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Cablegate: Madrid Economic Weekly, Sept. 22-26

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ZNR UUUUU ZZH
R 290625Z SEP 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5371
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3590
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001025

SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA

E.O. 12958: N/A
TAGS: ECON EFIN EIND EINV ELAB ENRG KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, SEPT. 22-26

REF: MADRID 943

MADRID 00001025 001.2 OF 002


Contents:

ECON/KIPR: Zapatero in New York
ECON/EFIN: Council of Ministers Approves Draft 2009 Budget
EIND: Housing Sales, Starts Remain Weak
ENRG/EINV: GOS Reduces Solar PV Electricity Feed-In Tariffs
EINV: Spain Among Top FDI Investors and Recipients
ELAB: Spain Leads Opposition to Proposed EU Expansion of
Allowable Labor Hours

Zapatero in New York

1. (U) While visiting New York to speak at the UN, President
Zapatero met with business executives in a September 24 event
organized by the American Chamber of Commerce in Spain.
Executives from firms such as Boeing, Microsoft, IBM, Pfizer,
and the Bank of America, as well as the MPAA, participated in
the session. Zapatero acknowledged challenges faced by the
Spanish economy, including the housing downturn and the
current account deficit, but he insisted that the economy's
resilience and strength would allow Spain to return to its
path of strong growth soon. Zapatero also discussed topics
ranging from high-speed trains to his commitment to not
expand nuclear energy. He said Spain would deepen its focus
on biotechnology, nanotechnology, and renewable energies. At
least one questioner raised IPR piracy. In his UNGA speech
September 25, Zapatero called for international regulation of
financial markets and urged developed countries to meet the
target of providing 0.7% of GDP in development assistance by
2015. In a press conference, he expressed his support for
the Administration's financial market rescue package, noting
that it was the result of an "exceptional circumstance." (El
Confidencial, 9/25; El Pais, 9/25; All Media, 9/26)

Council of Ministers Approves Draft 2009 Budget

2. (U) The Council of Ministers approved on September 26 what
it described as an "austere" draft 2009 budget. Spending,
including anticipated unemployment benefits, will rise 3.3%,
just below the rate of inflation. Because of the economic
slump, the GOS has had to adjust spending down from what it
had anticipated only three months ago. The deficit is
anticipated at 1.5% of GDP. The GOS emphasized the budget's
emphasis on infrastructure, research, the administration of
justice, education, and housing. The GOS will submit the
budget to the Congress next week, but it still lacks the
votes to ensure approval. The unresolved dispute with
Catalonia over regional government financing makes it
unlikely that the CiU bloc will support the budget, so the
GOS is seeking support from the Basque Nationalist Party
(PNV) and smaller regional parties. The budget is expected
to be approved, possibly after amendments, at the end of
December. (Expansion, 9/25; El Pais, 9/26; Council of
Ministers, 9/26)

Housing Sales, Starts Remain Weak

3. (U) 26% fewer housing units were sold in July 2008 than in
July 2007. Sales of used housing were down 38%, while sales
of new housing were down 10%. Comment: It may be that new
housing sales fell by less because builders are forced to
sell even if they have to accept lower prices, while owners
of existing housing prefer to stay put rather than accept
lower prices. End comment. The value of mortgages issued
that month was 33% below the July 2007 value; the number of
mortgages was down 28% and their average value was down 6%.
Builders are responding by cutting back on new construction;
in the year's second quarter, the number of housing starts
was 43% below its 2007 second-quarter level. (Expansion,
9/26; Cinco Dias, 9/26)

GOS Reduces Solar PV Electricity Feed-In Tariffs

4. (U) Spain's system of incentives for different types of
renewable electricity guarantees generous prices (feed-in
tariffs) for up to a certain volume of projects of each
technology. For solar photovoltaic power projects, the
existing 45 cents(euro)/KWh tariff applies to projects
completed and registered by September 29. On September 26,
after many exchanges between the Ministry of Industry,
Tourism, and Commerce (MITC) and industry representatives,
the Council of Ministers approved a new tariff regime for
projects registered after September 29. The guaranteed
tariff will fall to 32 cents/KWh for ground-based projects
and rooftop projects above 20 KW. Rooftop projects below 20

MADRID 00001025 002.2 OF 002


KW will receive 34 cents/KWh; the GOS says rooftop projects
use less land and lose less electricity in transmission than
ground-based projects. MITC Minister Miguel Sebastian told
the Congress that the new tariffs are 25% above those in
Germany, the EU's other large solar power market. The
tariffs will be in force for 25 years and will include annual
adjustments just below the rate of inflation.

5. (U) The volume of projects eligible for the new tariffs
has been the most contentious point (reftel). Many more
ground-based projects were registered before the September 29
deadline than the GOS had expected -- at more expense to
consumers, since the guaranteed prices are well above market
prices -- and many projects are not yet complete. The 2009
limit of 367 MW of ground-based projects (and 133 MW of
rooftop projects) may cause some firms to scrap or delay
planned projects. A new mechanism will allow the GOS, if the
volume limit of projects is reached in one year, to reduce
the next year's tariff and increase the volume limit by the
same percentage, up to ten percent a year. This should
eventually lower tariffs to the minimum needed to guarantee
provision of the volume of generation the GOS seeks. (El
Confidencial, 9/26; Council of Ministers, 9/26; Embassy
analysis)

Spain Leads Opposition to Proposed EU Expansion of Allowable
Labor Hours

6. (U) Minister of Labor Celestino Corbacho announced Sept.
25 in Parliament that the GOS would lead the opposition
against the potential approval of a EU directive permitting
expansion of the work week from 40 hours to 65 or 70 hours.
Spain,s Chamber of Deputies unanimously rejected this
proposal a week earlier, while Spain,s Corbacho formally
voted against the proposal along with Greece at the EU level
September 15. The European Parliament is expected to decide
on this directive next month. (Cinco Dias, 9/26)

Spain Among Top FDI Investors and Recipients

7. (U) According to UNCTAD,s recently released 2008 World
Investment Report, in 2007 Spain was the 5th largest source
of foreign direct investment (FDI) -- with almost 120 billion
dollars in FDI abroad -- and the 6th largest recipient of FDI
inflows. Spain experienced a large increase in FDI inflows
from 2006 to 2007; in 2006 these inflows were slightly under
30 billion dollars, while in 2007 this amount almost doubled
to more than 50 billion. Comment: A large part of the
increase was likely the result of the Italian firm Enel's
involvement in the 2007 purchase of electric utility ENDESA.
(UNCTAD press release, Sept 24).
Aguirre

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