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

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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0212/01 0561757
ZNR UUUUU ZZH
R 251757Z FEB 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4340
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3327

UNCLAS SECTION 01 OF 02 MADRID 000212

SIPDIS

SIPDIS

DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA

E.O. 12958: N/A
TAGS: EAIR ECON ECPS EFIN EFIS EIND EINV ENRG SENV
SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - FEBRUARY
18-22

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Table of Contents:

ECON/EFIN: Economic debate kicks off election campaign
EFIN: Budget surplus reaches record in 2007, drops in January
ENRG: World's largest solar thermal plants - recent and
future, both in U.S.
ECPS: Cellphone business skyrockets
EIND/EINV: Zara making "fast fashion" even faster
EINV: Construction company wins Florida contract
EAIR: Aviation agreement with Jamaica
EFIS/SENV: Spain calls for redistribution of unused fishing
quotas

ECONOMIC DEBATE KICKS OFF ELECTION CAMPAIGN

1. (U) Second Vice President and Economy Minister Pedro
Solbes debated Madrid PP parliamentary candidate Manuel
Pizarro, who has the prestigious position of being number two
on the Madrid list behind party leader Mariano Rajoy, on
2/21/08 on the Antenna 3 TV station. The debate lasted an
hour and was largely polite. Solbes took the view that, yes,
the Spanish economy faces "turbulence," but not a "crisis."
Pizarro said that things were worse than the socialist
government was willing to recognize and that the government
had not used the last four years well to prepare for more
trying economic times. Both protagonists used a lot of
statistics, and sometimes displayed charts, to buttress their
points. After the debate, Antenna 3 conducted a poll asking
respondents for their view as to who the winner of the debate
was. The poll showed that 47% of the viewers though that
Solbes won and that 37% thought Pizarro won. (Comment:
Solbes' mastery of the issues showed, although it is not
clear how well his professorial demeanor comes across to the
broader electorate. Pizarro did a creditable job, although
the fact that he is not a macroeconomist showed. For
instance, when asked by Solbes as to how the conservative PP
party intends to finance its tax and spending proposals,
Pizarro responded by saying that the PP would abolish the
Ministry of Housing, eliminate the Office of the Presidency
Economic Office, reduce expenditures on Justice Minister
Bermejo,s apartment and stop payments to terrorists. This
was red meat for the PP base, but it is not clear how
relevant these high profile, albeit macroeconomically
insignificant, proposals will be perceived by a wider
electorate.)

BUDGET SURPLUS REACHES RECORD IN 2007, DROPS IN JANUARY

2. (U) The government's budget surplus reached a record 2.23%
of GDP in 2007, or 23.4 billion euros. This includes central
government, regional and municipal governments, and social
security. Even after rate cuts, central government personal
and corporate income tax revenues rose by 15 and 20 percent,
respectively. Value-added tax receipts rose by only 2.2
percent, however. Government officials have cited the
surplus as providing room to maneuver in what is likely to be
a more difficult 2008. A sign of this came three days later
when the January surplus was reported to be 50% below the
surplus in January 2007. (El Pais 02/22/08, ABC 02/25/08)

WORLD'S LARGEST SOLAR THERMAL PLANTS - RECENT AND FUTURE,
BOTH IN U.S.

3. (U) In unrelated events this week, Acciona inaugurated
what it said was the largest solar thermal power plant built
anywhere in the last 17 years and Abengoa announced that it
had signed a contract to build the largest solar plant of any
kind in the world. The new Acciona plant is the 64-megawatt
Nevada Solar One complex in Boulder City, Nevada. Acciona
also announced that it would invest 1.8 billion euros in
renewable energy projects in the U.S. in the next two years,
1.2 billion to build wind farms with almost 1,000 MW of
capacity and 600 million to build solar thermal plants with a
combined capacity of 200 MW. Abengoa's 280 MW Solana plant
will be in Arizona and is scheduled to begin service in 2011.
Abengoa will sell the electricity to Arizona Public Service
for 30 years for 4 billion dollars. (El Pais and ABC,
2/22/08; ABC, 2/25/08)

CELLPHONE BUSINESS SKYROCKETS

4. (U) Spain now has 50 million active mobile phones, 1.12
per person, according to the Comision del Mercado de las
Telecomunicaciones. 3.4 million new phone lines were created
in 2007. Competition is fierce with Vodafone now number one,
followed by Movistar and Yoigo. Orange is losing clients and
deactivated 500,000 lines. The number of high-speed Internet
users also increased by 20.5 percent from the previous year.

MADRID 00000212 002.2 OF 002


DSL connections increased by 44 percent and now account for
1.35 million lines. Telefonica reports a 22 percent increase
of broadband lines. (El Pais, 02/21/2008)

ZARA MAKING "FAST FASHION" EVEN FASTER

5. (U) Zara is part of the Inditex group, the world's second
largest clothing manufacturer after Gap. Inditex's flagship
store is Zara, but the group owns seven other store brands as
well, including the more upscale Massimo Dutti. The first
Zara store opened in 1975, and Inditex now owns 3,691 stores
in 68 countries. Without a doubt, Zara is a phenomenon, a
prime example of Spain's newfound business strength. "Fast
fashion" means producing new designs quickly, inexpensively,
and in limited quantities so as to create an air of
exclusivity. Zara addicts (and there are many around the
world) know that if they want something they have to get it
quickly and not wait for sales, which the group does not use
much. Unusually, most of the manufacturing is in Spain,
Portugal, Morocco, or Turkey, not Asia. Labor costs are
higher, but proximity has efficiency advantages. The problem
for Inditex is that competitors such as Bennetton, Fast
Retailing Co., Patagonia, Hennes & Mauritz, and Mango are
copying its supply chain management. As a result, the group
is trying to find ways to order and unpack merchandise faster
and add new cargo routes. As new stores are opened around
the world, Inditex may also have to open regional logistics
centers outside Spain, including in Asia. (Comment: Inditex
owner Amancio Ortega Gaona is a self-made man who is Spain's
richest individual. He prefers to maintain a low profile and
is grooming his daughter to take over the company.) (Wall
Street Journal, 2/20/08)

CONSTRUCTION COMPANY WINS FLORIDA CONTRACT

6. (U) Community Asphalt, the U.S. subsidiary of OHL, one of
Spain's six largest construction companies, recently won a
USD 111 million Florida Department of Transportation contract
to extend and reconstruct 17 km of US-1. Payment will be
received after the project is completed. The Caja Madrid
savings bank is providing and coordinating financing.
(Expansion, 2/20/08)

AVIATION AGREEMENT WITH JAMAICA

7. (U) Spain and Jamaica have signed an air service agreement
to encourage tourism. The island is seeking to open itself
up to European Union flights. The agreement is expected to
be implemented provisionally until it formally takes effect
after legislative ratification in both countries.
(Hosteltur.com, 2/22/08)

SPAIN CALLS FOR REDISTRIBUTION OF UNUSED FISHING QUOTAS

8. (U) Secretary of State for Fishing Juan Carlos Martin
Fragueiro asked the European Commission to create a mechanism
through which EU countries could redistribute unused fishing
quotas. He argued that each year some countries do not reach
their allocated quotas, which could be made available to
"those who really need them." He did not call for modifying
the current percentages allocated to each member, only for
allowing flexibility to redistribute. (AFP, 2/20/08)

AGUIRRE

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