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

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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0106/01 0350755
ZNR UUUUU ZZH
R 040755Z FEB 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4179
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3267

UNCLAS SECTION 01 OF 03 MADRID 000106

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA

E.O. 12958: N/A
TAGS: EAGR ECON EFIN EINV ELAB ENRG ETRD SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - JANUARY
28 - FEBRUARY 1

REF: MADRID 000089

MADRID 00000106 001.2 OF 003


Table of Contents:

ECON/EFIN: "Why the pain in Spain has mainly been contained"
ECON: GDP rose 3.8 percent in 2007, slightly less than the
year before
ECON: Inflation rate still higher than EU average
ECON/EFIN: ECJ leaves key copyright enforcement decision up
to Member States
ECON/EINV: BBVA reorganizes U.S. operations
ENRG/EINV: Iberdrola defends itself against possible hostile
takeover
ENRG: Acciona to pioneer new clean energy technology -
combining wind and water technology
ECON/ELAB: Promise of jobs and money for Mali under new
Cooperation Agreement
ETRD/EAGR: Possible U.S. marketing order on Clementines
causes concern


"WHY THE PAIN IN SPAIN HAS MAINLY BEEN CONTAINED"

1. (U) So reads the FT's Gillian Tett's lead into her insight
column. She asks how the big Spanish banks have so far
weathered the storm well. She says that Mexico's Central
Bank Governor, Guillermo Ortiz, has said that a few years
ago, big Spanish banks asked for permission from the
regulators to set up Structured Investment Vehicles (SIVs),
much like banks from other countries were doing at the time.
However, the Spanish regulators insisted on an 8% capital
charge against SIV assets, which effectively deterred the
banks from creating such entities. The regulators apparently
never believed that SIVs were as detached from the banks as
claimed. Tett draws two conclusions from this. First, it is
beneficial to coordinate bank supervision and central
banking. Second, there has been a disconnect between heavily
regulated balance sheet activities and virtually no
regulation of off balance sheet activities. (Comment: Tett
believes that there will be pain in Spain's housing sector
and therefore that the real economy will be affected. And
she notes that the credit crunch has affected at least medium
term Spanish lenders: "Spanish lenders are now furtively
turning their mortgage loans into privately placed bonds to
use these as collateral to get access to liquidity from the
European Central Bank. Meanwhile, the cost of buying
insurance against default for medium Spanish lenders via the
credit default swap market has recently soared, amid rumors
that hedge funds can smell blood." But, nonetheless Tett's
reporting about the big banks' health tracks with what the
Spanish government and private sector tell the Embassy.) (FT,
2/1/08)

GDP ROSE 3.8 PERCENT IN 2007, SLIGHTLY LESS THAN THE YEAR
BEFORE

2. (U) According to the Bank of Spain, the Spanish economy
grew 3.8 percent in 2007, slightly less than 2006,s growth
rate of 3.9 percent. The central bank noted that during the
course of the year there was a slight growth rate
de-acceleration, evidenced by a 4th quarter figure of 3.5
percent. Despite slowing growth, the Bank of Spain asserted
that growth was nonetheless strong. It added that the 2008
growth rate is somewhat more uncertain, particularly given
the financial turbulence affecting world markets. (Bank of
Spain)

INFLATION RATE STILL HIGHER THAN EU AVERAGE

3. (U) According to Eurostat data, Spain experienced an
estimated 4.4 percent inflation rate between January 2007 and
January 2008, which is the country's highest inflation rate
since 1995. Spain had the highest inflation among major
Eurozone economies. With general elections right around the
corner, the higher prices of basic consumer goods such as
milk, bread, and gasoline has become a central theme. PP
representatives have argued that the country needs a change
in direction and that the government has been unable to
counter inflation, while the PSOE points to the strong GDP
growth levels. The inflation rate has doubled since August.
(All press)

ECJ LEAVES KEY COPYRIGHT ENFORCEMENT DECISION UP TO MEMBER
STATES

4. (U) The Luxembourg-based European Court of Justice (ECJ)
issued a ruling on 1/29/08 that held that Spain's Telefonica
did not have to divulge the identity of clients to Promusicae
(Spain's main music copyright organization) in civil cases.

MADRID 00000106 002.2 OF 003


However, the ECJ said that while Member States are not
obliged to compel Internet Service Providers (ISPs) to
divulge data about suspected infringements in civil
proceedings, they may if they wish to. Moreover, governments
are supposed to ensure a "fair balance" between privacy
rights and the legitimate rights of copyright owners to
protect their property. Promusicae says that the decision as
to whether the data must be disclosed is now in the hands of
a Spanish judge. International copyright organizations
emphasized the decision's call for a balance between privacy
rights and copyrights. (Comment: Copyright owners in Spain
and elsewhere are putting a brave face on this decision.
However, they are likely disappointed because Members States
are now free to develop their own jurisprudence on this key
aspect of protecting copyrights in the digital age. It is
telling that while both the Financial Times and El Pais
reported this story factually, their headlines in effect gave
the victory to copyright opponents. The FT headline reads:
"Court deals blow to copyright owners." El Pais' headline
reads: "European judges rule in favor of privacy on the
internet.") (FT, 1/30/08; El Pais, 1/30/08)

BBVA REORGANIZES U.S. OPERATIONS

5. (U) BBVA is integrating four banks it owns in the U.S.:
Laredo National Bank, Texas State Bank, and State National
Bank will become part of the much larger Compass Bank. Jose
Maria Garcia Meyer has been appointed head of Compass and
reportedly will also head up the other banking entities BBVA
owns in the U.S., including BBVA Puerto Rico, Bancomer
Financial Holding and BTS. BBVA hopes that 10% of its
profits will come from its U.S. operations in 2008.
(Expansion, 1/30/08)

IBERDROLA DEFENDS ITSELF AGAINST POSSIBLE HOSTILE TAKEOVER

6. (U) Iberdrola, one of the world's largest electricity
companies and the world's largest wind power generator, is
working out strategies to defend itself against a hostile
takeover bid. Specifically, there are rumors that Spanish
construction company ACS, which owns 5.2% of Iberdrola's
stock, might team up with French energy giant EDF to buy the
company. Adding to the media interest are reports of a
personal rivalry between Iberdrola CEO Ignacio Sanchez Galan
and ACS CEO Florentino Perez. GOS Second Vice President and
Finance Minister Pedro Solbes insinuated on 1/31/08 that the
GOS would oppose such a bid. He also said that Spain was
considerably more liberal than France on the issue of
cross-border takeovers. (Comment: The last couple of years
have been turbulent for the Spanish energy sector, and the
last thing the government would want is a protracted takeover
battle for Iberdrola. Given that the French government has
recently indicated that it would not allow Societe Generale
to fall into non-French hands, the Spanish government
probably feels that it is acting within its rights. The
"national champion" concept lives on in Spain's socialist
government and France's conservative administration.) (FT,
1/31/08; El Pais, 2/1/08)

ACCIONA TO PIONEER NEW CLEAN ENERGY TECHNOLOGY - COMBINING
WIND AND WATER TECHNOLOGY

7. (U) Leading energy firm Acciona is implementing a new
initiative to harvest hydrogen from offshore wind parks using
both water and wind. Hydrogen, seen by the International
Energy Agency as an important source of energy for the
future, is generally harvested from methane through a process
which produces harmful greenhouse gases. Acciona, supported
by public-private partnership entity CENIT, will pilot one
its offshore wind parks in Navarra, Spain for a project that
would use wind power to separate out hydrogen atoms from
ocean water - manipulating two forms of energy sources to
create clean energy without the harmful greenhouse gases.
(ABC, 1/29/2008)

PROMISE OF JOBS AND MONEY FOR MALI UNDER NEW COOPERATION
AGREEMENT

8. (U) Minister of Foreign Affairs Miguel Angel Moratinos
signed the first Mixed Commission of Cooperation between
Spain and Mali in Bamako on Saturday, January 26 during his
tour of Sub Saharan Africa. The agreement will assist Mali
in several areas. Two key ones are the temporary employment
of 300 Mali's laborers to work in Catalonia in agriculture
and grants of 10 million euros a year for three years. This
amount does not include the additional offer of small loans,
up to 10 million euros, available to associations and young
businessmen and women. The Minister was also seeking
increased cooperation in the fight against terrorism. (Europa

MADRID 00000106 003.2 OF 003


Press)

POSSIBLE U.S. MARKETING ORDER ON CLEMENTINES CAUSES CONCERN

9. (U) The Government of Spain has officially expressed
concern over the possibility that the U.S. Government might
establish a Marketing Order (MO) for Clementines (reftel).
The California Clementine Board has, through the California
members of the House of Representatives, introduced the
possibility of including Spanish Clementines in the list of
agricultural products for the application of special import
conditions under Section 8e of the Agricultural Marketing
Agreement Act of 1937. The vehicle for that introduction is
the new farm bill currently in House-Senate conference. If
Spanish Clementines are added to the list as a result of the
farm bill, the U.S. Department of Agriculture will be
required to consider a Marketing Order for all Clementines
produced and/or marketed in the United States during a
specified period of time (the harvest period for California
Clementines).

10. (U) The Spanish are concerned that an MO may pose a
non-tariff barrier for Spanish exports by setting restrictive
size and appearance marketing requirements, and have promised
to fight MO establishment using all means at its disposal.
Among the options, the GOS has alerted the European
Commission, and is considering hiring private U.S. attorneys
to represent its interests in the MO determination process.
LLORENS

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