Cablegate: Madrid Weekly Econ/Ag/Commercial Update Report -

VZCZCXRO4592
RR RUEHRN
DE RUEHMD #1834/01 2641624
ZNR UUUUU ZZH
R 211624Z SEP 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3466
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3060

UNCLAS SECTION 01 OF 03 MADRID 001834

SIPDIS

SIPDIS

EUR/WE, EEB/EFD/OMA

E.O. 12958: N/A
TAGS: ECON EFIN EIND ENRG ETRD SP EINV EAGR SOCI
ELAB
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
SEPTEMBER 17-21

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Table of Contents:

ECON: Budget Negotiations Complicated by Dispute over
Retroactivity for GOS's Promised 2,500 Euros/Baby
ECON/SOCI: Election Economics: Rental Housing Incentives
Announced
ECON/KNNP: New Spanish Employers Federation (CEOE) President
Unveils Economic Proposals, Supports Nuclear Energy
EFIN: Heavy Central Bank Gold Sales Coming to an End, May
Push Prices Up
ENRG: Spanish Energy Transmission Firms to Expand Abroad
EINV: Procter & Gamble (P&G) President/CEO Inaugurates
Alcobendas Building
EINV/PREL: Brazil's President Lula visits
TBIO: Report on Biofuels challenges Claims of Environmental
Benefits
KIPR: Olive Oil Label War

BUDGET NEGOTIATIONS COMPLICATED BY DISPUTE OVER RETROACTIVITY
FOR GOS'S PROMISED 2,500 EUROS/BABY

1. (U) First Vice President and Finance Minister Pedro Solbes
would like to make this benefit prospective (not clear from
media reports as of exactly when), but all the opposition
parties want to make the benefit applicable to parents of
children born as of January 1, 2007. (Comment: Usually the
minority PSOE government has been able to pass a budget with
the help of the Basque and Catalan nationalist parties, but
this year's negotiations are proving Qre difficult, no doubt
a result of positioning for electoral advantage. It is worth
noting that on this expensive spending proposal, the
opposition conservative PP party is now favoring more
spending while at the same time it criticizes the government
in other contexts for loosening the fiscal spigot for
electoral reasons.) (El Pais, 9/20/07)

ELECTION ECONOMICS: RENTAL HOUSING INCENTIVES ANNOUNCED

2. (U) With only six months until the elections, President
Zapatero and Minister of Housing Carme Chacon announced this
past week an initiative to provide lower-income renters
between the ages of 22-30 with financial incentives to rent.
The proposal, which will be the last major initiative to be
considered during this term, will provide residents who earn
an annual gross income of 22,000 euros or less the ability to
receive 210 euros per month in rental subsidies as well as an
additional tax deduction similar to those received by
homeowners. The GOS estimates that 700,000 families will
benefit from this program (out of a pool of those renting the
1.7 million apartments that exist in Spain). Monthly average
rents vary, but in Madrid the average is approximately 1,138
eQos/mo while the average nationwide is 720 euros/mo. Over
80 percent of Spaniards live in homes they or their families
own, and the GOS is seeking to encourage renting, including
other measures to encourage homeowners to offer their
properties for rent. The new "housing plan" will cost the
government approximately 784.5 million euros per year to
implement. Criticisms surrounding this proposal center on
the plan's cost as well as its similarity to a 2004 rental
program introduced at the beginning of the PSOE
administration.

NEW SPANISH EMPLOYERS FEDERATION (CEOE) PRESIDENT UNVEILS
ECONOMIC PROPOSALS, SUPPORTS NUCLEAR ENERGY

3. (U) EconOff attended a breakfast on 9/18/07 at which
Gerardo Diaz Ferran expressed continued confidence in the
SpanishQonomy's prospects. But, he conceded that there
were clouds on the horizon and said that the CEOE would
shortly release a document with substantive economic
proposals designed to make Spain more competitive. The CEOE
would like more "unity" in the Spanish market, i.e. fewer
different laws in Spain's 17 autonomous communities; more
deregulation; streamlined government administration;
liberalized markets, especially in the energy sector; more
government use of private sub-contractors; tax policies
designed to stimulate savings and investment; and social
policies designed to promote more flexible labor markets. In
general, Diaz called for more budget restraint. He made
favorable remarks about nuclear energy responding to a
question. (Comment: In part, the call for more "unity" in the
Spanish market is code for resisting separatist initiatives
in the Basque Country and Catalonia. (Nueva Economia Forum
Ritz Hotel breakfast, 9/18/07)

HEAVY SPANISH CENTRAL BANK GOLD SALES COMING TO AN END, MAY
PUSH PRICE UP

MADRID 00001834 002.2 OF 003

4. (U) The Spanish Central Bank had no comment on its plans
and/or motivations behind its sales of bullion. (FT 9/18/07)

SPANISH ENERGY TRANSMISSION FIRMS TO EXPAND ABROAD

5. (U) The Hydrocarbon Logistic Company (CLH), Spain's
primary petroleum pipeline operator, plans to expand
operations abroad, particularly in Portugal. CLH is
currently in negotiations with Portuguese government and
private sector officials to build pipelines in north Portugal
that it says would create better distribution efficiencies
for both countries. The Electric Network of Spain (REE),
Spain's primary electricity network provider, similarly
announced plans to develop more projects abroad, particularly
in Brazil. REE President Luis Atienza said September 21 that
REE planned to enter the Brazilian market through an alliance
with Brazil's National Electric Network (REN). Atienza added
that REE would go after any opportunities offered by
privatization elsewhere in Europe.

PROCTER & GAMBLE (P&G) PRESIDENT/CEO INAUGURATES ALCOBENDAS
BUILDING

6. (U) EmbOff represented Embassy in this event, which also
included the President of the Madrid autonomous community,
Esperanza Aguirre, and the Mayor of Alcobendas. Alcobendas
is a rapidly growing suburb close to Madrid. Many businesses
are opening facilities there. (9/20/07)

BRAZIL'S PRESIDENT LULA VISITS

7 (U) On 9/17/07, President Luis Rodriguez Zapatero received
President Lula and signed a Memorandum of Understanding on
cultural matters. There were no specific agreements on
economic/commercial matters (at least none publicly
released), but Zapatero focused on the economic agenda and
encouraged Spaniards to invest in Brazil. Santander is now
poised to become a banking giant in Brazil if it is able to
buy ABN AMRO's Brazilian subsidiary. Santander CEO Emilio
Botin reportedly has a good relationship with the Brazilian
president because he kept trade lines open to Brazil
immediately after Lula's first election victory at a time
when many banks were holding back. (Moncloa website:, IHT
9/18/07)

REPORT ON BIOFUELS CHALLENGES CLAIMS OF ENVIRONMENTAL
BENEFITS

8. (U) A recent OECD report challenged the benefits of
biofuels, government subsidies for their production,
distribution, and use, and high national tariffs that
preclude biofuels trade. The report raised the specter that
the "cure" (biofuels) may be more prejudicial than the
"disease" (petroleum fuels) in that: 1) the environmental
costs of producing biofuels may well be greater than any
potential environmental gains generated from use of the
biofuels in the transportation sector; 2) government
subsidies and mandates are stimulating the production and use
of biofuels where otherwise there would be little-to-no
economic incentive to invest in this sector; 3) high biofuels
tariffs in the developed world preclude development and
transport of biofuels in developing countries; and, 4) the
increased use of agricultural commodities in the production
of transportation fuels is creating a non-productive and
threatening food-versus-fuel debate.

9. (U) The report recommends that: "The strategic importance
of an objective for first generation biofuels need to be
refocused and refined. International organizations such as
the IEA, OECD, FAO and World Bank need to continue to adopt a
soundly-based, common understanding of the limits of both
traditional and second-generation biofuels in their analysis
of energy futures;" and, that policy-makers "secure continued
R&D for second-generation biofuels, phase out biofuel
production mandates and incorporate "technology-neutral
policies such as a carbon tax," while also placing
international renewable certification on the agenda of the
new World Trade Organization committee on trade and
environment. (Biofuels: Is the cure worse than the disease?
www.oecd.org/dataoecd/33/41/39276978.pdf)

OLIVE OIL LABEL WAR

10. (U) After years of unfruitful lawsuits, leading olive oil
company Carbonell has won a battle against the La Espanola
brand, which it accuses of imitating Carbonell,s label since
1982. The Court of First Instance of the European Union

MADRID 00001834 003.2 OF 003

(TUE) has ruled that La Espanola's label is very similar to
its competitor's and therefore "causes an elevated risk of
confusion for the consumer." Following the favorable ruling
in Strasbourg, Carbonell's parent company's president said he
would turn to all the necessary courts until he succeeds in
obtaining the cancellation of the registered label La
Espanola in every country. He added that he would also seek
indemnification for damages he said were caused during 25
years of "piracy."
LLORENS

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