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Cablegate: Madrid Economic Weekly, Nov. 10-14

VZCZCXRO1439
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #1205/01 3191719
ZNR UUUUU ZZH
R 141719Z NOV 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5579
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 0919
RUEHLA/AMCONSUL BARCELONA 3652
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001205

SIPDIS
SENSITIVE

STATE FOR EUR/WE:SAMSON,ZERDECKI AND EEB/IFD/OMA
TREASURY FOR OIA/OEE/W.LINDQUIST
COMMERCE FOR 4212/DON CALVERT

E.O. 12958: N/A
TAGS: ECON EFIN EINV ELAB ENRG EPET SP
SUBJECT: MADRID ECONOMIC WEEKLY, NOV. 10-14

REF: MADRID 1189

MADRID 00001205 001.2 OF 002


Contents:

ECON/EFIN: Zapatero Prepares for G-20 Financial Crisis Summit
ECON: 2009 Growth Projections Continue to Fall
EFIN: 2009 Budget Passes Lower House
EPET/EINV: Gazprom Considering Purchase of 20% Stake in Repsol
EFIN: Santander Issues New Shares to Add Capital
EFIN/ENRG: Iberdrola First Spanish Company to Issue Bonds
Since Lehman Bankruptcy
ECON/ELAB: Violent Protest Against Nissan Job Cuts

Zapatero Prepares for G-20 Financial Crisis Summit

1.(U) President Zapatero prepared for Saturday's G-20 summit
by meeting separately on November 10 with members of the
Spanish business community, bankers, and labor leaders and on
November 11 with opposition leader Mariano Rajoy. Media
reports suggest that he will use his summit statement to
explain the benefits of Spain's banking regulations. The
Bank of Spain's countercyclical loss provisioning has been
frequently cited, including by a Nov. 10 Wall Street Journal
article, and the central bank's refusal to allow banks to
hold certain assets off their balance sheets is something
Zapatero may also mention. GOS officials have attempted to
lower public expectations that the summit itself will result
in immediate changes, emphasizing the importance of the
followup process. Press reports suggest that Zapatero may
call for broader participation than just the G-20 in the
followup process. (All media, 11/11 and 11/12)

2.(SBU) Comment: Zapatero had risked domestic political
damage by very publically insisting the Spain would
participate even though it does not belong to the G-20. By
successfully jockeying for a position at the summit, he has
accomplished two things. First, focusing on the summit makes
it easier for him to continue to blame Spain,s economic
difficulties on outside forces rather than on the domestic
housing slump. Second, it somewhat addresses the recurring
opposition criticism that under Zapatero Spain has not been a
relevant player in the international arena. On the other
hand, any perception that he has led Spain to a greater role
is affected by the widespread understanding that he owes his
presence at the summit to French president Sarkozy. We
expect Spain to seek to be involved in the followup process.
End Comment.

2009 Growth Projections Continue to Fall

3.(U) Secretary of State for Economy David Vegara said on
November 12 that the GOS would revise in December its GDP
growth estimate for 2009. In its proposed 2009 budget, the
GOS had estimated 1% growth for 2009, but this now looks to
be too high. The IMF has estimated that the economy will
contract by 0.7% (which Vegara said seemed pessimistic), and
BBVA bank estimated on November 12 that the contraction would
be 1.0%. (El Pais, 11/12)

2009 Budget Passes Lower House

4.(U) On November 11, the lower house of Parliament passed
the Zapatero-proposed 2009 budget with few amendments.
Although the budget must be confirmed by the Senate and
signed by the President before becoming final, passage in the
lower house is considered practically a guarantee of final
approval. The ruling Socialist party pushed the bill through
after obtaining support from the National Basque Party (PNV)
and the National Block of Galicia, traditional allies in the
budget process. The 2009 proposed budget envisions a 2%
increase over 2008 with a projected deficit of 1.5% of GDP.
Secretary of State for the Economy and Finance Carlos Ocana
noted November 13 during a conference that the prevailing
themes of the 2009 budget are 1)austerity, 2)redistribution
of funds towards R&D and infrastructure investments, and
3)social spending, particularly to support the unemployed.
(El Pais, Embassy, November 13)

Gazprom Considering Purchase of 20% Stake in Repsol

5.(U) Russian Vice President Alexander Zhukov confirmed
November 12 during a meeting with Spanish Minister of

MADRID 00001205 002.2 OF 002


Industry Miguel Sebastian that Gazprom is studying the
possibility of purchasing 20% of oil and gas company Repsol.
The purchase would make Gazprom the largest single
stakeholder in Repsol, which is the world,s eighth largest
oil company. Troubled Spanish construction firm Sacyr
Vallehermoso is offering its stake, currently valued at 3.5
billion euros. Russian analysts suggest the announcement to
be more of a wish than a reality, as Gazprom,s current
priority is debt reduction. EC Energy Commissioner Piebalgs
told reporters he did not believe Gazprom could carry out the
purchase because of the recent decline in oil and gas prices,
adding that if an offer was formalized, the EC would have to
analyze it "taking into account all the factors." Media
report that President Zapatero and Vice President/Minister of
Economy Pedro Solbes oppose the sale of the stock to Gazprom,
and opposition leader Mariano Rajoy is quoted as being
"radically against" such a purchase. Gazprom is not the only
Russian company interested in Sacyr,s Repsol stake,
according to Sacyr President Luis del Rivero. (All Media)

Santander Issues New Shares to Add Capital

6.(U) Spain's largest bank, Banco Santander, informed
regulators that it would issue shares worth 7.2 billion euros
to increase its core capital ratio by 25%. It had said in
October that it would sell assets to raise capital, but it
decided to issue shares instead and hold onto the assets
until market conditions improve. Some press reports
interpreted the move as a sign that Santander would not seek
to take advantage of GOS funds available to buy assets from
banks. Santander's stock fell afterwards. Rival bank BBVA
said it had sufficient capital and would not need to issue
new shares. (El Pais, 10/10; MarketWatch.com, 10/10; El
Confidencial 10/11)

Iberdrola First Spanish Company to Issue Bonds Since Lehman
Bankruptcy

7.(U) Electricity company Iberdrola raised 1.6 billion euros
on November 13 in the first Spanish bond issuance since the
Lehman Brothers bankruptcy in September. Interest rates were
high; for 1 billion euros in three-year bonds it paid 290
basis points over the relevant index (or 6.375%), while for
600 million euros in seven-year bonds it paid 365 basis
points over a different index (or 7.5%). For comparison,
Iberdrola had paid 83 and 110 basis points over the relevant
indices when it issued bonds for five and ten years (on which
spreads should be higher than on three- and seven-year bonds)
in April of this year. A company official said Iberdrola
would use the proceeds to add liquidity and refinance debt.
(El Confidencial, 11/14)

Violent Protest Against Nissan Job Cuts

8.(U) Several hundred protestors pelted Nissan headquarters
offices in Barcelona with bottles, eggs, rocks, and
crowd-control barriers on November 11 in protest of Nissan's
decision to cut 1,680 jobs in Barcelona. Nissan's
announcement comes on the heels of especially poor car sales
in Spain due to falling demand. Volkswagen and Ford have
also announced that they will cut down on labor hours in
their Spanish factories. The auto industry is particularly
important for the Spanish economy, as Spain is the eighth
largest auto manufacturer in the world. (El Pais 11/13)

AGUIRRE

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