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Cablegate: Madrid Economic Weekly, January 11-15, 2010

VZCZCXRO1718
RR RUEHIK
DE RUEHMD #0042/01 0191230
ZNR UUUUU ZZH
R 191230Z JAN 10
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1678
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4298
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000042

SENSITIVE
SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA, EEB/TRA
STATE PASS USTR FOR D.WEINER
COMMERCE FOR 4212/DON CALVERT
TREASURY FOR OIA/OEE R.JOHNSTON AND OTP:M.CORWIN
ENERGY FOR PIA: K.BALLOU

E.O. 12958: N/A
TAGS: EAIR ECON ECPS EFIN ELAB KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, JANUARY 11-15, 2010

REF: A. MADRID 014
B. 09 MADRID 1161

MADRID 00000042 001.3 OF 002


SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

Contents:

ECON, ELAB: Spain Undertakes "Charm Campaign" on Economy
EFIN: Spanish Banks Facing Capital Shortages
ECON: Revised 2009 Inflation Rate at 0.8%
ECON, EAIR: Blanco Proposes Automated Flight Systems and
Private Investment
ECPS, EFIN: Telefonica Attempts to Reassure Stockholders
KIPR: Users' Groups Attack GOS's Anti-Piracy Initiative
EFIN: GOS and Andorra Sign Tax Information Exchange Agreement

Spain Undertakes "Charm Campaign" in Response to European
Criticism

1. (U) Local media reported on German government criticism of
President Zapatero's EU statement calling for economic
sanctions for EU member countries that fail to meet specified
objectives in the successor to the Lisbon Strategy for EU
Growth. Rainer Breuderle, German Minister of Economics and
Technology, expressed concern that the plan would create a
sanctioning authority inconsistent with the Lisbon Strategy.
This latest criticism comes on the heels of widespread
European skepticism over President Zapatero's EU economic
leadership credentials at a time when his own country is
suffering from the highest unemployment rate in the OECD
(more than 19%). This weak economy also continues to draw
criticism from the opposition party. A Popular Party
spokesperson dismissed the recent GOS announcement on jobs
created through stimulus packages, saying many were
short-term in nature and that the disbursement of funds was
politicized, with over half going to Socialist Workers' Party
(PSOE) regions. The GOS has hired a Belgian production
company for 83 million euros to showcase President Zapatero's
program to improve the domestic economy and dispel rumors
that he does not have the capacity to direct the EU.
Additionally, senior GOS officials are being encouraged to
reach out to major European media outlets to discuss their
perspectives and recommendations on the economic situation.
(Expansion, 1/12; El Confidencial, 1/13)

Large Number of Spain's Savings Banks Facing Capital Shortages

2. (U) A considerable number of Spain's savings banks
("cajas") are facing capital shortages. Analysts say that 16
of 38 cajas for which data is available have capital ratios
below what they consider an acceptable rate of 7%. The Bank
of Spain has been pushing for a rapid restructuring of the
sector in order to avoid further government interventions.
Thus far only a few of the cajas have used the GOS "FROB"
restructuring fund. (Expansion, 1/13)

Revised 2009 Inflation Rate at 0.8%

3. (U) The National Statistics Institute (INE) revised its
estimate of 2009 consumer price inflation from 0.9% (as
reported ref A) to 0.8%. The final rate, although the lowest
in 50 nearly years, indicates that deflation is not a serious
threat at present. (INE press release, 1/14; Expansion,
1/14)

Blanco Proposes Use of Automated Flight Systems and Private
Investment in Airport Management

4. (U) Infrastructure Minister Blanco released a
Congressionally-mandated report analyzing airport
profitability and announced plans to improve efficiency and
productivity in a speech to Congress on January 12. With
only nine of the 48 airports managed by the GOS earning a
profit, the Minister blamed high salaries for air traffic
controllers, which average around 334,000 euros annually and
reach above 900,000 for some including overtime. He proposed
replacing air traffic controllers in low volume airports with
an automated system known as Aerodrome Flight Information
Service (AFIS). GOS aviation officials have been in touch
with FAA counterparts to learn more about the role of
automated systems in the U.S.


MADRID 00000042 002.3 OF 002


5. (U) The Minister also elaborated plans to improve airport
efficiency and profitability by restructuring airport
oversight and management in compliance with EU regulations.
The GOS would create a new entity, "Aena Aeropuertos, SA," to
assume the responsibility of airport management, currently
overseen jointly with aviation by the quasi-governmental
agency AENA. The new model would shift the authority for
setting airport fees from the Congress to Aena Aeropuertos,
SA. It would also allow for private investment of up to 30%
in the new entity and provide a role for autonomous
communities. Blanco envisions creating subsidiaries to
manage airports with high traffic, economic viability, and
special complexity (at present only Madrid's Barajas and
Barcelona's El Prat would meet these criteria). Private
companies could invest up to 10% in the subsidiaries, while
the autonomous communities could invest up to 39%, both would
have management input. Additionally, the GOS plans to create
regional airport committees to increase local government
involvement. The EU deadline for separating out the airport
management function is 2011 and the GOS anticipates
introducing a proposed legislation before June this year.
(All Media, Fomento and Moncloa websites, Embassy)

Telefonica Attempts to Reassure Stockholders after
Devaluation of the Venezuelan Bolivar

6. (U) Telefonica issued a strong statement attempting to
calm and reassure its stockholders in light of the
devaluation of the Venezuelan Bolivar (devalued 50%, from
2.15 to 4.3 Bolivars to the dollar) on January 11.
Telefonica's share prices fell 3% after news of the
devaluation, the largest drop in over a year. Both ING and
Morgan Stanley are predicting that the devaluation will have
a significant impact on Telefonica's profits over the next
three years, with estimates of the cost ranging from 2 to 7
billion euros. The Venezuelan branch had been the company's
largest and most profitable in Latin America, responsible for
9.2% of the company's total cash flow. (Cinco Dias, 1/12)

Internet Users' Groups Attack Government's Anti-Piracy
Initiative

7. (U) Internet users' advocacy groups launched a new
campaign against the government's legislative proposal to
expand its authority to take down or block websites that host
IPR-infringing material. Activists presented
"RedSOStenible.net" (Sustainable Net) with the intention of
organizing actions both on and off the Internet during
Spain's EU Presidency to convince the public that the
government's proposed anti-piracy measures are unworkable.
According to one of the promoters of the new campaign, the
government's initiative "is not a law against IPR violations
but a law against civil liberties." The GOS amended its
original proposal (ref B) to include a judicial review and
authorization before shutting down any website, but Internet
users consider the safeguards insufficient. Comment: This is
the third campaign/manifesto launched by the "internautas"
since the government introduced legislation in early
December. These populist advocacy groups are very vocal but
it remains unclear how numerous they are or whether they have
any influence. The Internautas' Facebook page has 7,000
members, but the page where the manifesto was published has
over 200,000 and hosts a lively dialogue. End comment. (El
Pais, 1/13)

Spain and Andorra Sign Tax Information Exchange Agreement

8. (U) On January 14, Spain and Andorra signed a Tax
Information Exchange Agreement (TIEA). This latest agreement
represents another step in Andorra's efforts to be removed
from the list of international tax havens. As part of the
agreement, Andorra commits to bring its regime into
compliance with OECD standards. Andorra is seeking TIEAs
with a number of European countries as well as the United
States. (El Confidencial, 1/14)

SOLOMONT

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