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Cablegate: Madrid Weekly Econ/Commercial Update April 28 -

VZCZCXRO1683
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0525/01 1331058
ZNR UUUUU ZZH
R 121058Z MAY 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4752
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3417

UNCLAS SECTION 01 OF 02 MADRID 000525

SENSITIVE
SIPDIS

STATE FOR EUR/WE AND EEB/IFD/OMA

E.O. 12958: N/A
TAGS: BEXP ECON EFIN EINV ELAB ENRG SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE APRIL 28 -
MAY 9


MADRID 00000525 001.2 OF 002


Table of Contents:

ELAB: Number of Unemployed Jumps in April
ECON: Inflation Falls in April, Still Expected to Remain High
EFIN: Solbes Rejects Tax Incentives for Construction Sector
EFIN: Big Banks Report Strong 1Q Profit Growth
ECON: GOS delays Taguas Conflict of Interest Report
BEXP/EINV/ENRG: Iberdrola Renewables Orders 200 Windmills
from GE for 430 Million Euros

Number of Unemployed Jumps in April

1. (U) According to recently released Ministry of Labor
statistics, the number of unemployed workers in Spain rose in
April by 37,542, bringing the total number to over 2.3
million. What is significant about the April increase is
that typically April is a seasonally dynamic month in Spain,
and has not been subject to adverse employment data (until
now) in over 20 years. In March, there was a slight decrease
in unemployment. Following the data release, the Ministry of
Labor's Secretary of State for Employment, Maravillas Rojas,
admitted that the current situation was unfavorable. Rojas
did not back away, however, from the government's projections
that unemployment will ultimately average 9.8% in 2008.
First quarter data shows that the unemployment rate has
already attained 9.6%, one full point higher than the 2007
fourth quarter rate of 8.6%. A significant portion of newly
unemployed workers hail from the construction sector. (El
Pais, 5/8)

Inflation Falls in April, Still Expected to Remain High

2. (U) The preliminary National Statistics Institute
inflation figure for April was 4.2%, four tenths below
March's 4.6% and lower than in any of the previous four
months. Despite the good news, Second Vice President and
Finance Minister Solbes later acknowledged that unless oil
prices declined, inflation would be unlikely to fall to 3% by
the end of 2008 as the GOS had earlier predicted. (Europa
Press, 4/29; El Pais, 5/7)

Solbes Rejects Tax Incentives for Construction Sector

3. (SBU) Second Vice President and Finance Minister Pedro
Solbes rejected on May 8 Minister of Housing Beatriz
Corredor's proposal to permit homeowners to deduct from their
income taxes 20 percent, as opposed to the current 15
percent, of the costs of improvements to their residences.
Solbes said the GOS should not try to impede "artificially"
the necessary adjustment in the construction sector. The
Finance Minister has also said that the adjustment in the
sector should be finished by around 2010, at which time
overall Spanish GDP growth should rise again to about 3
percent a year. (Comment: The assumption that the Spanish
economy will once again enjoy growth rates of 3 percent or
more so soon without deeper structural reform may prove to be
overly optimistic. Solbes also has called for social
security and labor reforms during the current government.)
(El Pais, 5/9; Television Espanola 5/8; Expansion, 5/9)

Big Banks Report Strong 1Q Profit Growth

4. (U) Spain's three largest financial institutions reported
strong profit growth in the first quarter of 2008.
Santander's profit rose 22% from the first quarter of 2007,
to 2.2 billion euros. Although results were helped by growth
in Santander's Latin American markets, its Spanish business
did well also. BBVA's profit rose 15% to 1.4 billion euros.
Earlier, the La Caixa savings bank had reported a 13%
increase to 625 million euros. (Comment: The positive
results have been welcomed by members of the Spanish
financial sector as a sign of the sector's health despite the
overall economic difficulties. GOS and sector
representatives have lamented what they describe as
simplistic and overly negative reporting on the sector by the
English-language press, especially the Financial Times.)
(Press releases - Santander, 4/29; BBVA, 4/28; La Caixa, 4/24)

GOS Delays Taguas Conflict of Interest Report

5. (SBU) David Taguas, the outgoing director of the
Presidency Economic Office (with rank just below minister and
the equivalent of the Chairman of the U.S. Council of
Economic Advisors), announced after Zapatero's new cabinet
was named that he would leave government to work for the
Seopan construction industry lobby. This has raised conflict
of interest issues, because Taguas participated in meetings
involving government contracts with Seopan member companies.

MADRID 00000525 002.2 OF 002


A GOS Office of Conflict of Interests has delayed its ruling
on whether Taguas, planned departure for Seopan is
consistent with the Law on the Conflict of Interests. Should
the Office rule that Taguas is in violation of the law, he
would be barred from taking another government job for a
period between five to ten years, and he would not be
eligible to receive a pension from the government. (Comment:
From a strictly financial perspective, Taguas might want to
take the Seopan job no matter what the Office of Conflict of
Interests says. He would reportedly earn one million euros a
year, while the government pension only runs for 18 months
and is much lower than the Seopan salary. On the other hand,
one wonders whether Seopan might now consider Taguas to be
damaged goods, as President Zapatero's indication that he
disapproves of Taguas, planned move may affect Taguas'
access to GOS officials) (El Pais 5/9)

Iberdrola Renewables Orders 200 Windmills from GE for 430
Million Euros

6. (U) The windmills, which will have a total production
capacity of around 300 megawatts, will be delivered to
Iberdrola Renewables in 2010 and will be used to support some
of the company's planned investment in the U.S. Iberdrola
Renewables selected General Electric despite its parent
company's ownership of a 24% stake in competing Spanish
windmill manufacturer Gamesa. (Expansion, 5/9)
Llorens

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