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Cablegate: Madrid Economic Weekly, Aug 31-Sept 4

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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSL RUEHSR
DE RUEHMD #0901/01 2481056
ZNR UUUUU ZZH
R 051056Z SEP 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1193
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4115
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000901

SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA
COMMERCE FOR 4212/D.CALVERT
TREASURY FOR OIA/OEE:R.JOHNSTON
ENERGY FOR PIA:K.BALLOU

E.O. 12958: N/A
TAGS: ECON EINV ELAB ENRG SP
SUBJECT: MADRID ECONOMIC WEEKLY, AUG 31-SEPT 4

REF: A. MADRID 852
B. MADRID 820

MADRID 00000901 001.2 OF 002


Contents:

ECON: Zapatero Says Income Taxes Will Not Be Increased
ECON: GOS Spending Nearly Double Its Revenues, Plans to Cut
Ministerial Spending
ELAB: Unemployment Rate Hits 18.5% in July, More Jobless
Registered in August
ELAB: GOS Agrees to Extend Supplemental Unemployment Benefits
EINV/ELAB: Ford Seeks to Lay Off 600 Employees
ECON: Prices Rise Slightly in August, Still Below Last Year's
Level
EINV/ENRG: Iberdrola Expects $500M in U.S. Stimulus Funds for
Wind Power Projects


Zapatero Says Income Taxes Will Not Be Increased

1.(U) In an August 31 press conference after meeting with
Sweden's Prime Minister in Stockholm, President Zapatero said
the GOS had no plans to raise personal income or corporate
taxes. He acknowledged, however, that the GOS would seek to
gradually increase capital gains taxes from the current rate
of 18 percent. Zapatero also announced that the GOS might
cancel a 400-euro per person income tax deduction introduced
two years ago. Reiterating that any tax increases would be
"moderate and temporary," Zapatero insisted that the GOS will
restore budgetary stability and meet the EU's requirement of
a deficit no larger than 3% of GDP by 2012. (Comment: Others
have expressed doubt that the GOS will be able to get the
deficit down in time.) Zapatero's assurance followed a
controversy sparked by Development Minister Jose Blanco's
statement during an interview the previous week that the GOS
wanted to increase income taxes for those earning more than
50,000 euros a year. Blanco's office later retracted his
statement. (El Pais, 8/31; All Media, 9/1)

GOS Spending Nearly Double Its Revenues, Plans to Cut
Ministerial Spending

2.(U) From January through July, the GOS took in 58 million
euros and spent 108 million, for a deficit around 8% of GDP
during the period. Spending was up 22% from the same period
last year, and revenues were down 26%. One press report said
that Central Bank analysts now expect the combined deficit of
all levels of the public sector to be between 11% and 12%
this year, well above the Economy Ministry forecast of below
10%. Zapatero is expected to announce on September 13 a plan
that will cut 15 billion euros in spending from the Interior,
Housing, Justice, and Public Administration ministries. (El
Confidencial, 9/1 and 9/2; El Pais, 9/4; Embassy calculation)

Unemployment Rate Hits 18.5% in July, More Jobless Registered
in August

3.(U) Spain,s unemployment rate reached 18.5% in July, up
from 18.2% in June, according to Eurostat. Spain continues
to have the EU's highest rate, nearly double the EU average
of 9.5%. Separately, the Labor Ministry reported that the
number of registered unemployed rose by 85,000 in August.
Comment: While this figure almost always rises in August and
the increase may reflect an increase in the size of the labor
force, the unemployment rate is expected to continue rising
in the fall. (El Pais, 9/2; ABC, 9/2; El Confidencial, 9/2)

GOS Agrees to Extend Supplemental Unemployment Benefits

4.(U) Under strong pressure from labor and leftist political
parties, the GOS agreed to expand eligibility for the
six-month 420-euro supplemental unemployment benefit
announced August 13 (reftels). Once the congress approves,
those whose regular unemployment benefits expired on or after
January 1 will be eligible, not just those whose benefits
expired on or after August 1, as originally announced. The
GOS also agreed to remove the condition that unemployment be
above 17% in order to consider extending the supplemental
benefits beyond the six-month period. The eligibility change
could add another 300,000 beneficiaries at an estimated
additional cost of 700 million euros. (Cinco Dias, 9/3)

Ford Seeks to Lay Off 600 Employees


MADRID 00000901 002.2 OF 002


5.(U) Ford announced that it plans to obtain authorization to
lay off 600 of its 7,100 employees at its Valencia plant. It
will start the formal consultation process September 3, in
accordance with Spanish law. Ford has requested temporary
furloughs four times within the last twelve months. Unions
have spoken out against the request, calling it unjustifiable
for economic or production reasons. (Expansion 9/3, Europa
Press, 9/3)

Prices Rise Slightly in August, Still Below Last Year's Level

6.(U) The National Statistics Institute's preliminary August
inflation estimate suggests that prices rose by some 0.4%
during the month. The headline year-on-year rate was -0.8%,
up from July's -1.4%. Year-on-year rates are expected to
remain negative for a few more months while they still
include the impact of the late-2008 oil price decline. The
final August rate will be released next week. (El Pais,
8/29, Embassy calculation)

Iberdrola Expects $500M in U.S. Stimulus Funds for Wind Power
Projects

7.(U) Out of $502 million in stimulus funds for renewable
energy projects announced by the Treasury Department
September 1, $294 million went to already-completed Iberdrola
Renewables wind farm projects. The company has applied for
another $200 million in the next phase of disbursements for
projects currently under construction. It has over 3,000 MW
of installed wind capacity in the U.S. -- over 10% of the
U.S. total -- and employs 800 people. Acciona, the world's
second largest wind power producer after Iberdrola, also has
applied for stimulus funds. (Treasury press release, El
Confidencial, Iberdrola Renewables statement)
CHACON

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