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Cablegate: Madrid Weekly Economic Update - Nov 1-7

VZCZCXRO5950
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1189/01 3121629
ZNR UUUUU ZZH
P 071629Z NOV 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 5561
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 4024
RUEHBU/AMEMBASSY BUENOS AIRES 0392
RUEHRB/AMEMBASSY RABAT 6122
RUEHLA/AMCONSUL BARCELONA 3646
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001189

SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA, EEB/ESC/IEC
TREASURY FOR OIA/OEE/W.LINDQUIST

E.O. 12958: N/A
TAGS: ECON EFIN EIND EINV ELAB ENRG KIPR SP EPET
SUBJECT: MADRID WEEKLY ECONOMIC UPDATE - NOV 1-7

MADRID 00001189 001.2 OF 002


Contents

ELAB: Unemployment Continues to Soar
ECON: President Zapatero Announces New Economic Emergency
Measures
EFIN: Delinquency Rate on the Rise, but Banks Expected to
Weather the Storm
EPET: Repsol Given Reprieve to Operate in Ecuador
ECON: Spain to Enter into a Recession?

Unemployment Continues to Soar

1. (U) On November 4, the Ministry of Labor released
statistics showing an increase of 192,658 registered
unemployed workers for the month of October, the sharpest
month-to-month increase ever recorded. This brings the total
of unemployed to over 2.8 million, with immigrants especially
affected. The third quarter unemployment rate was 11.3%, but
the EU and prominent business association CEOE project that
this level may reach up to 15 and 17 percent within the next
two years, respectively. At an EU event November 4, Second
Vice President and Minister of Economy Pedro Solbes stated
that unemployment had become Spain's principal concern. (All
media, 11/4/08 and 11/5/08)

President Zapatero Announces New Economic Emergency Measures

2. (U) In a move to address the unemployment crisis,
President Zapatero announced on November 3 a new set of
economic measures to allow those unemployed with mortgages of
less than 170,000 euros to postpone half their monthly
payments for the next two years (an estimated beneficiary
group of about 500,000). Additionally, the plan would
provide a 1500 euro subsidy to companies that hire unemployed
workers with families to support, and would provide tax cuts
for workers earning less than 33k euros annually while paying
mortgages. The measure is expected to be approved by the
Council of Ministers on November 7, and has a total estimated
cost of between 100-400 million euros. Zapatero has
indicated that his priority is assisting families affected by
the economic crisis, even if it means pushing Spain's budget
deficit above the EU ceiling of 3%. (All media, 11/4/08 and
11/25/08)

Delinquency Rate on the Rise, but Banks Expected to Weather
the Storm

3. (U) The Bank of Spain released a financial stability
report November 5 showing that the rate of loan delinquency
by families and business had increased to 2.54% in October
from 0.75 percent the year before. The report projected that
the rate of delinquency would continue to rise over the next
few quarters. Despite this, the report determined that banks
extended very few loans over the past 3 years, and that
Spanish banks would be able to sustain up to a 9 percent
delinquency rate before experiencing extreme difficulty.
Comment: Smaller banks with higher exposure to Spain's
flailing residential real estate market are beginning to
consolidate, but no major bank closings are expected in the
near term. Spanish banks and "cajas" (savings banks) are
subject to conservative banking regulations that require high
provisions for losses and strict accounting practices, and as
a result have weathered the financial storm better than their
counterparts elsewhere in Europe. (El Pais, Cinco Dias,
11/6/08, Embassy)

Repsol Given Reprieve to Operate in Ecuador

4. (U) Repsol reached an agreement November 6 with the GOE to
continue its operations for at least one more year in
Ecuador. This agreement comes after the GOE announced the
week before that Repsol's license would not be renewed
because of failed talks regarding a new operating contract.
The media reports that during this year-long extension,
Repsol's tax burden will remain at 70 percent, significantly
below the 99 percent level sought by the GOE. (All Media
11/7/08)

Spain to Enter into a Recession?

5. (U) Recent IMF predictions are that Spain will suffer a
contraction of 0.7 percent in 2009. This prediction comes on

MADRID 00001189 002.2 OF 002


the heals of recent Bank of Spain data showing that third
quarter GDP fell by 0.2 percent from the previous quarter.
However, on a year-on-year basis, GDP increased by 0.9
percent. (All Media 11/1/08, 11/6/08)
AGUIRRE

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