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

VZCZCXRO1043
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0179/01 0461825
ZNR UUUUU ZZH
R 151825Z FEB 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4289
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3313

UNCLAS SECTION 01 OF 03 MADRID 000179

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA

E.O. 12958: N/A
TAGS: BTIO EAGR ECON EFIN EINV ENRG KFRD SCUL SENV
SOCI, SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - FEBRUARY
11-15


MADRID 00000179 001.2 OF 003


Table of Contents:

EFIN: European Central Bank (ECB) President Claude Trichet in
Madrid
ENRG/EINV: European court rules against Spanish law on
foreign investment in electricity firms
ECON/EFIN: Rate of small business closings increases
ECON/SCUL: Spanish Banking Association protests Financial
Times and Daily Telegraph coverage
ECON/KFRD: Tax administration cracks down on fiscal fraud,
turns eye towards 500 euro bills
EAGR/BTIO: Will U.S. poultry-meat exporters ever regain
access to the European Market?
SENV: Wrecked ship spills more fuel off Gibraltar and
Algeciras
EINV/ECON: The King offers Spain's economic experience to
Egypt
SOCI: Ovules for sale - Spain's reproductive tourism


EUROPEAN CENTRAL BANK (ECB) PRESIDENT CLAUDE TRICHET IN MADRID

1. (U) Speaking to an overflow audience at a February 15
event, Trichet argued for further structural reform in the
Eurozone, citing particularly the need for more flexibility
in the labor, products and services markets. He argued
strongly that price stability was not inconsistent with job
creation and growth, indeed that it was a necessary condition
for job creation and growth in the medium term. He noted
that since 1995 the Eurozone had enjoyed such price stability
and had created 15 million new jobs, vice 13 million in the
U.S. He would not be drawn into a discussion as to whether
interest rates should come down, and he would not comment
substantively on the observation that the Fed and the ECB
appear to be "rowing in different directions," as one
questioner put it. In both cases, he emphasized that his job
was to look at the Eurozone as a whole, not individual
members, and that price stability was the ECB's overriding
priority. (Comment: No surprises from Trichet.)

EUROPEAN COURT RULES AGAINST SPANISH LAW ON FOREIGN
INVESTMENT IN ELECTRICITY FIRMS

2. (U) The European Court of Justice on February 14 ruled
that EC jurisprudence was violated by a Spanish law that
requires publicly owned foreign firms acquiring more than 3
percent of a Spanish energy company to seek Spanish
government approval to use their voting rights. Spain argues
this law is necessary to maintain fair competition in the
European energy market. Why? Several years ago, Spain
privatized its energy companies. However, France and Germany
still have integrated publicly owned energy giants.
Recently, there has been a lot of speculation in the media
that French energy company EDF might team up with Spanish
construction firm ACS to buy Iberdrola, something the Spanish
government would prefer not to see happen. The Court ruled
that the Spanish provision contravened the EC Treaty's
regulation of the free movement of capital within the EU.
Despite Spanish arguments for the law, Economy Minister Pedro
Solbes says Spain is unlikely to appeal and will introduce
means to comply with the court ruling. (El Pais and
International Herald Tribune, February 15)

RATE OF SMALL BUSINESS CLOSINGS INCREASES

3. (U) In the month of January, over 4,000 small stores went
out of business across Spain, a 300 percent increase from
January of 2007. According to Spanish trade union UGT, many
businesses were affected by lower-than anticipated holiday
spending as well as growing competition from major
supermarkets and store chains. Small store shopping has long
been prevalent in Spain, where going to the local produce
store or clothing boutique instead of a supermarket or a
store chain is common. (Expansion, February 13)

SPANISH BANKING ASSOCIATION PROTESTS FINANCIAL TIMES AND
DAILY TELEGRAPH COVERAGE

4. (SBU) Recently, the AEB has sent letters to the editors of
the FT and the Daily Telegraph criticizing these
publications, coverage of possible weaknesses in the Spanish
banking sector. The AEB was particularly concerned about a
Daily Telegraph article comparing credits requested by
Spanish banks from the European Central Bank (ECB) with loans
requested by bankrupt British bank Northern Rock. (Comment:
It is a fair bet that BBVA's Francisco Gonzalez and
Santander's Emilio Botin approved the letters to the editors.
Both the GOS and many members of the Spanish business

MADRID 00000179 002.2 OF 003


establishment are irritated with the FT's depiction of the
Spanish economy.) (El Pais, February 14)

TAX ADMINISTRATION CRACKS DOWN ON FISCAL FRAUD, TURNS EYE
TOWARDS 500 EURO BILLS

5. (U) The Presidency reiterated its commitment this past
week to combating money laundering and fiscal fraud. In
addition to having quadrupled the number of its fraud
investigative units in 2007, Spain's Tax Agency will focus
more intensely on 500 euro bill transactions. Up to 25
percent of 500 euro notes in Europe are reportedly in
circulation in Spain. The use of these large notes has often
been linked to money laundering and tax evasion schemes, in
many cases tied to Spain's real estate boom of recent years.
Spain's Tax Agency reported that up to 70 percent of reported
2003 transactions involving 500 euro bill notes have
exhibited signs of potential fraud. In 2007, the Tax Agency
collected an additional 6 billion euros as a result of its
fraud investigations. (El Pais, February 14, Moncloa website)

WILL U.S. POULTRY-MEAT EXPORTERS REGAIN ACCESS TO THE
EUROPEAN MARKET?

6. (U) New reports indicate that the European Commission
(EC) will soon grant U.S. poultry exporters renewed access to
the European market, which the EC has denied for the last ten
years because some Europeans (poultry producers) reportedly
"thought" that U.S. poultry might be unsafe to eat. The EC
has denied market access while the Europeans studied the
possibility that U.S. chlorine-treated poultry carcass meat
might produce cancer when consumed. The intervening
countless studies and trials have not produced any support
for the theory, so after the issue was raised in the
Transatlantic Economic Council (TEC), the EC has reportedly
said that it will follow the TEC's guidance and grant renewed
access as early as this next summer. Potential Spanish
importers (in the Canary Islands) are watching the EC
maneuvering with guarded optimism, while U.S. officials will
likely keep the issue high on the agenda of future meetings.

WRECKED SHIP SPILLS MORE FUEL OFF GIBRALTAR AND ALGECIRAS

7. (U) The release of additional oil from a wreck that sank
in disputed waters off the coast of Gibraltar has sparked new
tensions between Spain and Great Britain. The
Panamanian-flagged vessel "New Flame" had collided with a
tanker in August in waters claimed by both Gibraltar and
Spain. Although the majority of the oil had been removed
from the water since then, a small portion remained trapped
underwater and was released after a heavy storm this past
weekend, which covered nearby Spanish beaches with oil slick.
The British ambassador was summoned to the MFA, which
demanded that the UK clean up the mess. Authorities in
affected municipalities are considering suing Gibraltar for
damages. (ABC February 11, Embassy-UK Embassy meeting)

THE KING OFFERS SPAIN'S ECONOMIC EXPERIENCE TO EGYPT

8. (U) Visiting Egypt, King Juan Carlos offered Spain's
experience during a business meeting with Commerce and
Industry Minister, Mohamed Rashid. The King cited Spain's
experience in tourism - Spain receives 50 million foreign
tourists a year, while Egypt receives 11 million - energy,
telecommunications, the environment, and transportation. The
King also encouraged the exploration of joint business
opportunities with outside markets such as Africa, the Middle
East and Latin America. Through a Memorandum of
Understanding, Spain will make available 250 million euros to
be used for public projects or small businesses that contract
Spanish companies. Spain agreed to take part in a study for
the viability of building a high speed train from Alexandria
to Egypt, and the Spanish company Eliop was granted a 100
million euro contract to improve security and sign postings
on the main lines of Egypt's accident-prone rail system.
(ABC, February 11)

OVULES FOR SALE - SPAIN'S REPRODUCTIVE TOURISM

9. (U) Restrictive laws in their home countries and a desire
for anonymity are some of the reasons foreign women hoping to
have babies are seeking ovules (eggs) in Spain. More than
50% of the patients seeking donations are from countries such
as Italy (which prohibits ovule donations), France (which
limits them), and Britain (where there is no anonymity). The
price is 6,000 euros per attempt with a successful pregnancy
rate of 80%. Donating is a business for some donors, who
receive 1,000 euros as compensation for the "discomfort"

MADRID 00000179 003.2 OF 003


caused by the process. While total statistics are not
available, the two leading Madrid clinics performed the
procedure 720 times in 2007, up from 500 the previous year.
(20 minutos, February 14)
AGUIRRE

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