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

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ZNR UUUUU ZZH
R 261325Z NOV 07 ZDK RUEHBS #0602 ZDK
FM AMEMBASSY MADRID
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INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3185

UNCLAS SECTION 01 OF 02 MADRID 002155

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EUR/WE
EEB/IFD/OMA

E.O. 12958: N/A
TAGS: ECON EFIN ELAB ETRD KIPR PTER SOCI TBIO SP
EINV
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE - NOVEMBER
19-23

MADRID 00002155 001.3 OF 002


Table of Contents:

PGOV: Solbes indicates he will likely stay if PSOE wins March
2008 election
ECON: PP proposes big tax cut for lower-paid
EINV: Investment in Latin America declining as share of
foreign investment, but still important to largest companies
SMIG/ECON: Immigrants to Spain account for largest outflow of
remittances from EU
EAGR: Analysts predict low world wheat stocks despite record
production
EIND/TBIO: Colgate toothpaste recalled after bacteria found
EAGR: 130,000 Barcelonans consume carcinogens in water
BEXP: Travelodge to "reign in Spain"
ETRD/EINV: Bilateral investment agreements with West African
nations

SOLBES INDICATES HE WILL LIKELY STAY IF PSOE WINS MARCH 2008
ELECTIONS

1. (U) There is much media speculation that Second Vice
President and Finance Minister Solbes will run for a
parliamentary seat, perhaps as the number two to President
Zapatero in the Madrid area. (Comment: Getting Solbes to
stay, and to run, is all about shoring up the PSOE's centrist
and center right voters.) (El Pais, 11/ 19/07 and 11/20/07)

PP PROPOSES BIG TAX CUT FOR LOWER-PAID

2. (SBU) The opposition PP proposes that workers or retirees
earning less than 16,000 euros (USD 23,360), up from the
current threshold of euros 9,000, be exempt from paying
income tax. That would mean roughly 7 million people who
currently pay taxes would not have to do so. The PP is also
proposing to reduce taxes for households in which both
spouses work outside the home. The PP says that controls on
spending plus the "supply-side" effect of the tax cuts would
over the long run pay for the tax cuts. Second Vice
President and Finance Minister Pedro Solbes initially said he
did not think the PP proposal was "a very brilliant idea."
He said the proposal omitted crucial details, such as whether
the euros 16,000 included non-work income, and added that the
cost of the PP proposal could amount to 1.5% of GDP, i.e.
virtually wipe out Spain's budget surplus. However, he later
indicated that the government might also reduce taxes on low
earners as long as the surplus was sufficient. (Comment:
This is another indication that the race is clearly on and
that economic issues will be a significant feature of the
electoral debate. Perhaps the most interesting aspect of the
PP's gambit is that it focuses on the lower paid, which is
reminiscent of the approach taken by Sweden's conservatives.
It appears that that the PP is making good on its pledge to
make economics a more central part of its message to voters.)
(El Pais, 11/19/07; Expansion, 11/20/07)

INVESTMENT IN LATIN AMERICA DECLINING AS SHARE OF FOREIGN
INVESTMENT, BUT STILL IMPORTANT TO LARGEST COMPANIES

3. (U) During the 1993-2000 period, almost half of Spain's
foreign investment went to Latin America. During the
2001-2006 period, the percentage dropped to about 18%. Much
more investment went to the U.S., Europe and Asia, a trend
that has continued in 2007. However, some large Spanish
companies' Latin American operations are extraordinarily
profitable. For example, in 2006, 55% of BBVA's profits, 37%
of Santander's profits, and 33% of Telefonica's profits came
from Latin American subsidiaries. Indeed, Latin America
represents high risk but a high return for Spanish firms.
These are Spain's three largest companies as measured by
stock market capitalization. (Comment: The profitable Latin
American operations affect major Spanish corporations' stock
values, so Latin America still has an outsize importance for
the Spanish economy. Over time though, the trend is clear.
Latin America is becoming relatively (not in absolute terms)
less important to the Spanish economy. For cultural and
political reasons though, Spain will still likely continue to
show a special interest in Latin America.) (El Pais,
11/18/07)

IMMIGRANTS TO SPAIN ACCOUNT FOR LARGEST OUTFLOW OF
REMITTANCES FROM EU

4. (U) In 2006, immigrants in Spain sent 5.6 billion euros to
countries outside the EU. The equivalent number for the UK
was 4.7 billion euros, for Italy it was 3.7 billion euros,
and for Germany it was 2.0 billion. (El Pais, 11/19/07)

MADRID 00002155 002.3 OF 002


ANALYSTS FORECAST LOW WORLD WHEAT STOCKS DESPITE RECORD
SPANISH PRODUCTION

5. (U) Even with this year's record wheat production in
Spain, world wheat analysts are forecasting 30 year low world
wheat stocks for the current marketing year (MY). Analysts
cite continued strong consumer demand that has exceeded
weather-reduced production since MY 2000/01, and strong
prices for crops that compete for wheat-production acreage as
the reasons for the record-low stocks. Ukrainian, Canadian,
Australia, and European (with the exception of Spanish)
farmers took the brunt of weather-related crop reductions
during MY 2007-08, while U.S. wheat producers produced an
excellent crop.

6. (U) Consumers in Spain and all other rich developed
countries continue to demand high-quality processed wheat
products, in spite of recent price increases. Currently,
Spanish wheat traders import more North American (U.S. and
Canadian) hard spring red wheat than traders in any other
European country. They import this very high quality wheat,
because millers need it to blend it with locally-produced
inferior-quality wheat used in bread and pastry products.

7. (U) While current world wheat stocks are sufficient to
cover current demand, another weather-reduced world wheat
crop could push currently very high prices into chaos. All
wheat analysts, traders, Government officials, and savvy
milers will remain focused on weather-related developments,
including Spain's current lack of rain, during the coming
year.

COLGATE TOOTHPASTE RECALLED AFTER BACTERIA FOUND

8. (U) The Galicia autonomous community government pulled
Colgate Herbal White toothpaste off the shelves in Galicia
after detecting toxic bacteria in 9 tubes. This substance is
normally found in fecal matter. (20 minutos)

CARCINOGENS IN WATER OF 130,000 BARCELONANS

9. (U) Barcelona Public Health agency head Joan Guix
announced that 8% of the city's population (130,000
residents) consumes water that may cause cancer "with
accumulation and over many years." Water from the Llobregat
river contains a concentration of trihalomethanes higher than
the maximum allowed, 150 micrograms per liter. The amount of
this chemical, which is generated in the process of making
the water potable, sometimes reaches 156.6 micrograms. The
distribution company Aguas Ter-Llobregat, affirmed that its
water meets "all health requirements imposed by the
sanitation authorities." A public health agency study notes
that matters will not change until a reversible
electrodialysis treatment plant that will reduce the level of
these chemicals in the water begins operation, scheduled for
2009. There also are plans to desalinate the river
Llobregat, which would improve water quality. (20 minutos)

TRAVELODGE TO "REIGN IN SPAIN"

10. (U) Budget hotel Travelodge announced Monday, November 19
that it will open 100 sites in Spain and create 2,000 new
jobs. The company currently has three pilot sites in Madrid
and Barcelona and plans to include Valencia, Malaga, Zaragoza
and Bilbao in its expansion. The company will aim for the
domestic low-budget market. (The Sunday Times)

BILATERAL INVESTMENT AGREEMENTS WITH WEST AFRICAN NATIONS

11. (U) The GOS is promoting West Africa as an investment
destination, in part in an effort to reduce the flow of
illegal immigrants from the region. Ministry of Industry,
Tourism and Trade Joan Clos led a delegation of 60 companies
including executives from energy, agro-business,
infrastructure and tourism companies, to Angola and Senegal.
Minister Clos signed a bilateral investment agreement with
Angola and was scheduled to sign one with Senegal. This is
the continuation of the government's "Plan Africa," which was
launched last year to strengthen political and economic
engagement with the West African region. The GOS is also
negotiating an investment agreement with Mauritania.
LLORENS

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