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Cablegate: Madrid Weekly Econ/Commercial Update April 14 - 18

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PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0443/01 1120831
ZNR UUUUU ZZH
P 210831Z APR 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 4631
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3397

UNCLAS SECTION 01 OF 03 MADRID 000443

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EPET KIPR KNNP PGOV SENV SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE APRIL 14 - 18

MADRID 00000443 001.2 OF 003


Table of Contents:

1. ECON: Euros 10 billion fiscal stimulus package announced
and approved
2. ECON/EFIN: Solbes insists he is in charge of the economy
3. SENV: Drought leads to "Water War"
5. KNNP: Nuclear accident cover-up sparks controversy
7. ECON/EFIN: Caja Madrid buys Florida bank
8. EPET: REPSOL stake in large oil find off Brazil
9. KIPR: Sale of pirated software remains a problem


EUROS 10 BILLION FISCAL STIMULUS PACKAGE ANNOUNCED AND
APPROVED

1. (U) While in Washington for the IMF/World Bank spring
meetings, Second Vice President and Finance and Economy
Minister Solbes announced that the government would quickly
use an amount equal to half of the 2007 budget surplus (10
billion euros) to stimulate the economy in 2008. Six billion
euros will be returned to taxpayers directly - each taxpayer
will get a euros 400 tax cut per a PSOE electoral promise,
and a wealth tax will be eliminated. Two billion euros will
go to guarantee mortgages on subsidized housing. Two billion
euros will be used to guarantee additional bank credits for
small and medium-sized companies. The Council of Ministers
approved the measures on April 18. It also approved a
350-euro monthly increase for three months for certain
unemployed workers, as well as the hiring of 1,500 staff to
help the unemployed retrain and/or find new jobs. The GOS is
also working on an agreement with lenders that would
eliminate commissions on lengthening mortgages, and it has
eliminated government charges on these transactions. The
measures approved by the Council will cost approximately 8
billion euros in 2009. (El Pais, 4/14; Council of Ministers,
4/18; AFP, 4/18)


SOLBES INSISTS HE IS IN CHARGE OF THE ECONOMY

2. (U) With the appointment of Miguel Sebastian, the former
head of the presidency economic office and unsuccessful 2007
Madrid mayoral candidate, as Minister of Industry, Tourism
and Trade, there has been lots of press speculation that
Solbes, authority in the economic arena has undermined by
President Zapatero. Solbes told journalists emphatically
that that was not the case. "I am the Vice President. It is
up to me to take the big economic decisions, and I will
continue doing so during this legislature." Solbes is
generally considered more fiscally conservative and less
interventionist than Sebastian. (Comment: At least with
respect to big macroeconomic policy decisions, Solbes will
likely continue to prevail. However, the energy portfolio
remains under the control of Sebastian's ministry despite
speculation that Solbes had wanted it. This suggests that
the GOS will work to ensure that Iberdrola is not taken over
by the majority state-owned French utility EDF.) (El Pais,
4/14)


DROUGHT LEADS TO "WATER WAR"

3. (U) In what one newspaper is calling the "Water War,"
Spain,s severe drought conditions along its Mediterranean
coast are causing political tensions to heat up between
autonomous communities and the GOS. For the country as a
whole, the last six months have been the driest such period
in 60 years. Barcelona, whose reservoirs have dipped below
20 percent of capacity, has further restricted water use and
will soon begin importing water by ship from France and other
regions in Spain. This week, in an effort to provide relief
to Catalonia, the GOS approved the urgent construction of a
62-kilometer pipeline to divert water from the Ebro River to
Barcelona. The decision came after the GOS denied the same
for other regions. The Partido Popular government that held
office until 2004 had planned to build a series of canals to
transfer water from the Ebro to the agricultural areas of
Valencia, Murcia and Almeria. When the PSOE took office, it
repealed the plan, citing environmental concerns.
Environmentalists have criticized such water transfer plans
as well, citing the need to first reduce consumption of water
by increasing its cost.

4. (U) In an apparent effort to save political face, the GOS
referred to the move this week as a "temporary measure" that
was not a "transfer" of water and was aimed to cover the
period until the scheduled June 2009 opening of a Barcelona
desalinization plant. The GOS' semantics have drawn
criticism, with pro-government El Pais calling the project
"the pipe that is not a transfer." As expected, the decision
has also been challenged by the opposition. The PP is

MADRID 00000443 002.2 OF 003


demanding that President Zapatero explain to Congress his
changed view on water transfers. The Presidents of Valencia
and Murcia (both PP members) announced their intention to
bring the matter to the Constitutional Court. While the
Aragon region also objects to the water diversion, its
PSOE-affiliated President has toed the party line and not
objected to the decision. Environment, Rural Development and
Marine Affairs Minister Espinosa has invited representatives
from the autonomous communities to an April 19 meeting in
Madrid to explain the Council of Ministers April 18 decision
to approve the water transfer to Barcelona.


NUCLEAR ACCIDENT COVERUP SPARKS CONTROVERSY

5. (U) The coverup of a November leak at a the Asco I nuclear
power plant in Tarragona province has led to the firing of
the plant supervisor and renewed calls by opponents of
nuclear power for the closing of all Spain's nuclear plants.
The accident occurred when 50 liters of radioactive water
were dumped into a pool from where water vapor was sucked
into the plant's chimney and disseminated to the surrounding
area. About 150 particles of radioactive cobalt, manganese,
zirconium, and other metals were dispersed into the air,
although 95 percent settled within the plant compound. The
managers of the plant, which is jointly owned by Endesa and
Iberdrola and operated by Endesa, learned of the leak March
14. They did not notify Spain's Nuclear Security Council
(CSN) until early April, after Greenpeace had announced that
contamination had been found in the area around the station.
Even then, they downplayed the incident, leading the CSN to
classify it as a level 1 on the International Nuclear
Incident Scale (1 is an anomaly and 7 a grave accident).
However, the CSN's deputy told reporters April 14 that the
CSN had been deceived, that radioactivity around the plant
was 100 times greater than what the plant managers had said,
and that the accident was one of Spain's four worst ever.
The CSN reclassified the event as a level 2, or an "incident."

6. (U) The severity of the incident itself still does not
appear to be overly alarming. The CSN has said that even the
higher levels of radiation should not affect nearby
residents. Plant workers are being tested, and students who
visited the plant have been offered tests. However, the
coverup has been strongly criticized, and the firing of the
plant supervisor may not be enough to satisfy critics.
Newspapers reported that plant management continued to allow
schoolchildren to tour the plant after it knew of the
radiation. Mayors of fourteen nearby municipalities have
insisted that Endesa dismiss all those responsible for the
cover-up. A labor union blamed the plant's use of
subcontracted workers, and school officials and parents have
expressed concern about the students who toured the plant.
The furor will not make it any easier for those who are
trying to convince the ruling PSOE to rethink its plans to
gradually close Spain's seven nuclear power plants. (El
Pais, 4/16; Metro, 4/16 and 4/17)


CAJA MADRID BUYS FLORIDA BANK

7. (U) The savings bank, which is Spain's fourth largest
financial institution (behind Santander, BBVA, and La Caixa),
is buying City National Bank of Florida for USD 927 million.
City National is the sixth largest bank in Florida. This
acquisition is part of Caja Madrid's "Plan 2010" overseas
expansion drive. It already has corporate offices in Miami,
Lisbon, Dublin and Vienna. City National has euros 1.75
billion in assets, 421 employees, and 19 branches. (ABC,
4/14)


REPSOL STAKE IN LARGE OIL FIND OFF BRAZIL

8. (U) After Brazil,s chief petroleum regulator confirmed
the existence of a giant oil field off the coast of Sao
Paolo, Repsol's stock price rose by 11 percent in the Spanish
market. Repsol owns 25 percent of the group responsible for
exploring the "Carioca" block in the Santos basin, which is
said to potentially contain 33 billion barrels of oil and
possibly be the world's third largest field. Industry
representatives have urged caution over the find, which is
not yet definitive, and have noted that oil production would
not begin for several years. (El Pais 4/15 and 4/16, Rio de
Janeiro 00091)


SALE OF PIRATED SOFTWARE REMAINS A PROBLEM

9. (U) Pirated software costs the industry 690 million euros
annually and accounts for almost 40 percent of the software

MADRID 00000443 003.2 OF 003


sold in Spain, according to a Microsoft study. A Microsoft
spokesman faulted the lack of "sensibility" of consumers and
distributors about the real value of software. Although the
overall Spanish piracy index reportedly dropped by 7.7
percent in 2007, two regions registered notable increases,
Andalucia with 11.2 percent and Valencia with 7.1 percent.
More than half of the software installed in these regions is
pirated. Madrid's piracy index has fallen by 12 percent in a
year, to 28 percent. (Comment: Software piracy remains high
in Spain, although the Business Software Alliance (BSA) does
not estimate it to be higher than in, for instance, France.
This year, the BSA did not recommend that Spain be placed on
the Special 301 Watch List, because it says it is receiving
satisfactory cooperation from the Spanish government.)
(Metro, 4/16)
AGUIRRE

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