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Cablegate: Madrid Economic/Commercial Weekly August 4-8

VZCZCXRO6533
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0879/01 2211147
ZNR UUUUU ZZH
R 081147Z AUG 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5224
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3539
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000879

SIPDIS

STATE FOR EUR/WE AND EEB/IFD/OMA, TREASURY FOR
IA/OEE/W.LINDQUIST

E.O. 12958: N/A
TAGS: ECON ECPS EFIN EINV ELAB PGOV PTER SP
SUBJECT: MADRID ECONOMIC/COMMERCIAL WEEKLY AUGUST 4-8

REF: A. CARACAS 1061
B. MADRID 859
C. MADRID 828

MADRID 00000879 001.2 OF 002


Contents:

ECON/ELAB: Production, Confidence Down, Unemployment Up
EFIN: Negative Rating Agency Actions on 22 Banks/Cajas This
Year
ECPS: Telecommunications Market Commission Decision Called
Anti-Competitive
EFIN: Santander in Talks to Sell Venezuelan Operation to GOV
EFIN/PTER: Crackdown on ETA Terrorism Finance Sparking
Tensions In Basque Country
EFIN/PGOV: No Consensus Reached Yet on Autonomous Community
Financing Model


Production, Confidence Down, Unemployment Up

1. (U) Spain,s National Institute of Statistics (INE)
released data August 5 showing that industrial output (mining
and manufacturing) for the month of June was down by 9
percent from June 2007. This data is compounded by
additional unfavorable economic news including unemployment
increases for the month of July and lower consumer
confidence. According to the Ministry of Labor and
Immigration, the number of people registered as unemployed
went up by 36,000 in the month of July, bringing the total to
2,426,916. Construction services, industry and agricultural
sectors were most affected. (Comment: This seems to
indicate an increase of about 0.1% in the overall
unemployment rate during the month; while this may not look
like much, unemployment usually falls in July, and 36,000 is
the largest July increase on record.) (All Media, 8/6; INE;
Ministry of Labor and Immigration)


Negative Rating Agency Actions on 22 Banks/Cajas This Year

2. (U) Moody's and Fitch Ratings announced on August 5
downgrades or changes in outlook for seven savings banks
(cajas). This brings to 22 the number of Spanish banks or
cajas on which Standard and Poor's, Moody's or Fitch have
taken negative actions this year. The only significant
banking institutions that have escaped negative rating
actions this year are the two largest, Banco Santander and
BBVA, which are diversified internationally. Nearly all of
the 22 institutions are affected by exposure to Spain's
troubled residential real-estate market, difficulties in
obtaining financing, and lower stock performances.
(Expansion, 8/6)


Telecommunications Market Commission Decision Called
Anti-Competitive

3. (U) In a controversial ruling July 31, Spain's
Telecommunications Regulatory Commission, the CMT, decided
that Telefonica would not be obligated to offer its
competitors wholesale access to its new high-speed fiber
optic network. Critics of the decision contend that this
would hamper free competition in the telecommunications
market since Telefonica owns and operates all high speed
telecommunications lines in Spain. Within Spain's CMT the
decision was strongly opposed by three of the regulatory
agency's nine commission members. Telefonica's main
telecommunications competitors in Spain include Orange,
Jazztel, and Tele2Vodaphone. (Expansion, 8/6)


Santander in talks to Sell Venezuelan Operation to GOV

4. (U) In an August 1 press release, Grupo Santander
confirmed that it was in talks with the GOV to sell its
affiliate in Venezuela, the Banco de Venezuela. The talks
follow a July 31 announcement by President Chavez stating
that Venezuela was interested in purchasing the bank (ref A).
Prior to the Chavez announcement, Grupo Santander was
reportedly intending to sell the bank to a private Venezuelan
entity, with some sources saying that a driving factor was an
imminent change in banking regulations. According to Spanish
media reports, President Chavez has offered $1.2 billion for
the bank while Santander wants $1.8 billion. Spanish
officials have stated that they are following the transaction
closely. Banco de Venezuela has belonged to Grupo Santander,
Spain's largest bank, since 1996. (All Media, 8/1-8/6)

MADRID 00000879 002.2 OF 002


Crackdown on ETA Terrorism Finance Sparking Tensions In
Basque Country

5. (U) A recent crackdown on businesses suspected of paying
protection money to the terrorist group ETA is being received
with indignation by businesses leaders who see themselves
more as victims than as conspirators. For years, ETA
activities have partially been financed via extortion letters
calling for Basque businesses to contribute "Revolutionary
Taxes." After the May 20 arrest of senior ETA leader
Francisco Javier Gomez Pena (alias "Thierry"), police
discovered information loosely linking Basque businesses to
nearly 400,000 euros in contributions. Based on this
evidence Investigative Judge Baltasar Garzon (a polemic
figure in Spain) has spearheaded efforts to uncover those
individuals and businesses linked to these activities. Among
the business leaders recently detained or interrogated are
Sabino Arrieta, the former head of steel manufacturing
company Sidenor, and Jesus Guiber, a well-known Basque
businessman who was kidnapped for ransom in the early 80s.
According to the media, the investigations are being widely
perceived as heavy-handed in the Basque community and are
sparking tensions. (El Pais, 8/04/08)


No Consensus Reached Yet on Autonomous Community Financing
Model

6. (U) The deadline for Catalonia's statute to take effect
will soon pass without the necessary consensus on how funds
will be distributed among the autonomous communities. This
financing agreement was a key prerequisite of the statute,
which would have provided the Catalan government more
autonomy and control over the funds collected in its
territories. Catalan demands touched a raw nerve during a
period of reduced economic growth, and other autonomous
communities that benefit from the current system of centrally
redistributed funds were opposed to the Catalan model. As a
result, the Catalan statute or constitution will not go into
effect August 9 as planned. (All Media, ref C)
Aguirre

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