Cablegate: Madrid Economic Weekly Update, Sept. 8-12

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TREASURY FOR IA/OEE:W.LINDQUIST

E.O. 12958: N/A
TAGS: ECON EFIN EIND ELAB SP
SUBJECT: MADRID ECONOMIC WEEKLY UPDATE, SEPT. 8-12

REF: MADRID 972

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Contents:

ECON: Zapatero on Economic Woes
ELAB: Labor Minister Backpedals on Visas for Foreign Workers
EFIN: Mortgage Lending Down 41%
EFIN: Savings Bank Profits Down, Mergers Expected
EIND: Ford and GM to Lay Off 1,900

Zapatero on Economic Woes

1. (U) President Zapatero appeared before the Congress on
September 10 to discuss the state of the economy and the
GOS, plans for leading Spain out of its economic doldrums.
Zapatero acknowledged that the economic situation had
worsened since his last parliamentary appearance in July, but
remained optimistic for the economy,s prospects. He
discussed the GOS, plans for addressing the downturn,
including increased lines of credit for construction
companies building homes for rental and increased funding to
support unemployed workers. Opposition PP leader Mariano
Rajoy criticized the GOS, saying the measures taken so far by
the government have had no effect. Zapatero also highlighted
his commitment to supporting workers at a Sept 7 labor event.
He stressed that despite the economic problems, he would
continue his strong commitment to workers and to social
priorities, increasing the minimum level of pensions by more
than the inflation rate and maintaining unemployment and
other benefits. Zapatero also stated that he would not
change his opposition to new nuclear power plants.

2. (U) Comment: Zapatero has been criticized for being slow
to identify and react to Spain,s economic turmoil. He is
attempting to rally confidence in the economy. However,
given recent spikes in unemployment and predictions from the
EC that Spain will enter into a recession during the last
half of 2008, this confidence has been hard to come by.
Zapatero,s commitment towards workers' benefits may
ultimately restrict the flexibility of the GOS to address
unemployment, which was estimated at 11 percent in July.
(All Media, 9/8 and 9/10)

Labor Minister Backpedals on Visas for Foreign Workers

3. (U) Labor Minister Celestino Corbacho, who on September 3
announced that the number of visas that the GOS would offer
to foreign workers in 2009 would be "roughly zero," (reftel)
is in the middle of a controversy after First Vice President
Maria Teresa Fernandez de la Vega quickly and publicly
rebutted his plans, which had sparked criticism from unions
and migrant associations. De la Vega stated that Spain will
support "orderly immigration based on the needs of the labor
market." Corbacho has backpedaled to be in line with de la
Vega,s comments, while continuing to suggest that Spain will
try to find jobs for its 2.5 million unemployed. Minister of
Industry, Tourism, and Commerce Miguel Sebastian later
announced that Fernandez de la Vega,s and Corbacho,s
comments were not incongruent. (Comment: This is at least
the second time that de la Vega and Corbacho have
contradicted each other publicly, but it is unclear whether
this represents a growing internal rift or whether Fernandez
de la Vega,s comments were in response to widespread
criticisms of Corbacho,s comments) (All Media, 9/8-9)

Mortgage Lending Down 41%

4. (U) The combined value of new mortgages issued in July was
41% below the level of July 2007. This was the 21st
consecutive month in which the value of new mortgages
declined on a year-on-year basis. Comment: President
Zapatero often indicates that Spain's current economic
difficulties are the result of external factors, but the
international credit crunch started in mid-2007, well after
the start of trouble in the housing sector. (Expansion, 9/5)

Savings Bank Profits Down, Mergers Expected

5. (U) First-half 2008 profits by savings banks (cajas) were
3.8% below their first-half 2007 level, the first such
decline since 2002. The Spanish Savings Bank Confederation
expects 2009 results to be worse. Delinquent loans rose in
July to 2.5% of the total, of which half a point is due to
the bankruptcy of the Martinsa Fadesa real estate company.
The Confederation expects delinquencies to reach 3.3% by
December and 5% next year; as recently as mid-2007, they were

MADRID 00000985 002.2 OF 002

below 0.7%. Savings banks are expected to respond in
different ways. Some may sell their stakes in other
companies to generate liquidity, while others are considering
mergers. Two Basque cajas are expected to merge before the
end of the year, and a third may be included in the deal.
Four cajas have successfully issued debt since June, but at
very high spreads of around 140 basis points over reference
rates. (El Confidencial, 9/8 and 9/11; El Pais, 9/11)

Ford and GM to Lay Off 1,900

6. (U) Ford and General Motors announced September 9 that
they would lay off 1,300 and 600 workers respectively to
respond to drastically decreasing demand. Ford plans to lay
off its workers for two and a half months, while GM plans to
lay off its workers for a year. According to industry data,
new car sales decreased by 41 percent year on year in August.
Both companies will be negotiating with local auto worker
unions to define the terms of these cuts. Ford has over
7,000 workers with several plants located in the area of
Valencia. GM has two plants in Spain and also has over 7,000
workers. Separately, Seat announced that it was eliminating
its night shift; it will reduce worker hours but avoid
layoffs. (All Media, 9/9)
Aguirre

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