VZCZCXRO5808
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0246/01 0440936
ZNR UUUUU ZZH
R 130936Z FEB 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1839
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2440

UNCLAS SECTION 01 OF 03 MADRID 000246 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: EAGR EAID EAIR ECON EFIN ENRG ETRD TBIO SP
EINV, UK 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT 
 
MADRID 00000246  001.2 OF 003 
 
 
EFIN: Economic forecast 
EAGR, BEXP:Help for U.S. citrus market 
EAID: Spain Puts its Foreign Assistance Money Where its Mouth 
Is 
ECON: Unemployment at an all time low 
EIND: Spanish companies make it to the top 20 list 
EIND: Spain top 5 destination for tourists 
ETRD: Fruit basket reviews with new fruit and vegetable reform 
ECIN: DCM GOS State Secretary for Infrastructure and Planning 
meeting 
ENRG: Gas Natural Withdraws Takeover Bid for Endesa 
 
 
Finance Minister sees Spanish Economy through rose colored 
glasses 
 
 
¶1. (U) Finance Minister Solbes lays out a mostly rosy 
scenario for Spanish economy and says Spain does not share 
the same economic vulnerabilities as the U.S.: While speaking 
to a packed 1/24/07 Europa Press event, Solbes was mostly 
upbeat but acknowledged that Spain needs to improve its 
productivity in the medium-term, i.e. especially after the 
March 2008 elections (Note:  elections would have to be 
called by then.  There is speculation that elections will be 
earlier.  End note.).  He asserted that Spain was doing that 
through structural reforms and investments in R&D, education 
and infrastructure.  In response to a question, the Minister 
was emphatic in positing that Spain is not taking the same 
economic risks as the U.S. despite Spain's running a current 
account deficit of about 9 percent of GDP.  Why?  First, 
Spain is running a budget surplus of almost 1.5 percent of 
GDP.  Second, Spain is part of a monetary union, i.e. the 
value of the euro is only minimally affected by Spanish 
economic performance whereas the value of the dollar is very 
much affected by the twin deficits the U.S. is running. 
Third, Spain is investing about 30 percent of GDP, which will 
improve Spanish productivity.  Solbes noted that Spanish 
saving accounts for about 22 percent of this investment the 
current account deficit is a reflection of borrowing to cover 
the rest.  (Comment:  Solbes enjoys great credibility, and he 
has presided over a period of expansion.  He can take pride 
in several legislative accomplishments, although many 
analysts believe their cumulative impact on the economy will 
be only modestly beneficial.  A 1/24/07 editorial in the 
government leaning El Pais commenting on a recent OECD report 
reiterates that Spain needs to improve productivity by 
selective and efficient investments in R&D, education and 
infrastructure within an overall context of fiscal restraint. 
 Solbes would say he is doing just that.  The question is 
whether he is doing enough of this and whether there will be 
timely positive results.) 
 
Clementine export may rescue California Citrus market 
 
¶2. (U) While California citrus producers just experienced one 
of the worst freezes in history, possibly destroying up to 70 
percent of their citrus production, Spanish citrus producers 
are threatening to leave 400,000 tons of citrus fruit 
un-harvested this year, because it will cost them more to 
harvest the fruit than they can expect to realize on the 
local market. 
 
¶3. (U) Is there a market-bridge between the two opposing 
situations?  Exceptionally warm winter weather in Spain may 
be partially to blame for the current low Clementine prices, 
because the crop has ripened at a quicker-than normal pace 
forcing a glut onto the market.  Because Clementines, in an 
advanced stage of maturation, are too delicate to export, it 
is next to impossible that any of the remaining crop could be 
exported to the United States to help overcome the apparent 
U.S. shortage.  However, in the case of oranges, which are a 
later (than Clementines) maturing fruit, Spain does have the 
potential to increase exports to the United States.  Spain 
and the United States have an agreed pre-clearance inspection 
program, so the basis for increased exports is in place. 
 
Spain Puts its Foreign Assistance Money Where its Mouth Is 
 
¶4. (U) The Spanish cabinet announced January 26 that Spanish 
official development assistance in 2007 would total 4.29 
billion euros, which will equal 0.42 percent of Spain's GNP. 
3.7 billion euros of the 4.29 will come from central 
government funds, with the remaining to be provided by 
Spain's regions (468 million euros) and cities/municipalities 
(119 million euros).  The cabinet said that Spain's official 
development assistance had three main objectives:  (1) 
increase funding to provide basic social services; (2) 
 
MADRID 00000246  002.2 OF 003 
 
 
increase coordination between Spain and other donors; and, 
(3) increase Spain's cooperation with multilateral assistance 
organizations.  Regarding the first objective, Spanish funds 
would be targeted on the following types of programs: 
anti-hunger, clean water, basic education, basic health, 
reproductive and sexual health, and marginalized and/or 
vulnerable communities.  The second objective is designed to 
implement the Paris Declaration's call for greater 
coordination among donors.  The third objective is part of 
Spain's Millenium Development Goals commitment to increase 
funding of multilateral assistance organizations.  As a 
result of the third objective, Spanish assistance to 
multilateral organizations will increase by 30.5 percent 
(2007 over 2006).  Part of this 2007 commitment is the 528 
million euros that Spain recently promised to UNDP for 
Millenium Development Goals implementation.  According to the 
cabinet, the Zapatero Government's substantial increases in 
Spanish foreign assistance budgets will mean that Spain will 
provide more development assistance in the three year period 
of 2005-07 than the previous government provided in the seven 
year period of 1997-2003.  Zapatero is also on record 
committing Spain to provide 0.5 percent of GNP in foreign 
assistance by the 2008 end of the current legislature. 
 
Unemployment at an all time low 
 
 
¶5. (U) Employment at Historic High: The "Active Population 
Survey" released numbers on 1/27/07 showing that over 20 
million Spaniards are gainfully employed and unemployment, at 
8.3%, is at a historic low.  About a third of Spaniards work 
with short-term contracts, which in Spain is considered 
negative.  The government introduced reforms last year to 
encourage more long-term contracts (which makes it harder to 
fire), but so far the results have been modest.  By U.S. 
standards, 8.3% is high, but for Spain this is a good number 
as it represents a downward trend.  Women and immigrants have 
been the main takers of new jobs.  The employment numbers are 
particularly noteworthy given the high amount of immigration 
to Spain in recent years. The survey authors do not think the 
unemployment rate can go down much more, presumably because 
of Spain's rigid labor laws for those with long-term 
contracts.  (El Pais, 1/27/07) 
 
 
Spanish companies make it to the top 20 list 
 
¶6. (U) Seven Spanish Companies among the top 20 
Infrastructure Operators in the World: They are ACS Dragados 
(2), Ferrovial Cintra (3), Sacyr Vallehermosa (4), FCC (5), 
Abertis (6), OHL (9), Acciona (12), Caja Madrid (19).  There 
is only one American firm in the top 20: Bechtel in position 
¶20.  This reflects Spanish firms enormous success in taking 
advantage of Spain's construction boom and then competing 
overseas.  The Spanish firms are especially good at building 
and operating toll roads.  Airport management is also a 
specialty.  (El Pais, 1/28/07) 
 
Tourism in Spain 
 
¶7. (U) Spain the Number Two Tourist Destination in the World: 
 In 2006,  Spain received 58.4 million tourists, surpassed 
only by France with 77 million visitors.  Spain was also the 
second largest recipient of revenues from tourism after the 
U.S.  The UN World Tourism Organization believes there is 
still some margin for growth in Spain despite environmental 
problems along Spain's Mediterranean coast. (Expansion, 
1/30/07) 
 
Fruit and Vegetable Reform causes a fruit salad response 
 
¶8. (U) Spanish reaction to the European Commission's (EC) 
newly proposed reform of its fruit and vegetable policy is 
mixed.  If enacted, the reform would shift the 
currently-allocated 480 million Euros in production and 
trade-distorting subsidies to a less trade-distorting single 
farm payment (SFP), and increase funding for producer 
organization' (PO) marketing programs.  Reportedly, Spanish 
fruit and vegetable farmers could then produce for the market 
rather than Government policies.  Spain's Ministry of 
Agriculture agreed with the proposed increase in PO funding, 
but appears skeptical about distributing the remaining funds 
through the SFP.  Spain's principal POs and export 
federations rejected the proposal, because, they argue, it 
would destabilize their markets without alleviating current 
distribution and import-competition problems. 
 
DCM GOS State Secretary for Infrastructure and Planning 
 
MADRID 00000246  003.2 OF 003 
 
 
meeting 
 
¶9. (U) DCM Hugo Llorens and Commercial Counselor called on 
GOS State Secretary for Infrastructure and Planning Victor 
Morlan on January 29.  Morlan, the number two in the Ministry 
of Development (Fomento), outlined the Zapatero Government's 
fifteen year Strategic Infrastructures and Transport Plan 
(PEIT - according to the Spanish acronym) which calls for a 
total of Euro 250 billion in spending for road, rail, air, 
port, urban, and intermodal transportation investment.  Half 
of the total is planned for the rail sector with high speed 
rail going from the existing 1200 kilometers of high speed 
rail line to 10,000.  The DCM noted USG work in port and 
maritime security with the MegaPort and Container Security 
Initiatives.  Embof explained in detail how U.S. construction 
and engineering companies perceive the Spanish public 
infrastructure market to be closed to non-Spanish firms.  We 
are not aware of any major government infrastructure 
contracts awarded to outside firms over the past ten years, 
for example.  While no formal, legal barriers exist, American 
and European construction firms see the market as closed and 
can't justify the resources to compete in upcoming tenders. 
We contrasted this with the success of Spanish companies in 
the U.S. public infrastructure market and also American 
engineering companies willingness to compete for private 
infrastructure contracts in Spain (e.g. LNG regasification 
plants, oil refineries, etc.)  State Secretary Morlan readily 
agreed that there should be reciprocal market access.  There 
was agreement that, absent legal barriers and given the 
historic perception (and experience) of a closed Spanish 
market, a practical solution would be for major Spanish 
infrastructure firms to invite qualified American companies 
to work with them in Spain. 
 
Gas Natural Withdraws Takeover Bid for Endesa 
 
¶10. (U) Spanish utility Gas Natural announced on February 1 
that it will withdraw its takeover bid for Endesa, Spain's 
largest utility, leaving Germany's E. On to proceed with its 
rival offer.  Gas Natural entered the bidding war in 
September 2005, with an offer that valued Endesa at 
approximately 24 billion euro (31.3 billion USD).  In 
February 2006, E.On launched the first of several counterbids 
and later raised its offer to 36.5 billion euro (47.5 billion 
USD).  Gas Natural Deputy Chairman Antonio Brufau announced 
in January 2007 that the firm would be unable to raise its 
bid levels to match E. On's offer.  Further, the Gas Natural 
states that its chances of gaining control of Endesa were 
hurt by opposition amongst Endesa's board members.  As such, 
Gas Natural plans to seek compensation for damages incurred 
during the bidding war.  E. On is likely to raise its offer 
once more to avoid any attempts by Endesa's largest 
shareholder, Acciona S.A., to block the deal.  Acciona is a 
Madrid-based construction and renewable energy conglomerate 
that has made its opposition to a foreign takeover widely 
known.  E. On claims that Acciona has previously tried to 
form a bloc of Spanish shareholders to prevent the takeover. 
 
¶11.  Notable/recent cables of interest: Telefonica's view of 
Latin America (Madrid 194), Terrorism Implementing 
Regulations (Madrid 183), and Section 1377 Telecom Review 
(Madrid 171). 
Aguirre