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Cablegate: Madrid Weekly Econ/Commercial/Ag Update June 30 -

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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0739/01 1851521
ZNR UUUUU ZZH
R 031521Z JUL 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5041
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3487

UNCLAS SECTION 01 OF 02 MADRID 000739

SIPDIS

STATE FOR EUR/WE AND EEB/IFD/OMA

E.O. 12958: N/A
TAGS: ECON ELAB ENRG PGOV SENV TBIO SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JUNE 30 -
JULY 3

MADRID 00000739 001.2 OF 002


Table of Contents

ECON/PGOV: President Zapatero defends economic policies
ECON/PGOV: Solbes says Spain to grow again at 3 percent a
year by 2010
ECON/PGOV: PSOE AND PP approaches to dealing with the economy
revealed
TBIO: New Science and Innovation Minister says she would eat
biotech foods
ECON/ELAB: Spain leads EU with second highest unemployment
rate
ENRG: Spain moves to increase electricity and gas
connectivity with France
SENV: Spain furthest from meeting Kyoto goals, mostly because
of emissions from major cities

PRESIDENT ZAPATERO DEFENDS ECONOMIC POLICIES

1. (U) President Zapatero argued on July 2 before parliament
that although Spain was confronting economic difficulties,
the economy was well equipped to overcome what he
characterized as the effects of the international slowdown.
Zapatero's comments seemed to gloss over the seriousness of
the housing bust, appeared to be inconsistent with new data
showing that Spain had the second highest unemployment rate
in the EU (9.9 percent in May), higher than average EU
inflation, and second quarter growth of just 0.3 percent.
Opposition Partido Popular leader Mariano Rajoy accused the
President of lying to Spaniards, a theme that was echoed by
other parties' representatives as well during the lenghthy
July 2 parliamentary debate. Fears that a recession will
occur are growing. Meanwhile, a recent Cadena Sur opinion
poll shows that the President's popularity rating decreased
by two points to 41 percent while Mariano Rajoy's popularity
increased to 43 percent, making Zapatero less popular than
Rajoy for the first time since Zapatero became President in
2004. (ALL MEDIA, 7/3/08)

SOLBES SAYS SPAIN TO GROW AGAIN AT 3 PERCENT A YEAR BY 2010

2. (U) Second Vice President and Finance Minister Pedro
Solbes spoke at a EuropaPress breakfast on July 1 about
economic prospects. He said that second quarter growth would
probably be 0.3 percent and that growth for 2008 would be
"somewhat lower" than 2 percent. However, the minister said
he thought that by 2010, Spain would be growing at its
capacity growth rate, which he estimated as 3 percent a year.
Solbes was adamant that the government would not do anything
to shield businesses and consumers from the effects of higher
oil prices. He insisted that economic agents had to modify
their behavior - anthing less would just lead to "second
order" inflationary pressures which would be very bad for the
economy. With respect to deeper structural reforms many
economists think are necessary, Solbes had mixed messages.
Labor market reform had to be done through President
Zapatero's "social dialogue" - reforms in this area that were
not consensual would not stick. Solbes was not opposed to
deeper cuts in corporate taxes but only when the budget
permitted. He thought the government had done about what it
could with respect to relieving the credit crunch for
businesses. (Comment: Solbes makes a strong case that the
downturn is caused by factors beyond Spain's control, and
that there may even be some positive fallout from the
"slowdown", the Spanish government's preferred term for
describing the current state of the economy. However, it is
questionable whether Spain's capacity growth rate really is 3
percent a year. That would be higher than Germany's or
France's rates. Clearly though, the Zapatero government is
betting that Solbes is right and that Spain will once again
enjoy strong growth in time for 2012 parliamentary
elections.) (EuropaPress July 2 breakfast)

PSOE AND PP APPROACHES TO DEALING WITH THE ECONOMY REVEALED

3. (U) The Zapatero government is offering a fiscal stimulus
to the economy on the order of 1 percent in 2008 and 0.8% in
2009 (maybe more for both years despite politically symbolic
austerity measures such as capping salaries for high
officials). The opposition conservatives say they want to
cut spending by 2 percent, although they have not said what
they would cut. (El Pais, 6/30/08)

NEW SCIENCE AND INNOVATION MINISTER SAYS SHE WOULD EAT
BIOTECH FOODS

4. (U) Minister Cristina Garmendia told a leading daily (El
Mundo) that she would eat biotech foods. She added that
there was a lot of misinformation about biotechnology.
(Comment: The departure from the government of the former

MADRID 00000739 002.2 OF 002


Minister of Environment, Cristina Narbona, a hard-line
anti-biotech proponent, the takeover of the Ministry of
Environment by former Minister of Agriculture Elena Espinosa
(Agriculture and Environment have been merged into a
super-ministry), and the Science Minister's pro-biotech
stance, bodes well for the future of agricultural
biotechnology in Spain.) (El Mundo, 6/29/08)

SPAIN LEADS EU WITH SECOND HIGHEST UNEMPLOYMENT RATE

5. (U) According to the EU,s statistics agency, Eurostat,
Spain,s unemployment rate reached 9.9 percent this past May,
a large jump from the 8.1 percent Eurostat calculated for
May, 2007. As such, Spain was the EU country with the
largest increase in its unemployment rate, and the second
highest in its actual rate (after Slovakia). The average EU
unemployment rate was 6.8 percent. (Comment: Spain,s own
statistics vary slightly from Eurostat, but nonetheless it is
clear that Spain,s unemployment level is increasing rapidly
primarily because of Spain,s housing construction bust.
Spain,s continued high unemployment is also telling in that
it shows that, despite million of workers in "temporary"
contracts, more flexible Spanish labor laws should really
help alleviate unemployment.) (El Pais, 7/1/08)

SPAIN MOVES TO INCREASE ELECTRICITY AND GAS CONNECTIVITY WITH
FRANCE

6. (U) During high level meetings in Zaragoza on July 27,
President Zapatero and French Foreign Minister Francois
Fillon committed to increased electricity and gas
connectivity. The two officials agreed to create a company
by October 1, 2008 that would take charge of establishing the
long awaited cross-border electricity lines. This
connection, which has been blocked for several years due to
local community concerns, would pave the way for a high-speed
train link between the two countries. Spain and France also
agreed during the meetings to study the feasibility of a new
gas line connection with a capacity of 7 billion cubic
meters/year to be built by 2015. This new gas line would
further connect Spain to the rest of Europe, and according to
the agreement, would improve "security of supply and trade
between the two countries." (EFE, June 28)

SPAIN FURTHEST FROM MEETING KYOTA GOALS DUE TO EMISSISION
FROM MAJOR CITIES

7. (U) In regional data just published by the Ministry of
Environment, Rural Development and Marine Affairs, the growth
of CO2 emissions in several regions including Madrid,
Andalusia, Valencia, Murcia, the Balearics and Canaries have
increased more than 75 percent above 1990 levels. Spain,s
national objective determined by the Kyoto Protocol was to
increase emissions by only 15 percent over 1990 levels. As
expected, the regions that have experienced the most
economic, population and urban growth have generated the
largest increases in emissions. For example, since 1990 the
region of Madrid has increased its population by 19.5
percent, but its emissions have grown nearly 76 percent. In
the article, El Pais says the GOS is responsible and
criticized the region of Madrid for making one of the best
metro subway networks in Europe "insufficient" due to housing
sprawl and the population,s reliance on the automobile. In
spite of being a leader in the development of renewable
energy, the article says Spain remains further away from
fulfilling its Kyoto obligation than all other industrialized
countries, and says the GOS assumes it will not be able to
meet its goal. As a result, Spain will be required to pay
more than 3 billion euros in emission quotas and clean energy
investments in developing countries. (El Pais, 6/30/08)
AGUIRRE

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