MILLION EUROS IN VALENCIA

1. (U) John Fleming, President and Chief Executive Officer
of Ford's European division signed an agreement with union
leaders at the group's Valencia plant on Wednesday in which
Ford has pledged to invest 400 million euros to maintain
production through 2013. In turn the unions have agreed to
"moderate" their demands during forthcoming collective
wage-bargaining negotiations.

MADRID GROWTH TO REMAIN UNAFFECTED BY GLOBAL CRISIS

2. (U) Secretary of State for the Economy, David Vegara,
announced at a news conference on Wednesday that the
government has no reason to change its forecasted GDP growth
of 3.8 percent this year and 3.3 percent in 2008 after the
National Statistics Institute confirmed that the economy
expanded by 4 percent in the second quarter. The Minister
further said "Although the data is provisional, nothing
suggests that the impact of the financial crisis will be
relevant to growth." A senior official in the Economic
Ministry also assured that the credit crunch in the U.S.
should have no notable impact on Spain's economic growth this
year or next.

UN FOOD AND AGRICULTURE ORGANIZATION IN FAVOR OF RENEWABLE
FUELS

3. (U) The United Nations Food and Agriculture Organization
(FAO) has decided in favor of renewable fuels, especially if
they can be produced by developing countries and imported
free of import tariffs by developed countries, in particular,
the United States and Europe. FAO Director General Jaques
Diouf recently proclaimed that renewable fuels production
could "fast forward" poverty and hunger alleviation in
developing countries. He called on the United States,
Europe, and other key international players to develop an
international renewable fuels strategy that would include the
reduction, or elimination of tariffs on renewable fuels in
the richest economies, and funding measures to initiate
renewable energy production by small landowners in developing
countries. In addition, Mr. Diouf suggested that the current
focus of producing renewable fuels for the transportation
sector is short sighted. He recommended that developed
economies augment their focus to the use of renewable fuels
in the production of electricity.

4. (U) The FAO's initiative is clearly designed to help poor
developing-economy farmers take advantage of the current
renewable fuels frenzy. The notion that developed economies
would reduce or eliminate tariffs on renewable fuels, while
not unattainable, is fraught with the same difficulties
currently seen in the Doha Development Agenda negotiations on
agricultural tariffs. However, the notion that
developing-country farmers could somehow organize, or be
organized to efficiently produce renewable fuels in
quantities large enough to be economically viable for
developing-country importers is complicated, with the
exception of Brazil. Nonetheless, assisting
developing-country Governments and potential producers
understand the economic challenges of producing and using
renewable fuels may help them to take appropriate policy
decisions with respect to renewable fuels production and
domestic use.

PRELIMINARY BUDGET NEGOTIATIONS DRAWING TO A CLOSE

5. (U) Informal agreement over the 2008 budget is close to
being achieved between the incumbent socialist party (PSOE)
and two minority parties. This agreement, if finalized,
would garner the number of votes needed for a majority,
ensuring easy passage of the bill when Congress reconvenes in
September. The PSOE, which needs only 12 votes in order to

MADRID 00001708 002.2 OF 002


obtain a majority, agreed to CiU and ERC demands to increase
the amount of investment in infrastructure in the minority
parties' corresponding region (Catalonia). With these
additional votes, the PSOE's 2008 budget will not be blocked
by the opposition party (Partido Popular) during this
election year. The current draft budget proposes an increase
of 6.7 percent in public spending over 2007 (an increase of
approximately 10 billion euros) and an increase of 15 percent
of research and development funding.

HOUSING MINISTER ATTEMPTS TO PROMOTE RENTING TO YOUNGER
WORKERS

6. (U) Recently appointed Minister of Housing Carme Chacon
expects to present a package in October to provide financial
incentives for those under 35 who decide to rent instead of
buy. The Minister indicated this past week that she will
continue to reach out to stakeholders, such as unions,
businesses, and young workers, to incorporate other measures
in the plan that may make renting more palatable to young
workers (and therefore make housing more accessible overall).
Despite these efforts, a recent survey of 1,000 young
workers conducted by the Ministry of Housing showed that
these workers would prefer to buy rather than rent.
Currently, Spain's percentage of household renting is very
low at 11 percent compared with an EU average of 38 percent.

ECONOMIST STUDY RANKS SPAIN 24th IN TECHNOLOGY COMPETITIVENESS

7. (U) According to a study sponsored by the Economist, Spain
occupies the 24th position worldwide for technological
competitiveness, lagging behind Italy but ahead of Poland and
Estonia. In this report, Spain fell well behind the EU
average in rankings.

IBERDROLA GRANTED APPROVAL TO SELL 5.5 BILLION DOLLARS WORTH
OF SHARES ON U.S. SECURITIES MARKET

8. (U) Iberdrola, the world's largest wind generation
company, won approval yesterday from the U.S. Federal Energy
Regulatory Commission for a 5.5 billion dollar plan to sell
shares of its Renewable Energy unit on the U.S. securities
market. Shares of Iberdrola increased nearly 2 percent on
the news, with high expectations for the upcoming listing.
(Bloomberg, 8/31/07)

SPAIN'S AVERAGE HOUSEHOLD DEBT EXCEEDS ANNUAL HOUSEHOLD
INCOME BY 15 PERCENT

9. (U) Since 2000, household debt has grown 16 percent per
year, increasing from 70.7 percent of annual household income
in 2000 to 115 percent in 2006. Contrasted with this
increase in debt, the value of household assets grew only 4
percent annually in the same period. As a result, the net
worth of Spanish families has declined and now averages just
27.8 percent more than annual household income, down from 46
percent in 2000. As a general rule, Spanish households
continue to prefer lower risk investments with more than 38
percent of net financial assets held in cash and cash
equivalents as of 2006. In the first quarter of 2007,
household cash deposits increased 13.5 percent over the same
period in 2006. (Comment: Reflecting an even greater
aversion to higher risk, higher return investments, this
increased shift to cash deposits will negatively impact
consumer spending and economic growth. End Comment). (Cinco
Dias, 8/31/07)
AGUIRRE

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