VZCZCXRO0053
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1038/01 1501414
ZNR UUUUU ZZH
R 301414Z MAY 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 2652
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2759

UNCLAS SECTION 01 OF 02 MADRID 001038 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: BEXP EAGR EAIR ECON EFIN EIND ETRD TBIO SP
EINV, UK 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
MAY 21 
 
MADRID 00001038  001.2 OF 002 
 
 
EINV: All time high for Spanish stock market 
EINV/ETRD: Decline of the real estate market 
EAGR/ETRD: US beef and EUR market 
EINV/ECON: US owned Texas Pacific Group teams up to buy Iberia 
EINV: Iberdrola to sell 20% for quick cash 
EINV/ETRD: Tourism up in Spain 
ELAB/EFIN: Degree or no degree - pay gap decreases 
SENV: Is the drought finally over? 
 
SPANISH STOCKMARKET IBEX-35 HITS ALL-TIME HIGH 
 
¶1. (U) Shaking off (at least for now) jitters of a few weeks 
ago, the IBEX-35 hit an all-time high on May 23 of 15,229.9 
points.  The market is up 7.62% so far this year.  Despite 
fears of a housing market slowdown, even the big construction 
firms such as Ferrovial, ACS, FCC, Sacyr and Acciona have run 
up stock gains.  There may even be room for more gains. 
Merrill Lynch, for instance, says Ferrovial's stock is worth 
24% more than it is currently traded.  Continued strong 
Spanish economic growth during the first quarter of 2007 
(4.1% on an annualized basis) no doubt helps underpin the 
stockmarket.  In addition, the Spanish Institute of 
Statistics (INE) published numbers on May 23 indicating that 
industry and investment are becoming relatively more 
important than construction and personal consumption as 
growth drivers.  Even productivity is up somewhat.  However, 
all analysts agree Spain still remains vulnerable to 
construction slowdown induced lower growth, or even a 
recession at some point. (Comment: The INE numbers are 
especially important as the government argues that it is 
changing Spain's growth model.  El Pais, considered close to 
the government, comments in its May 24 editorial that there 
are some signs the government's economic policies are having 
an effect, although Spain still remains dangerously 
over-reliant on construction.  The newspaper adds that it 
will take several years to reduce this reliance and skillful 
management of the economy to avoid a "hard landing.") 
(Expansion, May 24, 2007; El Pais, May 24, 2007) 
 
DISINFLATION OF THE REAL ESTATE MARKET 
 
¶2. (U) New data reaffirms the slow but sustained descent of 
the Madrid real estate market. The Spanish Mortgage 
Association figures show that in 2006, 68.9% of a family's 
income went into the purchase of a new home, 3 points less 
than the previous year.  While a Morgan Stanley study has 
dramatically decreased the consequences of increase of the 
types of interest of mortgages to Spanish families.  Those 
who closed before 2003, a supposed 82%, contracted interest 
rates at a similar or higher than the current rate. 
Concluding that only 18% of families would be seriously 
affected by the unstoppable increase of the Euribor in the 
last three years. (20 minutos, May 22) 
 
US BEEF MAD COW FREE 
 
¶3. (U) On May 22, 2007, at the annual meeting in Paris of the 
World Organization for Animal Health (OIE), the United States 
was recognized as having a controlled risk status for BSE 
(mad cow's disease).  This decision is important, because it 
opens the door for the U.S. Government to request that 
countries, which had closed their borders to U.S. meat 
exports because of BSE, reopen their markets. Korea is a 
prime example and target. 
 
¶4. (U) While there is some discussion of making a special 
effort to present this new international recognition to the 
European Commission (EC), with the opportunity of presenting 
it to the individual Member States, U.S. meat-access problems 
in Europe stem from the EC's unwillingness to open European 
borders to U.S. beef produced using synthetic hormones.  The 
EC lost a WTO case on this issue, but has not relented, 
providing U.S. beef exporters a small, overly-managed quota 
for non-hormone-treated beef.  In addition, the U.S. 
Government applied tariff retaliation on specified European 
exports to the United States. 
 
¶4. (U) The U.S. Government is talking to the EC about the 
possibility of providing U.S. beef exporters additional 
access for non-hormone-treated beef.  However, there are 
additional market-access problems associated with EC 
certification of U.S. meat packing plants, the use of 
anti-microbial treatments on carcasses, not to mention that 
the requested increase in the quota and the counter-offer are 
light-years apart, all of which will likely slow or impede 
near-term success on this front. 
 
AIRLINE PURCHASING WARS 
 
MADRID 00001038  002.2 OF 002 
 
 
 
¶5. (U) Texas Pacific Group (TPG) teams up with British 
Airways (BA) and Spanish companies Vista Capital, Ibersuizas, 
and Quercus to buy Iberia: Should the takeover bid succeed, 
Spanish firms would retain a majority of the voting rights. 
This is necessary for Iberia to maintain lucrative routes to 
Latin America.  Santander is involved in financing the 
takeover bid.  The American firm is known for having 
previously purchased Continental Airlines and recently bought 
Alltel together with Goldman Sachs. (Comment: Interestingly, 
the TPG/BA bid has not provoked nationalist reactions, 
presumably because the majority of the voting rights would 
remain in Spanish hands.  Nonetheless, if this bid prospers 
on one of Spain's "flagship" companies, it would say a lot 
about Spanish receptivity to foreign investment.) (Expansion, 
May 22, 2007) 
 
RENEWABLE ENERGY BUSINESS FOR SALE 
 
¶6. (U) Iberdrola to sell 20% of its renewable energy business 
and hopes to raise Euros 4 billion on the stockmarket: 
Iberdrola needs the money given its recent Euros 17.1 billion 
purchase of Scottish Power.  The renewables business is 
grouped together in the Iberenova subsidiary.  Even after the 
sale Iberdrola will maintain control of Iberenova.  Wind 
power is overwhelmingly what Iberenova does in the renewables 
area.  It already generates a significant share of its 
business in the U.S., and its largest expansion plans are in 
the U.S. (El Pais, May 23, 2007) 
 
TOURISM INCREASES IN SPAIN 
 
¶7. (U) In the first quarter of 2007, there was a 2.7% 
increase in tourism over the previous year.  According to a 
GoS FRONTUR survey a total of 14.9 million tourists came to 
Spain during the first quarter, primarily to Madrid, 
Andalucia, and Valencia.  The increases were mainly 
attributed to tourists from the US, Portugal and Ireland. 
 
DECREASING PAY GAPS FOR THOSE WITH DEGREES 
 
¶8. (U) The salary difference in Spain for those with degrees 
and those without is decreasing.  According to a recent 
report by the "Servicio de Estudios de la Caixa"  the salary 
gap between those with university degrees and those with high 
school degrees fell 40% between 1997 and 2004.  The study 
indicates that the decrease is caused by a saturation of the 
market of university degrees without a similar increase in 
corresponding jobs.  Ten years ago, 19% of Spaniards between 
the ages of 25 and 64 had college degrees.  In 2004, that 
rate increased to 26%.  This overabundance of workers with 
degrees has decreased the value of a university degree and 
forced many to take lower-paying jobs. 
 
RAIN RAIN GO AWAY 
 
¶9. (U) Unusually high rainfalls over the past few weeks 
across Spain have caused flooding in various parts of the 
country, particularly in Castilla-La Mancha, the 
Mediterranean coast, and Madrid.  The rains have affected 
railways traffic in such cities as Madrid, Valencia, Alicante 
and Murcia.  Well-used road-ways in Madrid such as the M-30 
beltway, including a number of newly opened Madrid tunnels 
have also suffered severe flooding, days before the local 
elections. Given that Madrid mayoral candidate and incumbent 
Alberto Ruiz-Gallardon (PP) has toted his accomplishments in 
public work programs and roadways, it remains to be seen 
whether the rains will affect the votes. Despite the heavy 
rainfall, reservoirs have still not reached their full 
levels, some recent estimates indicating that the reservoirs 
were only at 64.8% of total capacity.  Previous droughts were 
severe enough that even with the recent abundance of rain, 
water levels are still below their ten-year average. 
AGUIRRE