VZCZCXRO7570
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #2216/01 3440943
ZNR UUUUU ZZH
R 100943Z DEC 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3924
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3194

UNCLAS SECTION 01 OF 03 MADRID 002216 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EWWT KIPR PARM PGOV SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - DECEMBER 
3 - 7 
 
MADRID 00002216  001.2 OF 003 
 
 
Table of Contents: 
 
ECON/PGOV: Highlights from EIU conference 
EWWT/PARM: GOS to expand Megaports nuclear detection 
technology to 28 ports 
EWWT: GOS concerned about economic impact of Maersk shipping 
reorganization 
KIPR: Counterfeiters detained in "Operation Glamour" 
 
HIGHLIGHTS FROM EIU CONFERENCE 
 
¶1. (U) The Economist Intelligence Unit (EIU) held its 19th 
Business Roundtable with the GOS in Madrid on December 4. 
The EIU tried with mixed success to get the high-level 
participants to talk about the prospects of a hard landing 
versus a soft landing scenario for the Spanish economy. 
President Jose Luis Rodriguez Zapatero essentially repeated a 
previous talk that contained a barrage of positive statistics 
for the Spanish economy during his tenure in office.  He 
emphasized the increased investment in R&D in Spain as a 
percentage of GDP and higher levels of spending on capital 
goods - the implication being that Spain is changing its 
growth model from one based on construction and private 
consumption to one based more on innovation and higher 
productivity.  He announced that if the Socialists won, they 
would probably abolish the wealth tax.  Zapatero repeated his 
opposition to nuclear power but said that "if it (was) 
necessary, there will be nuclear power," and surprised his 
mostly pro-nuclear audience by saying three times that he was 
not a "fundamentalist" on the topic.  He denied that he was 
in favor of "national champions" but said that the energy 
sector presents "singular" characteristics.  He extolled his 
government,s success in controlling spending and praised the 
Minister of Public Administration, Elena Salgado, who was in 
the audience, for her success in controlling pharmaceutical 
spending when she was Minister of Health. 
 
¶2. (U) Labor and Social Affairs Minister Jesus Caldera said 
that social security finances were in good shape, roughly 20 
employer-labor agreements had been concluded during the 
Socialist government,s term of office, there were 
comparatively few strikes, and, most importantly, 2.9 million 
new jobs had been created and the number of unemployed people 
had gone down by about 500,000.  Economist Europe Editor John 
Peet suggested that Spain still had more work to do in terms 
of making the labor market more flexible though and cited the 
example of Denmark.  Caldera responded strongly and said that 
Denmark,s reported labor market success was a myth.  He 
claimed that that Denmark actually had more long-term 
unemployed than Spain.  Most importantly though, Denmark,s 
employment participation rate (the percentage of people 
employed) was much better than Spain,s because many women in 
Denmark work part-time.  He conceded that Spain should do 
more to encourage part-time work. 
 
¶3. (U) Industry, Tourism and Trade Minister Joan Clos 
highlighted the higher R&D spending during Zapatero,s 
tenure, although he said that Spain was still far from 
meeting the Lisbon target and that the private sector needed 
to assume a greater share of overall R&D spending relative to 
the public sector.  In responding to a question about 
national champions, he denied that Spain promoted them but 
like Zapatero said that the energy sector was special.  Clos 
emphasized the need for better vocational training in Spain 
and decried the cultural bias toward university, rather than 
vocational, education. 
Conservative opposition Partido Popular (PP) leader Mariano 
Rajoy said the PP,s economic stewardship during 1996-2004 
had been stellar, especially given the bad economy the PP had 
inherited from the Socialists in 1996.   He said that if 
elected in March 2008, the PP would concentrate on six areas: 
1) strengthening the independence of regulatory institutions; 
2) improving fiscal policy; 3) increasing R&D spending; 4) 
focusing energy policy on conservation and renewables; 5) 
more spending on physical infrastructure; and 6) improving 
the labor market by, among other things, making the work/life 
balance easier and making it possible for people to work 
beyond the mandatory retirement age without losing benefits. 
 
¶4. (U) Bank of Spain Governor Miguel Ferndandez Ordonez gave 
a rather standard talk about how Spain was resisting 
financial market turbulence because Spanish banks were not 
significantly exposed to U.S. sub-prime mortgage backed 
instruments.  Spain,s budget surplus of 1.8% of GDP also 
provided an important buffer.  However, he conceded that 
there were two big risks that could conceivably lead to a 
harder, rather than softer, landing for the Spanish economy. 
First, he said that he did not believe that the global 
 
MADRID 00002216  002.2 OF 003 
 
 
economy was as "decoupled" from the U.S. economy as some 
observers have speculated; hence if there is a bigger than 
anticipated sub-prime mortgage driven downturn in the U.S. 
economy, that would affect the Spanish economy negatively. 
Second, if the price of oil and the euro continued to rise, 
that could have also have negative effects for the Spanish 
economy.  He noted that Spain was relatively more vulnerable 
to higher oil prices than other big European economies.  The 
EIU,s Charles Jenkins said he believed that Spain was more 
susceptible to a hard landing than many officials and 
analysts posited because Spain,s current account deficit 
amounts to about 9% of GDP and housing construction (just 
residential building) also accounts for about 9% of GDP. 
Fernandez Ordonez disagreed.  He said Spain was beginning to 
make progress on reducing its current account deficit. 
Besides, in a monetary union, financing is easy.   Most 
importantly, Spain has macroeconomic flexibility because it 
has a budget surplus and public sector spending still only 
accounts for about 39% of GDP. 
 
¶5. (SBU) Comment: A couple of things stood out from this 
conference.  First, with the Socialists promising to abolish 
the wealth tax (Zapatero said it mostly affected the middle 
class, as the rich could avoid it), the PSOE is indeed 
tacking to the center.  In fact, the leader of Izquierda 
Unida (the successors to the Communist party) said on 
December 4: "It is the world in reverse, the PP announcing 
tax cuts for salaried workers, and the PSOE tax cuts for the 
rich."  Actually, the PSOE move reflects the highly 
middle-class nature of Spanish society; over 80% of Spanish 
households are homeowners.  Second, the ostensibly more free 
market alternative, the PP, is not aggressive in its economic 
proposals.  For instance, Rajoy said nothing about nuclear 
power or more freedom to hire and fire.  Third, Mariano Rajoy 
demonstrated once again that his forte is not public 
discussion of economics.  Fourth, Spaniards of both major 
political persuasions appear to think the good times will 
continue for Spain, although growth might taper off a little 
bit.  Fifth, nobody seems to have a good idea of how long a 
member of a monetary union can continue to finance high 
current account deficits.  Many prestigious commentators such 
as Charles Jenkins say that it is not sustainable for 
countries to run current account deficits on the order of 9% 
of GDP indefinitely, even if they are members of a monetary 
union.  EconOff asked Jenkins how this non-sustainability 
might be transmitted to the Spanish economy.  He said through 
lower investment levels, but he was quite vague as to how or 
when this might happen.  Moreover, as Jenkins himself 
conceded, if investment levels in Spain decline, that will 
likely improve the current account deficit.  End Comment. 
 
GOS TO EXPAND MEGAPORTS NUCLEAR DETECTION TECHNOLOGY TO 28 
PORTS 
 
¶6. (SBU) The GOS continues to work with DOE/NNSA and the 
Embassy to expand the Megaports program to additional ports 
in Spain.  The Megaports program aims to equip and assist 
foreign countries with the technology needed to detect 
illicit nuclear or radiological material being shipped or 
exported from their ports.  This program has been partially 
implemented in the port of Algeciras, Spain,s largest port 
by volume.  In a meeting December 5 with NNSA Megaports and 
Embassy representatives, Spanish customs officials explained 
that they were planning to expand the technology to 28 of 
Spain,s most significant ports.  They further noted that 
they would pay for all Megaports-type equipment despite prior 
offers from NNSA to provide some of this costly equipment. 
The GOS officials requested, however, that NNSA Megaports 
officials continue to serve as advisors to Spain on the 
implementation of this program, specifically in the ports of 
Barcelona and Valencia. 
 
¶7. (SBU) In a related discussion, Spanish customs officials 
noted that they were continuing to experience difficulty in 
implementing the Megaports program in the Port of Algeciras 
due to union resistance and other issues related to scanning 
of transshipment cargo.  While in most ports of Spain this 
problem would be insignificant, the port of Algeciras 
experiences an unusually high volume of transshipment cargo 
(cargo which is neither exported nor imported, but which is 
transferred from an incoming vessel to an outgoing vessel). 
Embassy officials will continue to engage with port officials 
to determine if this issue can be favorably resolved. 
 
GOS CONCERNED ABOUT ECONOMIC IMPACT OF MAERSK SHIPPING 
REORGANIZATION 
 
¶8. (SBU) According to Spanish customs officials, the Maersk 
 
MADRID 00002216  003.2 OF 003 
 
 
company, which operates the port of Algeciras and is a major 
shipper to Spain, is undergoing a cost-cutting exercise that 
may ultimately result in the transfer of Maersk operations 
from Spain to Morocco, China, or the UAE.  Spanish customs 
said the GOS was very concerned about this possibility, which 
would greatly impact Spanish ports and the jobs associated 
with Maersk shipments.  This movement would likely result in 
a significant decrease of transshipments through Spain and 
would also impact the Container Security Initiative and 
Megaports operations ongoing at the port of Algeciras, where 
Spain receives its greatest volume of shipments.  Spanish 
Customs added that Maersk,s reorganization not only 
concerned Spain, but concerned the EU on a broader scale for 
its potential impact on other significant ports in Europe. 
 
COUNTERFEITERS DETAINED IN "OPERATION GLAMOUR" 
 
¶9. (U) In a recent raid, the Civil Guard and the Madrid 
Municipal Police confiscated machinery used in falsification 
of name-brand clothing.  A group of nine Senegalese, Spanish, 
Moroccan, and Chinese citizens have been detained for 
falsification of goods in the Fuenlabrada and Torrejon 
districts of Madrid.  The agents have also confiscated 
409,000 counterfeit articles with a street value of 15 
million euros in "Operation Glamour."  The falsification 
machinery is capable of producing in an eight-hour workday 
21,000 labels for items such as belts, bags and shirts that 
are imported from Asia. (20 minutos 11/28/07) 
AGUIRRE