VZCZCXRO4623
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0630/01 0941511
ZNR UUUUU ZZH
R 041511Z APR 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 2219
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2597

UNCLAS SECTION 01 OF 02 MADRID 000630 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: BEXP EAGR EAIR ECON EFIN EIND ENRG ETRD KNNP
SENV, TBIO, SP, EINV, UK 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT 
 
MADRID 00000630  001.2 OF 002 
 
 
EINV/BEXP: Spanish Economic Growth 
TBIO: Biotechnology controversy over use of MON863 
BEXP/TBIO: Frozen strawberries to compete with U.S. market 
EINV: Endesa - is it finally over? 
 
MACROECONOMICS IN SPAIN 
 
¶1. (U) Financial Times Columnist Martin Wolf says "The pain 
in Spain will follow years of rapid economic gain" - but he 
argues the pain may still be years away.  Wolf addresses the 
issue of whether current account deficits matter inside a 
monetary union.  His answer: "no, because there cannot be a 
currency crisis; and yes, because there cannot be a currency 
crisis."   He concedes that, up to a point, it is correct 
that imbalances within the eurozone should not matter more 
than a difference in the balance of payments between Scotland 
and England.  But he points out that at some point creditors 
might find debtors less creditworthy than they thought.  In 
Spain's case, this would mean credit for construction (hugely 
significant in Spanish growth) would dry up.  So "currency 
risk turns into credit risk."  Spain will likely have 
difficulty in replacing lost domestic demand with foreign 
demand (exports) for six reasons the OECD highlights:  (1) 
Spain has suffered a loss in competitiveness; (2)  Spanish 
exports are generally low in technological value; (3)  much 
of recent Spanish investment is in non-tradeables, i.e. 
construction; (4)  Spanish industry is vulnerable to 
competition from Asia and Eastern Europe; (5) underlying 
productivity growth is low; and (6)  wage bargaining is 
rigid. (Comment: While Wolf's analysis is not completely 
original, it is worth reading because it summarizes so well 
the macroeconomic questions people ask about Spain.  But 
while the analysis is persuasive, Wolf makes no short-term 
predictions.  This well respected analyst concludes that we 
will have a better idea of how the Spanish economy adjusts a 
"decade or so from today".  This helps explain why economic 
issues do not loom large in current Spanish political 
discourse.) (Financial Times, March 28, 2007) 
 
FRENCH QUESTION MONSANTO'S DATA ON MON863 
 
¶2. (U) There appears to be immense potential for a new 
European Union (EU) agriculture biotechnology controversy to 
further set back the biotechnology approval process used by 
European Food Safety Authority (EFSA) and the European 
Commission (EC) for approving new agriculture biotechnology 
events in Europe.  The Government of Spain (tending 
more-and-more against biotechnology) has not publicly reacted 
to this latest biotechnology controversy, wherein a French 
laboratory has called into question the data used by Monsanto 
to gain EFSA approval of MON863 for feed and seed use in the 
EU.  The biotechnology event MON863 is a transgenic root 
borer resistant corn variety that was approved by EFSA in 
2005, but has not yet been admitted into the EU seed catalog, 
because a qualified majority of EU Member States did not 
support its introduction, and because the EC has not taken 
the subsequent and required decision to introduce this event. 
 
¶3. (U) In 2006, Greenpeace won access to the Monsanto data 
provided to EFSA in support of MON863, and under their 
sponsorship that data was put under intense scrutiny by 
researchers from the University of Caen in France.  The Caen 
researchers' findings pointed to kidney damage in rats fed 
MON863, findings not deemed relevant by Monsanto or EFSA. 
Monsanto-Spain says that the new findings resulted from 
analyzing the original data out of context, and EFSA, for its 
part, will now reevaluate the original Monsanto data and its 
own findings that supported the safety of MON863. 
 
SPANISH USING EU BANNED PRACTICES ON STRAWBERRIES 
 
¶4. (U) The World Wildlife Fund (known in Spain as WWF/Adena) 
may have unwittingly forced greater competition and possibly 
lower prices in frozen strawberry trade for U.S. producers. 
WWF/Adena has accused the Spanish strawberry industry of 
using environmentally-destructive practices and has launched 
a campaign to block Spanish-produced strawberry distribution 
within Europe.  WWF/Adena charges that producers continue to 
use methyl bromide to irradiate soil pests in spite of an 
European Union (EU) ban on the practice beginning in 2004. 
In addition, WWF/Adena has accused the Spanish producers of 
invasion and degradation of Donana Park, a world patrimony 
site that harbors migratory birds traveling between Europe 
and Africa. 
 
¶5. (U) Reportedly, in response to the WWF/Adena accusations, 
supermarket chains throughout Europe are reducing their 
orders for Spanish strawberries, with Spanish industry 
officials indicating that orders are down, year-on-year, by 
 
MADRID 00000630  002.2 OF 002 
 
 
some 50 percent.  About 80 percent of fresh Spanish 
strawberries are exported to other EU Member States, 
especially the northern States, so producers will now likely 
need to shift from fresh export to processing, including 
producing frozen strawberries, a product line where Spanish 
producers compete with U.S. producers. 
 
ENDESA TAKEOVER SAGA COMES TO AN END 
 
¶6. (U) On 4/2/07, Germany's Eon, Italy's Enel and Spain's 
Acciona announced they would end the dueling over Endesa. 
Effectively, they agreed to divide the company's assets.  Eon 
will end up with Endesa's assets in Italy, France, Poland and 
Turkey plus a small power generation company in Spain.  The 
Enel/Acciona group will end up with most of Endesa,s assets 
in Spain and Latin America.  Thus ends a battle royal that 
started on 9/5/05 with Barcelona-based Gas Natural launching 
a hostile takeover bid for Endesa.  The PP-appointed CEO of 
Endesa, Manuel Pizarro, responded furiously and is widely 
considered to have engineered Eon's much more generous 
counterbid on 2/21/06.  The GOS clearly favored the Gas 
Natural bid, many people say in order to placate their 
Catalan political allies.  The takeover battle resulted in 
lawsuits in Spain and involvement by regulatory authorities 
in Madrid and Brussels.  The GOS came under heavy criticism 
for promoting the "national champion" concept.  The 
opposition PP took a nominally free market line, but it was 
obvious it preferred Endesa be controlled by anybody but a 
Catalan company, thus exposing continuing deep political 
fault lines in Spanish politics.  So who wins and who loses 
from this deal?  The GOS loses because Endesa will be carved 
up, i.e. it will not become a Spanish national champion. 
But, in return for letting Italy's Enel manage (it is 
investing more than Spanish construction firm Acciona) 
Endesa's Spanish and Latin American assets, there is 
speculation that Italy might be more receptive to Spanish 
construction company takeovers in Italy.   Germany's Eon does 
not get all of Endesa, but it does end up with the majority 
of the company's European assets, which some commentators say 
is what the company was mostly interested in anyway.  The 
shareholders win as they are getting Euros 41 a share as 
opposed to the roughly Euros 22 originally offered by Gas 
Natural.  The Spanish President of the CNMV (Spain's SEC 
equivalent), Manuel Conthe, is a casualty, if not necessarily 
ultimately a loser.  He resigned on 4/2/07, reportedly 
because he felt pressured by the GOS to favor the 
Enel/Acciona offer for Endesa.  There are many other twists, 
plots and sub-plots associated with this story.  But the 
biggest feature of  this corporate struggle is that it was so 
revealing of the limits of the idea of a single common 
European market driven by economics.  Politics played as big 
a part in determining winners and losers, if not a bigger 
part.  This no doubt explains why The Economist considers 
Spain and Austria to be the most economically nationalistic 
members of the EU.  (All media) 
Aguirre