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Cablegate: Madrid Weekly Econ/Ag/Commercial Update Report -

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RR RUEHRN
DE RUEHMD #2065/01 3090920
ZNR UUUUU ZZH
R 050920Z NOV 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3742
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3160

UNCLAS SECTION 01 OF 02 MADRID 002065

SIPDIS

SENSITIVE
SIPDIS

EUR/WE
EEB/EFD/OMA

E.O. 12958: N/A
TAGS: ECON ECPS EFIN EIND ELAB EPET SOCI SP EINV
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
OCTOBER 29 - NOVEMBER 2

MADRID 00002065 001.2 OF 002


Table of Contents:

ECON: October inflation number worse than expected at 3.6%
ECON/ELAB: Unemployment and employment both rise
ECPS: GOS appeals EU's 152 million euro fine on Telefonica
EFIN: Morocco largest recipient of remittances
EFIN: Spanish companies have 6 billion euros in tax havens
EINV: Mapfre to buy 20th largest U.S. insurer for $2.2
billion
EINV/EPET: Repsol to sell 200 gas stations in Chile
SOCI: Spaniards Living Longer


OCTOBER INFLATION NUMBER WORSE THAN EXPECTED AT 3.6%

1. (U) Second Vice President and Finance Minister Pedro
Solbes said the announcement of the European-harmonized
inflation rate was a "bad figure without redeeming features."
The 3.6% was an unexpectedly steep increase from the
September figure of 2.7%, which itself was already 0.6% above
the euro zone average. Higher fuel and food prices are to
blame. This represents a continuing erosion in Spain's
relative competitive position. Assuming the official
consumer price index shows a similar jump, as is expected,
the higher inflation means that government expenditure on
pensions and salaries will rise more than had been
anticipated. (Comment: It is too early to tell whether the
higher prices will affect the March 2008 national elections,
but this is not good news for the GOS. Opposition
politicians and newspapers decried what they described as the
30% increase in inflation.) (All newspapers, 10/31/07)

UNEMPLOYMENT AND EMPLOYMENT BOTH RISE

2. (U) Spain's unemployment rate rose from 7.95% to 8.03% in
the July-September quarter, bringing unemployment above its
level of a year ago for the first time since early 2004. The
increase was not due to jobs being destroyed but to an
increase in the number of people entering the labor market.
Labor Minister Caldera called the news "reassuring" because
the number of people working increased by 143,000 in the
quarter, leading to a record 20.5 million people employed.
The female unemployment rate of 10.53% was well above the
male rate of 6.21%. (El Pais, 10/27/07)

GOS APPEALS 152 MILLION EURO EC FINE ON TELEFONICA

3. (U) This week, the GOS formally appealed the European
Commissioner for Competition's decision to fine Telefonica
$152 million euros for abuse of its dominant position in the
wide band-width market (charging competitors rates that were
too high to allow competitive profit margins). In its
appeal, the GOS argued that the fine undermines the
credibility of Spain's telecommunications regulatory body,
the CMT, which had issued prior approval for the Telefonica
rates on which the EC later based its sanction. In its brief
to the EU's Court of First Instance, the GOS added that the
fine generates consumer and business uncertainty, given that
any decision taken by CMT could later be invalidated by the
EC. The fine is the second largest imposed by Brussels,
surpassed only by the 497 million euro fine of Microsoft.
(All Media, October 31)

MOROCCO LARGEST RECIPIENT OF REMITTANCES

4. (U) According to an EC study, in 2004 921 million euros in
remittances were sent from Spain to Morocco. Colombia
received 658 million euros, Ecuador 571 million, Romania 310
million, Bolivia 139 million, and the Dominican Republic 127
million. Between 40 and 99 million were sent to each of
Brazil, Peru, Algeria and Venezuela. (Comment: Like the
U.S., Spain is a significant source of remittances to a
number of developing countries. Remittances from Spain are
responsible for a relatively high percentage of GDP for a
number of countries, especially Ecuador and Bolivia.) (El
Pais, 10/29/07, Source: European Commission)

SPANISH COMPANIES HAVE 6 BILLION EUROS IN TAX HAVENS

5. (U) The Cayman Islands, Panama, the Virgin Islands, and
Bermuda are the top destinations in that order. The money is
not necessarily illegally acquired, nor is it necessarily
invested illegally in tax havens. However, the OECD and
Spain do believe this money needs to be better regulated and
monitored. (El Pais, 10/29/07)

MAPFRE TO BUY 20TH LARGEST U.S. INSURER FOR $2.2 BILLION

MADRID 00002065 002.2 OF 002

6. (U) Mapfre, Spain's largest insurance company, agreed to
buy the Massachusetts - based insurer Commerce for 2.2
billion dollars. Commerce, which specializes in auto and
homeowner's insurance, is the 20th largest insurer in the
U.S. Mapfre will finance the purchase with a capital
expansion of 500 million euros, 800 million euros in new
debt, and over 200 million euros in internal resources. The
price is around 20 percent above Commerce's stock market
capitalization. Mapfre now owns five companies in the
continental U.S. and one in Puerto Rico, in addition to
operations in 36 other countries.

REPSOL TO SELL 200 GAS STATIONS IN CHILE

7. (U) Spain's leading petrochemical company, Repsol,
announced the imminent sale of its 200 gasoline stations in
Chile to Colombia's Terpel. According to Repsol
representatives in Spain, this sale marks the beginning of a
Repsol strategic realignment that will focus more on North
Africa, the Middle East and the Gulf of Mexico. Repsol is
expected to unveil its new strategic plan in the coming
weeks. (Expansion, October 31)

SPANIARD LIVING LONGER

8. (U) Spaniards' life expectancy at birth has increased by
two years between 1995 and 2005 and has surpassed 80 for the
first time, according to the National Statistics Institute.
Female life expectancy is 83.5 years, while male expectancy
is 77 years. These figures are among the highest in the EU.
(El Pais, 10/30/07)
AGUIRRE

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