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Cablegate: Madrid Economic Weekly, February 1-5

VZCZCXRO8631
PP RUEHIK
DE RUEHMD #0148/01 0390742
ZNR UUUUU ZZH
P 080742Z FEB 10
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 1869
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4337
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000148

SENSITIVE
SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA, EEB/TPP/IPE
STATE PASS USTR FOR D.WEINER AND J.GROVES
COMMERCE FOR 4212/DON CALVERT
TREASURY FOR OIA/OEE R.JOHNSTON

E.O. 12958: N/A
TAGS: ECON EFIN ELAB KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, FEBRUARY 1-5

REF: A. MADRID 114
B. 09 MADRID 410

MADRID 00000148 001.3 OF 002


Sensitive but Unclassified -- Not for Internet Distribution

ECON/EFIN: Markets Shaken by Concern over Deficits, Perceived
GOS Indecisiveness
ECON: Recession Likely Continued in 2009 Q4, According to
Central Bank
ELAB: Unemployment Continues to Rise
KIPR: First Criminal Conviction for Hosting Unauthorized
Streaming Video
ECON: 13 Towns Seek to Host Nuclear Waste Storage Facility

Markets Shaken by Concern over Deficits, Perceived GOS
Indecisiveness

1.(SBU) Interest rates on Spanish government debt rose during
the week and the Madrid stock market's blue-chip exchange
fell 6% on January 4, reflecting international concern over
Spain's economic situation, particularly the GOS budget
deficit and unemployment. While announcing on January 29
that the 2009 combined government budget deficit was a
higher-than-expected 11.4% of GDP, the Council of Ministers
approved measures to reduce spending in 2010 and to reduce
planned spending in 2011-13. However, the reduction of
government stimulus is expected to prolong high rates of
unemployment.

2.(SBU) Press reports and opposition politicians also
criticized the GOS for appearing indecisive in the face of
economic turmoil. A January 29 proposal to raise the
retirement age from 65 to 67, which the GOS portrayed as a
responsible effort to begin addressing the long-term
demographic challenge faced by the social security system,
prompted union opposition and was revised soon afterwards
when the GOS said part of the proposal had been submitted in
error. As EC and IMF officials were quoted comparing Spain's
deficit and other economic problems to Greece's, the spreads
between Spanish and German debt, which had dipped briefly
after the January 29 announcements, rose past 100 basis
points, reaching their highest level since March 2009. The
high spreads will increase the interest the GOS must pay to
finance its deficit and roll over its existing debt, putting
further strain on the deficit.

3.(SBU) Political factors contributed to the sense of
uncertainty. The media described the USG decision not to
have President Obama come to Madrid for a U.S.-EU Summit
during Spain's EU presidency as a setback that shook
President Zapatero, and a February 4 poll showed the
opposition PP with its greatest lead over the ruling PSOE
since Zapatero took office in 2004. The GOS invited union
and business leaders to a February 5 meeting to present labor
reforms, and the press reported the GOS had specific
proposals ready, but the document presented was very general.
Economy/Finance Minister Salgado planned to travel to London
February 8 to make Spain's case to financial market
participants and journalists. GOS officials insist that,
while the budget deficit is a problem, Spain's total
debt-to-GDP ratio remains relatively low -- it is projected
to reach 70% this year, below the Eurozone average. (All
Media)

Recession Likely Continued in 2009 Q4, According to Central
Bank

4.(U) The Bank of Spain's January economic bulletin estimates
that the economy continued to contract in the fourth quarter
of 2009, though the decline was only 0.1% from the
third-quarter figure. Some analysts had speculated in recent
weeks that GDP might have been flat or even grown slightly in
the quarter, though GOS officials had sought to avoid raising
expectations. It is not clear how markets will react; the
slight decline should not be a surprise, but the news that
Spain has been in recession for seven consecutive quarters
could generate headlines. The official National Statistics
Institute figure will be released in about 10 days. (Europa
Press, 2/5)

Unemployment Continues to Rise

5.(U) The Ministry of Labor and Immigration announced that
the number of registered unemployed rose by 125,000 in

MADRID 00000148 002.3 OF 002


January. This pushes the total number of registered
unemployed Spaniards past 4 million, the highest recorded
since the current series was started in 1996. Labor Minister
Corbacho said that unemployment is expected to continue
rising until the second half of this year. Separately,
Spain's December unemployment as measured by Eurostat was
19.5%, the second highest in the EU. (El Pais, 2/2; USEU
Brussels 122)

First Criminal Conviction for Hosting Unauthorized Streaming
Video

6.(U) A Galician judge sentenced the owner of a website
selling streaming pirated videos to one year in prison and a
fine of 2,000 Euros. This is the second criminal conviction
in Spain for websites hosting pirated works, and the first
for a website offering streaming video. The first conviction
came a year ago when a La Rioja judge convicted an individual
who facilitated Peer-to-Peer (P2P) downloading of pirated
material for a one-time fee (Ref A). The current conviction
is significant because the website does not allow customers
to download pirated works (which facilitates P2P sharing as
in the previous case), only view the 'streaming video' in
real time. Currently, the Penal Code identifies profit
motive as a required element of IPR crime, allowing
prosecutors to pursue such IPR cases as criminal and not
civil offenses. Comment: Even though this is a significant
ruling, judges in Spain are independent of each other. While
this may influence future cases, there will not be a binding
decision on IPR unless the Supreme Court acts. (El Pais, 2/5)

13 Towns Seek to Host Nuclear Waste Storage Facility

7.(U) The Ministry of Industry, Tourism, and Commerce has
received requests from 13 towns from 5 regions to host a
proposed temporary nuclear waste storage facility (ATC). The
Ministry will make its decision based on each town's
location, citizen sentiment, and general ability to host the
facility. Spain's nuclear plants are expected to run out of
space to store waste within a few years. Also, the contract
under which France stores waste from the Vandellos I reactor
closed in 1989 imposes penalties if that waste is not
returned by 2011. The ATC is intended to store waste for 60
years, and the contract is valued at one billion Euros; the
candidates are small towns hurt by the recession, and some
are near nuclear power plants. Many of the applications have
been controversial, and each town faces opposition from the
president of its region, all whom are from the ruling PSOE.
Industry, Tourism, and Commerce Minister Sebastian recently
emphasized that the matter was not one over which regional
governments had any authority. (El Economista, 2/4; El Pais,
2/5)
SOLOMONT

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