VZCZCXRO1985
RR RUEHRN
DE RUEHMD #2045/01 3021433
ZNR UUUUU ZZH
R 291433Z OCT 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3709
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3148
UNCLAS SECTION 01 OF 04 MADRID 002045
SIPDIS
SENSITIVE
SIPDIS
EUR/WE, EEB/EFD/OMA
E.O. 12958: N/A
TAGS: EAIR ECON EFIN EIND ELAB KIPR SP EINV
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
OCTOBER 22-26
MADRID 00002045 001.2 OF 004
Table of Contents:
ECON/ETRD: USTR Director for EU affairs visit
ECON: FT Special report on Spain's economic prospects
ECON/EINV: Big banks appear unfazed by market turbulence
EFIN: Basque savings banks fined for anti-competitive
practices
SENV/PGOV: Opposition leader's climate change comment draws
fire during Gore visit
ELTN/PGOV: Railway woes plague Barcelona commuters
ELTN: Texas group visits for high-speed rail discussions
EAID: Zapatero repeats 2004 promise to increase aid budget
dramatically
SOCI/SMIG: Madrid world's fifth largest "Ecuadorian" city
PTER/SNAR: Andorran action on money laundering impressive,
economic reforms modest
ETRD/EAGR: Spain supports EC approval of four biotech crops
USTR DIRECTOR FOR EU AFFAIRS VISIT
1. (SBU) In meeting with Ministry of Industry, Tourism and
Trade Deputy Director for EU Trade Policy, Inigo Febrel, USTR
Director for EU Affairs, David Weiner emphasized President
Bush's personal engagement on Doha matters, and that the USG
does see a possibility for a successful conclusion of the
Round. Febrel and accompanying staff agreed that with all
the emphasis on agricultural and non-agricultural market
access (NAMA), services were being somewhat neglected, and
that this had to change. Weiner noted that the U.S. remained
very interested in internet-related IPR matters. He met with
Ministry of Culture Subdirector General for Intellectual
Property, Pedro Colmenares, and repeated the message.
Colmenares was pessimistic about making progress on
internet-related piracy issues prior to Spain's general
election, which is expected to be held in March 2008.
2. (U) Separately, Weiner discussed import safety issues in
meetings with Ministry of Health Director General for
Consumer Affairs Angeles M. Heras Caballero, Deputy Director
for Quality Carlos Arnaiz and Ministry of Industry, Tourism
and Trade Deputy Director for Coordination and Bilateral
Trade Relations with the EU, Cristina Teijelo Casanova.
Weiner mentioned that the USG is interested in a dialogue
with the EU and with Member States on these issues. Heras
said that the GOS would be announcing a series of import
safety measures on October 26, focusing especially on better
coordination between the Ministry of Health and Spain's
customs authorities.
FT SPECIAL REPORT ON ECONOMIC PROSPECTS
3. (U) The lead article in the Financial Times' recently
published a special report on Spain titled "Economic
Prospects Looking Less Rosy." The report is generally
consistent with what most analysts believe here in Spain.
However, the FT notes that despite financial market
turbulence, neither the real economy nor the banking sector
has "imploded" and accepts the Bank of Spain's and other
analysts' explanation as to why. First, because they were
making so much money in Spain, Spanish banks did not invest
significantly in off-balance sheet vehicles ("conduits") to
invest in high-risk American mortgages. Second, Spanish
banks are not facing liquidity problems. In fact, in recent
weeks Spanish banks have been lenders in short-term money
markets, suggesting an excess, rather than lack, of
liquidity. The banks' borrowing has mostly been long-term.
4. (SBU) The FT mentions that construction is likely to
experience a contraction. Should housing starts begin to
decline from 800,000 a year to a more "sustainable" 500,000 a
year, that could result in 600,000 more unemployed people.
This could be offset somewhat by higher government spending
on infrastructure. One market concern is the future of the
respected Minister of Finance, Pedro Solbes. The
conventional wisdom is that Solbes will retire following the
March, 2008 general elections, even if the socialists win.
This would undermine business confidence as he is seen as
pro-business and has the power and influence to control
spending. (Comment: The Spanish government, and many
businessmen as well, consider the FT's reporting on Spain to
be overly negative. Influential Spaniards are sensitive to
FT reporting because the publication is a credible
publication for Europe's business and political elite.
Overall, however, government and business should be modestly
pleased with the overall tone of the report. It contains
fairly positive articles on Spanish companies, entrepreneurs,
and R spending while warning about dampening consumer
demand and construction activity. The FT writes that
MADRID 00002045 002.2 OF 004
Spaniards are "determined to prove, once again, that 'Spain
is different.' Maybe this time it is." That's a somewhat
upbeat assessment for the FT.) (FT, 10/24/07)
BIG BANKS APPEAR UNFAZED BY MARKET TURBULENCE
5. (SBU) Coinciding with the FT special report, the
International Herald Tribune published an article with the
title: "Big Spanish banks appear unfazed by market
turbulence." This article tracks with what the FT says about
the Spanish banking sector with one addition: that Spanish
investments in Latin America could offset weakness at home.
(Comment: The IHT and FT articles are consistent with what
our banking and other contacts tell us. Spanish government
contacts and business people have been adamant that Spain
will continue to do well, albeit growing somewhat more slowly
than during the last ten years. However, given all the
insistence from both government and business, the smallest
sign of a problem, could conceivably lead to disproportionate
reactions from investors.) (IHT, 10/24/07)
BASQUE SAVINGS BANKS FINED FOR ANTI-COMPETITIVE PRACTICES
6. (U) Spain's National Open Competition Commission (CNC) has
imposed fines totaling 24 million euros on four savings banks
in the Basque and Navarra region that it says conspired for
15 years to fix prices and share markets. According to the
investigation, from 1990-2005 the Navarra Savings Bank (Caja
Navarra) and Basque savings banks BBK, Kutxa, and Caja Vita
never opened branches in each other's markets although they
successfully pursued expansions in other close locations in
the region. The investigation results also indicate that in
addition to price fixing practices, the savings banks
colluded by sharing operational information that would allow
the banks to block out other competition. Drawing attention
to the strong market expansion that Spanish savings
institutions have enjoyed over the past several years (to the
detriment of some banks), sources close to the CNC suggest
that the fines will serve as a warning to other savings banks
that may be engaging in anti-competitive practices. These
fines are second only to the 38 million euro fine the CNC
levied against Iberdrola in March 2007.
OPPOSITION LEADER'S CLIMATE CHANGE COMMENT DRAWS FIRE DURING
GORE VISIT
7. (U) Popular Party leader and expected presidential
candidate Mariano Rajoy has been widely criticized for a
skeptical comment about climate change that coincided with a
well-publicized visit of former Vice President Gore. In
response to a question at an October 22 conference, Rajoy
responded that "we have to pay a lot of attention to this
matter, but we can not turn it into a big global problem."
He also referenced his cousin, a professor of theoretical
physics, with whom he has discussed the difficulties in
predicting future climate conditions. Rajoy said that, if
"no one can guarantee what the weather will be like
tomorrow...how can anyone claim to know what will happen to
the world in 300 years' time?" Rajoy's comments drew
criticism from the GoS environment and interior ministers and
several environmental NGOs, and even King Juan Carlos cited
climate change as a pressing challenge for the world. Other
officials of Rajoy's party distanced themselves from his
comment.
8. (U) Former vice president Gore, who was also participating
in the conference, did not directly cite Rajoy by name but
noted that "politicians are also a renewable resource." Gore
was in Spain this week to receive the prestigious Prince of
Asturias Award for International Cooperation for his climate
change efforts. During his remarks at the conference, Gore
also said that Spain is one of the most vulnerable countries
in Europe to climate change citing an increase over the past
70 years in intervals between rainfall, which leads to more
common droughts. (All Media, 10/24/07)
RAILWAY WOES PLAGUE BARCELONA COMMUTERS
9. (U) Landslides and infrastructure damage caused by efforts
to finish the last segments of the long-delayed high speed
AVE railway line from Madrid to Barcelona have resulted in
the closure of three of Barcelona's six commuter trail lines,
affecting an estimated 160,000 commuters. Despite stopgap
measures to deploy 220 buses to temporarily take the place of
the out-of-service rail lines, local government officials and
residents are outraged by the latest in a series of Barcelona
infrastructure mishaps ongoing since the summer. Barcelona
politicians have called for an investigation of these
MADRID 00002045 003.2 OF 004
problems, heavily criticizing local, regional, and federal
government representatives and calling for the resignation of
national Minister of Public Works and Infrastructure
Magdalena Alvarez. Administration officials are expected to
back away from their long-standing insistence that the
Barcelona-Madrid AVE line will be completed on December 21.
Political analysts suggest that the railway mess and last
summer's blackouts will reduce support in the March national
elections for the Catalan socialist party, on whose members
the ruling socialist party relies to help it reach a majority
in the national legislature.
TEXAS GROUP VISITS FOR HIGH-SPEED RAIL DISCUSSIONS
10. (U) At an October 25 reception for a visiting Texas High
Speed Rail and Transport Corporation (THSRTC) delegation,
the Ambassador gave remarks highlighting the strong ties
between the US and Spanish business communities and praising
the increasing level of cooperation between the two
countries, including potentially in the high-speed rail
sector. The THSRTC came to Spain for final discussions with
the Spanish firm Pointrec on a tender for construction of a
high-speed rail system in Texas' "T-bone corridor." The
group also visited various Spanish governmental entities
involved in Spain's high speed rail network.
ZAPATERO REPEATS 2004 PROMISE TO INCREASE AID BUDGET
DRAMATICALLY
11. (U) At a government-sponsored conference on foreign aid
attended by econoff, President Zapatero announced that, if he
is reelected, Spain would increase its development aid budget
to 0.7 percent of GDP by 2012, which he said would make Spain
the first of the world's ten richest countries to do so.
Current Spanish aid spending is 0.4 percent of GDP; Zapatero
had promised in his 2004 campaign to reach the 0.7 percent
level by 2012. Without providing many details, Zapatero did
say that Spanish foreign assistance would, among other
objectives, be used to fight global warming. (Econoff, All
Media)
MADRID WORLD'S FIFTH LARGEST "ECUADORIAN" CITY
12. (U) With a registered population of 155,000 Ecuadorians,
Madrid ranks fifth in the world after Guayaquil, Quito,
Cuenca (Ecuador) and New York City. Madrid Autonomous
Community President, Esperanza Aguirre announced the recent
census results as she inaugurated the 2nd Integration and
Participation Center for Hispanic - Ecuadorian Immigrants in
the Madrid city district of Arganzuela. The Ecuadorians are
the second most numerous immigrant population of the region
behind the Romanians. Aguirre went on to say that Ecuador is
a "priority" country for the Madrid regional government. (20
minutos)
ANDORRAN ACTION ON MONEY LAUNDERING IMPRESSIVE, ECONOMIC
REFORMS MODEST
13. (SBU) EconOff visited Andorra October 15-16. The
Director of the Unit for the Prevention of Money Laundering,
Jordi Pons Lluelles (a 2006 International Visitor grantee)
explained that he attends Financial Action Task Force (FATF)
meetings four times a year and Moneyvall meetings as well.
He emphasized that while there are numbered accounts in
Andorra's five banks, they are not "secret" in the sense that
the banks know the identities of the numbered account
holders, and that his Unit can obtain identifying information
rapidly. Pons noted that he cooperates regularly with the
Madrid-based U.S. Embassy Legatt and other law enforcement
officers at the Embassy. He said that recently Andorra had
frozen the account of a suspected narcotrafficker containing
4 million euros.
14. (SBU) With respect to general economic reform, Andorran
officials emphasize a new planned Investment Law that would
open up the economy to foreign investment in areas Andorrans
are not active in. Energy and telecoms are excluded from the
law. Moreover, in the all-important tourism sector
(responsible for more than 80% of Andorra's GDP), foreigners
would still only be able to own 49% of a business. Perhaps
most importantly, there are significant restrictions on the
ability of immigrants to open and own businesses; in 2006,
roughly 52,000 out of Andorra's population of almost 82,000
were characterized as immigrants. (Comment: Andorra seems to
have gotten religion on money laundering, if for no other
reason than that closer economic ties with the EU depend in
part on eliminating it's reputation as a tax haven. However,
other economic reforms - mostly yet to be enacted - are on
MADRID 00002045 004.2 OF 004
the timid side, perhaps because the country remains rich, and
there is no pressing need yet for more radical reform.)
SPAIN SUPPORTS EC APPROVAL OF FOUR BIOTECH CROPS
15. (U) The European Commission (EC) took another very small
step forward in the European Union's exceptionally slow
biotechnology review process on October 24, 2007. After
years on the approval pipeline, including the time necessary
for the European Food Safety Authority to review and agree
with U.S. regulators regarding the safety of the four
biotechnology varieties (three corn and one sugar beet), the
EC authorized their importation into Europe and use in feed,
food, and processing. U.S. corn exporters remain
disappointed with the approvals process, noting that the
October 24 vote does very little to enhance U.S. access to
the European market. Essentially, European grain traders
can't import U.S. corn, because the European bureaucracy has
not yet reviewed most of the U.S. - grown biotechnology
varieties. As part of the approvals process, EU Member
States are asked by the EC to vote on new biotechnology
varieties. In the case of the above mentioned varieties, the
Spanish representative to the food and feed committee was
reported to have voted in favor, in contrast to the French,
Austrians, Italians, etc. The Spanish reportedly conducted a
scientific review of the information and voted in favor of
the science. (FAS)
AGUIRRE