VZCZCXRO1687
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0981/01 1411641
ZNR UUUUU ZZH
R 211641Z MAY 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 2582
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2730

UNCLAS SECTION 01 OF 02 MADRID 000981 
 
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 14 
 
MADRID 00000981  001.2 OF 002 
 
 
EINV: First quarter shows economy increased by 4% 
EINV/ETRD: Lower growth forecasted as early as 2008 
EINV/ECON: Telefonica sells Endemol for 2.6 billion euros 
EINV/ECON: Zapatero to visit Panama, possibly seeking 
cooperating tax haven 
EINV/ETRD: AMCHAM survey results - US investors leery of 
investing in Spain 
ELAB: Galicia workers strike for new contracts 
 
 
SPANISH ECONOMY CONTINUES TO GROW 
 
¶1. (U) Spanish economy grew by 4% on an annualized basis 
during the first quarter of 2007, according to the National 
Institute of Statistics (INE).  The composition of the growth 
(exports, domestic demand, construction etc.) will be 
released in the next couple of weeks.  Analysts will be 
looking to see if Spanish exports are increasing or if the 
fragile construction sector remains the engine of growth. 
(Comment: Recent stock market jitters probably came too late 
in the quarter to have an impact on the figures.  It will be 
interesting to see if growth can be sustained in the 
subsequent two quarters.  Observers remain skeptical that 
Spain can maintain this pace in growth given productivity 
problems and low competitiveness in general. 
 
MORGAN STANLEY FORECASTS LOWER GROWTH STARTING IN 2009, MAYBE 
EVEN IN 2008 
 
¶2. (U) Morgan Stanley analyst Eric Chaney has three scenarios 
for the Spanish economy.  The most pessimistic one says 
Spanish growth will average 2% a year between 2008 and 2017. 
Chaney talks about a possible recession in 2009 as well. 
Why? European Central Bank interest rate hikes responding to 
French/German salary increases; bankruptcies in the 
construction sector; and a global recession sparked in part 
by increased protectionism.  The first and third of Chaney's 
factors are outside of Spanish control.  The other two 
scenarios contemplate softer landings but still significantly 
slower growth.  (Comment: The reality is that everybody knows 
that Spain's construction-led growth model cannot last 
indefinitely.  The issue is how much longer it will last and 
more to the point, when does Spain stop performing above the 
Eurozone average?  For President Zapatero, who has to fight 
parliamentary elections by March 2008 at the latest, 
hopefully not for a year or so.) (Expansion, May 18, 2007) 
 
MEDIASET AND TELE 5 BUY ENDEMOL 
 
¶3. (U) Berlsusconi-controlled Mediaset and Tele 5 buy TV 
producer Endemol from Telefonica for Euros 2.6 billion:  This 
acquisition means that in addition to Berlusconi owning 
Spain's most profitable TV channel, Tele 5, Berlusconi now 
also owns Spain's biggest TV producer, Endemol.  Among other 
programs, Endemol produces the Spanish version of the hugely 
popular "Big Brother". 
 
COOPERATING TAX HAVEN STATUS FOR PANAMA? 
 
¶4. (U) Spanish Construction Companies want GOS to declare 
Panama a "cooperating tax haven" in order to compete for 
contracts for canal expansion: President Zapatero's Economic 
Adviser, David Taguas, is involved in negotiating such status 
for Panama and reportedly met with Panama's Vice President to 
discuss the matter.  President Zapatero will visit Panama on 
July 17.  There are procedures worked out by the OECD for 
obtaining "cooperating tax haven" status.  (Comment: Given 
the Euros 4 billion at stake, it is understandable that 
Spanish construction companies are pressuring the Spanish 
government on this matter.) (El Pais, May 21, 2007) 
 
AMCHAM REPORTS TENTATIVE ATTITUDE FOR NEW US INVESTMENTS IN 
SPAIN 
 
¶5. (U) AmCham "Barometer" of American companies reports 
cautious attitude towards new investments in Spain: According 
to the AmCham survey, which is conducted every year, American 
firms do not see much scope for increasing their investments 
in the automotive, chemicals or metallurgy sectors.  The 
survey finds limited opportunities in consulting and less 
specialized services.  Government bureaucracy and the 
inflexible labor market are the U.S. firms main gripes. 
(Comment: There is no doubt that U.S. firms will invest less 
in manufacturing in Spain over the coming years as Spanish 
wages have mostly caught up with their richer European 
neighbors and productivity lags in Spain.  What this survey 
does not capture, however, is whether U.S. firms are 
investing less in general overseas.  Moreover, it does not 
 
MADRID 00000981  002.2 OF 002 
 
 
capture the relatively new phenomenon of massive American 
portfolio investment in Spanish firms, which is likely to 
continue.) (Expansion, May 21, 2007) 
 
PROTEST IN VIGO 
 
¶6. (U) Shipyard workers in Vigo, Galicia, continued their 
almost two week long strike to protest the high ratio of 
workers employed via temporary contracts (a breach of an 
agreement from the previous year).  The protest turned 
aggressive this week with laborers blocking streets and 
setting fires to tires and trash cans.  On Tuesday, the 
protesters broke into the Council headquarters throwing 
hundreds of files out of the windows. 
LLORENS