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Cablegate: Spain Economic Weekly, Nov. 23-Dec. 4

VZCZCXRO8180
RR RUEHIK
DE RUEHMD #1162/01 3381741
ZNR UUUUU ZZH
R 041741Z DEC 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1540
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4260
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001162

SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA
STATE PASS USTR FOR D.WEINER AND J.GROVES
COMMERCE FOR 4212/DON CALVERT AND 6990/R.LAYTON
TREASURY FOR OAI/OEE R.JOHNSTON
ENERGY FOR PIA:K.BALLOU

E.O. 12958: N/A
TAGS: ECON EFIN EINV ELAB SP
SUBJECT: SPAIN ECONOMIC WEEKLY, NOV. 23-DEC. 4

REF: MADRID 1115

MADRID 00001162 001.3 OF 002


Contents:

ECON: Zapatero's Proposed Sustainable Economy Law Elicits
Strong Criticism
ECON/ELAB: Lower Dismissal Costs off Table in Renewed Social
Dialogue Talks
ELAB: Number of Registered Unemployed Up in November
EFIN: Annual Inflation Rate Now Positive After November Price
Rise
EFIN/EINV: BBVA Increases Stake in Chinese Bank


Zapatero's Proposed Sustainable Economy Law Elicits Strong
Criticism

1.(U) The GOS submitted the much anticipated draft
Sustainable Economy Law (LES) to Congress amidst strong
criticism from opposition leader Mariano Rajoy and minority
parties on December 2. The proposed legislation is a key
component of President Zapatero's strategy to address the
lagging economy and increasing unemployment, as well as to
reorient the country's economic model. It aims to spur the
development over the long term of an economy that is
sustainable in terms of growth, the environment, social
programs, and public finances. The package, with an
estimated price tag of 20 billion euros over the next 10
years, consists of what critics have termed a "grab bag" of
initiatives, both new and previously announced -- among them
several required by the EU. Included are measures to promote
competitiveness, energy efficiency, green technology,
streamlined administrative procedures, and fiscal
responsibility. Significant features of the legislation are
proposals to: cap the life of nuclear power plants at 40
years, address the issue of double taxation, improve IPR
protection (septel), release analog bandwidths for mobile
broadband service development, and require reporting of CEO
compensation packages by publicly-held companies and savings
banks.

2.(U) While response to the LES has been largely negative,
some economists have called it a step in the right direction.
Among the environmental measures are incentives to encourage
"green building," stimulate the development of electric car
technology, promote energy efficiency, and increase the use
of public transit. There are also requirements to expand
freight rail capacity and inform consumers about the true
cost and source of the electricity they use. Measures to
improve government efficiency include shortening the time
required to open a new business, restructuring regulators
(including telecoms, energy, and competition), shortening
payment terms for public contracts, and establishing a group
to analyze government efficiency and reduce costs.

3.(U) Critics in the Congress called the LES a "mere
declaration of intentions." Opposition Popular Party leader
Mariano Rajoy characterized it as a "joke" lacking in
substance. Instead of the LES, he says the GOS needs to make
real structural reforms in public spending, the financial
sector (pointing out that the restructuring of savings banks
has taken much longer than expected), the judicial system,
the energy sector, the education system, and the labor
market. Comment: The LES is unusual in terms of its breadth
of focus. However, it includes provisions and deadlines for
passing additional legislation detailing reforms in the labor
market and pension programs as well as the financial, energy,
and transportation sectors. While Spain is required by the
EU to adopt many of provisions in the LES, given the present
opposition in the Congress, it appears unlikely that it will
be approved as quickly as Zapatero would like. End Comment.
(El Pais, 12/2 El Confidencial, 12/2, Expansion, 12/2,
Presidency website)

Lower Dismissal Costs off Table in Renewed Social Dialogue
Talks

4.(U) President Zapatero announced a restart of the stalled
social dialogue process but shelved discussion of the labor
reforms that international observers and the local business
community say Spain needs most. Zapatero said that lowering
dismissal costs, creating a single hiring contract, and
eliminating judicial authority for resolving labor disputes

MADRID 00001162 002.3 OF 002


were all off the table. Instead, he proposed to improve
flexibility in the collective bargaining process and increase
the retirement age to protect the pension system. Rather
than firing employees during difficult times, Zapatero said
that the reforms would make it easier for employers to
shorten hours and lower salaries. The Confederation of
Employers Organizations (CEOE) responded negatively, saying
that the government needs to lower payroll and business taxes
to make Spain,s businesses more competitive with their
European counterparts. (El Pais, 12/3)

Number of Registered Unemployed Up in November

5.(U) The number of registered unemployed rose by 60,000 in
November. President Zapatero noted that after a seasonality
adjustment, this was equivalent to a slight decrease in the
number of unemployed -- i.e., that it was less than would
take place in a normal November. Other GOS officials said
the number (one-third of the increase in November 2008) was a
sign that Spain could hope for improvement in 2010. Comment:
While the series are not directly comparable, this figure
looks consistent with an increase in the unemployment rate of
a couple of tenths of a percentage point. End Comment. (El
Pais 12/2, Embassy)

Annual Inflation Rate Now Positive After November Price Rise

6.(U) The National Statistics Institute's preliminary
November twelve-month inflation estimate is 0.4%, the first
positive annual rate since February. It suggests that prices
rose by about 0.6% during the month, after an 0.7% increase
in October. Comment: The return of the annual inflation rate
to positive territory should reduce concern about the
possibility of deflation. End Comment. (INE Statement 11/27;
Embassy Calculation)

BBVA Increases Stake in Chinese Bank

7.(U) BBVA has invested 1 billion Euros in Citic Bank,
acquiring an additional 5% to increase its total stake to 15%
of the Chinese bank. The company noted that its strong
presence in Latin America offered a competitive advantage
given the increasingly fluid commercial relations between
Asia and Latin America. BBVA also has a 30% stake in Hong
Kong-based Citic International Financial Holdings. (El Pais,
12/4; BBVA Statement, 12/3)
CHACON

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