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Cablegate: Madrid Weekly Econ/Commercial Update April 21 - 25

VZCZCXRO8292
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0469/01 1161548
ZNR UUUUU ZZH
R 251548Z APR 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4664
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3404

UNCLAS SECTION 01 OF 03 MADRID 000469

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: BTIO EAIR ECON ECPS EFIN EINV ELAB KNNP SENV
SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE APRIL 21 - 25

REF: MADRID 443

MADRID 00000469 001.2 OF 003


Table of Contents:

1. ELAB: Unemployment increases one full point to 9.6%
2. EFIN: IMF says no more room for additional fiscal stimulus
3. EFIN: Banks returning to capital markets
4. EFIN: 198 suspected of tax evasion via Liechtenstein
5. EINV/ECPS: "Everyone expects the Spanish telecoms
acquisition"
6. EAIR: Airlines lose 9% of Madrid-Barcelona passengers to
the AVE
7. SENV: EC investigating Madrid air pollution
8. SENV/KNNP: Asco I radiation leak update
9. BTIO: Herbalife blamed for 9 cases of liver toxicity

UNEMPLOYMENT INCREASES ONE FULL POINT TO 9.6%

1. (U) According to Spain's National Institute of Statistics
(INE), the unemployment rate increased to 9.6% in the first
of quarter of 2008, a full point increase from the last
quarter of 2007. This increase represents one of the highest
quarter to quarter increases in 15 years. The housing
construction slowdown was one of the primary factors behind
the increase, and in fact the construction and services
sector suffered the greatest job losses. Meanwhile the
agriculture and industry sectors experienced a slight growth,
but not enough to overcome the losses in the other sectors.
Second Vice President and Economy and Finance Minister Pedro
Solbes recently warned that in the next two years the rate of
unemployment could reach as high as 10 percent. INE data
shows that the total number of unemployed in the first
quarter reached 2,174,200. (Cinco Dias, 4/25; EFE, 4/25)


IMF SAYS NO MORE ROOM FOR ADDITIONAL FISCAL STIMULUS

2. (U) The IMF,s Europe Director, Michael Deppler, conceded
that Spain had the maneuvering room to use fiscal policy to
stimulate the economy and therefore supported President
Zapatero,s 2008 euro 10 billion fiscal stimulus package
approved by the Council of Ministers April 18. However,
Deppler said there was little additional margin for fiscal
stimulus. He noted that Spain had enjoyed 14 years of
uninterrupted strong growth, but he added that Spain had
allowed imbalances to arise, especially the very high current
account deficit of the balance of payments. Therefore, Spain
needed supply-side, not demand-side stimulus, reforms to
increase productivity and competitiveness. Specifically, the
energy, distribution, transportation and telecommunications
sectors needed further market opening and competition. The
IMF is forecasting 1.8% growth for Spain in 2008 and 1.7% in
2009. Other forecasters are somewhat more optimistic. The
Bank of Spain forecasts 2.4% economic growth in 2008 and 2.1%
in 2009. (Comment: The growth numbers are not terrible
compared to projected growth rates for other major economies,
but they are a major slowdown compared with the 3.8% growth
Spain enjoyed in 2007.) (Expansion, 4/22; WSJ, 4/21)


BANKS RETURNING TO CAPITAL MARKETS

3. (U) Spanish banks have carried out three senior debt
(bond) issuances this month in what may be a sign of the
reopening of capital markets to Spanish issuers. In the
first week of April, Santander placed 2.5 billion euros in
three-year debt, the first issuance realized by a Spanish
bank this year. The cost was considered high -- 90 basis
points over the 3-month Euribor rate. The same week, the
Caja Madrid savings bank issued 1.25 billion euros in
three-year debt with an even higher rate of Euribor plus 105
basis points. Last week, Santander placed 2.5 billion euros
in two-year debt with a smaller differential of 75 basis
points. In the second half of 2008 and all of 2009, Spanish
banks will need to renew over 100 billion euros of expiring
debt. (ABC, 4/21)


198 SUSPECTED OF TAX EVASION VIA LIECHTENSTEIN

4. (U) The Tax Agency has forwarded to the Anticorruption
Prosecutor the names of 198 Spaniards suspected of tax
evasion for having hidden money in Liechtenstein. The funds
involved surpass 200 million euros, and the tax evasion is
believed to be more than 24 million euros. The information
was based on leads provided to Spanish authorities by German
authorities in February after they found over 1,000 Germans
implicated in evasion via accounts in Liechtenstein.
(Finance Ministry press release, 4/23)

MADRID 00000469 002.2 OF 003


"EVERYBODY EXPECTS THE SPANISH TELECOMS ACQUISITION"

5. (U) So says the Financial Times, Paul Betts in his April
25 European View column. Betts believes that Europe will be
soon be dominated by four big operators: Telefonica, Deutsche
Telekom, France Telecom, and Vodaphone. The columnist
reports that there are rumors that Telefonica is once again
considering acquiring the Dutch operator, KPN. The Spanish
company had thought about buying KPN three years ago but
opted not to because of the Dutch government's 43 percent
stake in the company. The Dutch government subsequently sold
its shares, so that consideration no longer applies. Betts
says a KPN acquisition would strengthen Telefonica,s
position in Germany. Telefonica may be considering the KPN
deal more urgently now because the chances of the newly
elected Berlusconi allowing Telefonica to merge with Telecom
Italia are remote, so buying KPN may be a more viable way for
Telefonica to strengthen its position in Europe. (FT, 4/25)


AIRLINES LOSE 9% OF MADRID-BARCELONA PASSENGERS TO THE AVE

6. (U) Many travelers between Madrid and Barcelona are
choosing the high-speed AVE train over the traditional
airplane. In the first month after the opening of
Madrid-Barcelona AVE service, airlines lost 187,174
passengers on Europe,s busiest route compared to March 2007
figures. After adjusting for the fact that Holy Week was in
March 2008 but not March 2007, it appears that the number of
air passengers was down about 9 percent. The impact on
Madrid-Malaga air service after the AVE began to serve that
route at the end of last year has been similar. The airlines
have not cut the number of flights. They are utilizing
smaller planes, offering special promotions and pampering the
business traveler. (El Pais 4/22)


EC INVESTIGATING MADRID AIR POLLUTION

7. (U) The EC announced this week that it was investigating
the level of air pollution in Madrid. In its written notice,
the EC,s Environment Commissioner, Dimas Stavros, said the
Commission was aware of Madrid,s poor air quality and
requested more information about measures the city had
adopted to limit pollution. Although Madrid,s air pollution
does not exceed currently mandated limits, it is considerably
higher than the limits established for the year 2010. One
monitoring station in Madrid has already recorded 18 days
this year in which the level of nitrogen dioxide in the air
has exceeded the current limit, the direct result of auto
emissions, according to El Pais. The debate over whether to
adopt additional measures is ongoing. In January, former
Environment Minister Cristina Narbona publicly urged the
Madrid city government to adopt more restrictive measures.
Madrid mayor Alberto Ruiz-Gallardon had earlier said that in
2008 the city would prevent the "most polluting vehicles"
from entering the city. However, implementation of this plan
has been delayed until 2010 by Madrid Environment Councillor
Ana Botella. (El Pais, 4/23)


ASCO I RADIATION LEAK UPDATE

8. (U) 1,550 workers and others who have been in the Asco I
nuclear power plant in Tarragona are being examined for
radiation contamination as a result of the November 2007 leak
that was discovered last month and made public this month
(reftel). The Nuclear Security Council (CSN) announced that
none of the 900 who have been examined so far have been
contaminated. Among those given a clean bill of health were
40 schoolchildren who visited the plant in April after plant
managers knew about the leak but before they disclosed it.
Separately, the CSN found that a truck carrying soil and
scrap from the plant to a junkyard on April 21 contained soil
contaminated with cobalt 60 particles that likely were
released in the November leak. Environmental groups have
filed a request that GOS prosecutors investigate the leak and
impose sanctions. They also have asked the EC to investigate
whether the plant management and GOS authorities have applied
correctly EC norms. (ADN, 4/23)


HERBALIFE BLAMED FOR 9 CASES OF LIVER TOXICITY

9. (U) U.S.-based company Herbalife is blamed for 9 cases of
liver toxicity in Spain. According to the Health Ministry,
the Center of Regional Pharmacological Vigilance in Asturias
has recorded the cases and presumes they are due to use of
Herbalife products manufactured between 2003 and 2007.
Herbalife products are distributed worldwide by independent
dealers. This disbursement process makes it difficult to

MADRID 00000469 003.2 OF 003


trace the trail of the product, i.e. from origin to consumer.
There are several cases in Spain that are yet unconfirmed
and at least 9 known cases elsewhere in the EU, 6 in Iceland,
22 in Switzerland and Israel. More than half the recorded
Spanish cases are from Asturias. The Ministry advised
Spaniards to seek medical advice before purchasing
supplements and warned against buying such products through
"alternative channels" that do not offer guarantees. (Terra
4/21)
AGUIRRE

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