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Cablegate: Madrid Weekly Econ/Commercial/Ag Update July 7 -

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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0764/01 1931326
ZNR UUUUU ZZH
R 111326Z JUL 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5073
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3494

UNCLAS SECTION 01 OF 03 MADRID 000764

SIPDIS

STATE FOR EUR/WE AND EEB/IFD/OMA

E.O. 12958: N/A
TAGS: ECON EINV EFIN ENRG PGOV PTER SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JULY 7 -
JULY 11

MADRID 00000764 001.2 OF 003


Table of Contents

ECON: OECD says there is an economic crisis in Spain
ECON/PGOV: President Zapatero talks of economic "crisis" for
the first time
ECON/EINV: Minister of Industry says economy will recover,
and he says GOS to develop an energy savings plan
ECON/EINV: Spain's central bank governor praises GOS
initiatives but won't rule out negative growth
ECON/EFIN: Price of housing falls again
ECON/PTER: ETA continues to send extortion letters to
businesses
EINV/ENRG: Colorado Governor leads renewable energy mission
to Madrid
EFIN: Banesto Q2 profit up by 14 percent, but there are signs
of loan weakness

OECD SAYS THERE IS AN ECONOMIC CRISIS IN SPAIN

1. (U) The Secretary General of the Organization for Economic
Cooperation and Development (OECD), Angel Gurria, said there
is an economic "crisis" in Spain on July 4. He added that
the economy would not be "normalized" until 2010 (Note. This
latter points tracks with the Spanish government's view.).
Currently, the OECD forecasts 1.6 percent economic growth for
Spain in 2008, although this could decline further because
this forecast is based on oil prices at USD 120 a barrel.
Gurria did say, however, that because Spain had comparatively
healthy public finances, it had "a little space" for some
fiscal stimulus. (Embassy Comment: Actually we believe that
the recent downturn in economic activity has weakened
revenues and estimate that Spain's fiscal accounts are now in
the red.) (Expansion, 7/5/08)

PRESIDENT ZAPATERO TALKS OF ECONOMIC CRISIS FOR THE FIRST
TIME

2. (U) During a TV interview with Antenna 3, Zapatero said he
would describe the economic situation as being in a "crisis"
if the interviewer wanted to, but that he preferred to offer
solutions. (Comment: This was significant because, so far,
the GOS has insisted that the Spanish economy is experiencing
a "slowdown", not a "crisis.") (ABC, 7/9/08)

MINISTER OF INDUSTRY SAYS ECONOMY WILL RECOVER, AND HE SAYS
GOS TO DEVELOP AN ENERGY SAVINGS PLAN

3. (U) Speaking at a telecommunications industry breakfast,
Minister of Industry, Tourism and Trade Miguel Sebastian said
that the Spanish economy was suffering from a credit crunch
stemming from the U.S. subprime problem, a housing downturn,
and increases in the price of oil. However, he offered three
"Cs" that would see Spain return to robust economic growth by
2010: "confidence, courage and competitiveness." He said that
the "automatic fiscal stabilizers" would work in Spain
because Spain had built up a budget surplus during the good
times that could now be spent to even out the business cycle.
Foreign investment in Spain during the first four months of
2008 was euros 17 billion, twice what it was during the first
three months of 2007, clear evidence of foreign "confidence"
in Spain. (Note: This number is true but distorted because
two thirds of it arose from the one off purchase of Altadis
by British Tobacco.) Additionally, the IMF and the BIS had
expressed "confidence" in Spain's financial system. With
respect to "courage", Sebastian called the GOS's fiscal
stimulus package "courageous". Then he listed a number of
programs his ministry was working on to improve Spanish
"competitiveness." Sebastian also announced that before the
end of the summer, an energy savings plan designed to reduce
the consumption of oil by 10 percent over the next two years
would be unveiled. (Comment: Prompted by a questioner,
Sebastian said that he was "delighted" to be working under
the coordination of Second Vice President and Finance
Minister Pedro Solbes. It was notable though that he started
his talk with a macroeconomic overview. Many observers think
that he is aiming to replace Solbes when he decides to
retire. As his talk demonstrated, besides Solbes, Sebastian
is clearly the cabinet member most comfortable with the big
macroeconomic issues.) (Telecommunications breakfast, 7/8/08)


SPAIN'S CENTRAL BANK GOVERNOR PRAISES GOS ECONOMIC
INITIATIVES; WONT RULE OUT NEGATIVE GROWTH FOR SECOND QUARTER

4. (U) Speaking on the international economic situation at a
lunch hosted by the American Chamber of Commerce, Bank of
Spain Governor Miguel Angel Fernandez Ordonez discussed the
factors leading up to the current economic slowdown including
financial market turmoil and high primary material prices.

MADRID 00000764 002.2 OF 003


He said that Spain's housing market downturn might have
helped activate Spain's own economic slowdown, but was not
the primary cause. He added that at the onset of the
economic turbulence, Spain was in a strong economic position
and even now is in a better standing than many of its EU
counterparts. He praised the government's initiatives to
combat the slowdown, but cautioned that it might take longer
than anticipated to recover from this "low growth phase".
When asked about second quarter growth for Spain, Fernandez
Ordonez said that he would not rule out "negative growth".
(Comment: Private sector growth estimates for 2008 average at
1.7 percent, which is actually somewhat surprisingly high. A
recent BBVA report indicated that growth for Spain during Q2
2008 would be 0 percent. Fears are increasing that Spain may
already be in recession. (Embassy, 7/9/09; El Pais 7/10/08)


PRICE OF HOUSING FALLS BY 2.5 PERCENT ACROSS SPAIN

5. (U) According to recently released statistics from Spain's
largest real estate appraisal company (TINSA), home prices
have fallen by on average 2.5 percent across Spain (from May
2007 to May 2008). Cities and the areas on the Mediterranean
coast were hit hardest with average home price drops of 3.7
percent and 3.0 percent, respectively. Furthermore, TINSA
president Ildefonso Ortega has asserted that the number of
unsold homes in 2008 is higher than anticipated and may very
well reach up to 1 million by the end of 2008. (Note: If this
estimate is correct, home prices will fall much further and
will not level out until the housing stock is on par with
demand. This could also mean that the economic difficulties
that Spain is facing will take longer to iron out than GOS
officials are hoping. Currently the GOS believes that the
Spanish economy will begin to turn around starting the second
half of 2009.) (el Pais, 7/10/08)


ETA TERRORIST GROUP CONTINUES SENDING EXTORTION LETTERS

6. (U) According to a local daily "El Correo", the ETA
terrorist group has continued to send extortion letters to
Basque region businesses to demand a payment of between
70,000 and 120,000 euros. According to the media,
antiterrorist experts believe that the number of letters
received is slightly larger than in recent months. Also in
the news is the recent detention of two prominent Basque
business leaders who are suspected of contributing
financially to ETA. As the judicial process for these cases
continues, it appears that more and more Basque region
businesses are coming forth to alert the police of having
received these extortion letters. (EL Pais, 7/8/08 - 7/10/08)


COLORADO GOVERNOR LEADS RENEWABLE ENERGY MISSION TO MADRID

7. (U) Colorado Governor Bill Ritter visited Madrid July 7-10
on an investment mission focused on renewable energy. The
visit came five months after Ambassador Aguirre led a Spanish
renewable energy mission to Washington, DC and Colorado,
where Governor Ritter hosted the delegation for a breakfast
discussion. While in Madrid, Governor Ritter met with
leaders of Spain's energy industry including the CEOs of
Iberdrola, Iberdrola Renovables, Acciona, Abengoa Solar and
Elecnor, and with executives from Union Fenosa and Sener.
Although no announcements have been made, the governor
believes that at least two Spanish energy companies are
seriously considering new renewable energy investments in the
state. Today, Iberdrola owns two wind farms in Colorado and
Abengoa Solar's U.S. business unit is based near Denver. The
governor also discussed renewable energy and climate change
with GOS officials Silvia Iranzo, Secretary of State at the
Ministry of Industry, Tourism and trade, and Teresa Ribera,
Secretary of State at the Ministry of Environment, Rural
Development and Marine Affairs. During a meeting with
researchers at the Ministry of Science and Innovation's
Center for Energy, Environment and Technology Research,
Ritter discussed opportunities for further collaboration on
research and development with the National Renewable Energy
Laboratory in Golden and research universities in the metro
Denver area. The governor and his delegation also met with
leaders from several industries at a dinner hosted by the
Charge d'Affaires, a luncheon sponsored by the American
Chamber of Commerce in Spain and a breakfast sponsored by the
U.S.-Spain Council.

BANESTO Q2 PROFIT UP BY 14 PERCENT, BUT THERE ARE SIGNS OF
LOAN WEAKNESS

8. (U) Profits were up, but the percentage of non-performing

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loans rose 0.79 percent from 0.42 percent. While such a
ratio is still comparatively low, it does demonstrate that
Spanish banks are experiencing an uptick in non-performing
loans. At a minimum, the current environment suggests that
banks will be conservative in their lending. As Banesto
Chairwoman, Ana Patricia Botin, put it, "the current
environment does not favor growing market share." (WSJ,
7/11/08)
LLORENS

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