VZCZCXRO8892
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1199/01 1700148
ZNR UUUUU ZZH
R 190148Z JUN 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 2806
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2814

UNCLAS SECTION 01 OF 02 MADRID 001199 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN EIND ELAB ETRD TBIO SP EINV
UK, SMIG 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
JUNE 11 
 
MADRID 00001199  001.2 OF 002 
 
 
ECON/ELAB: OECD urges Spain to adjust their pensions 
SMIG/SOCI: Spain's population reaches 45 million 
EFIN/EINV: Foreign Investors' list of major complaints 
EAGR: EU agrees to reform subsidy methodology 
ELAB: 2 million pensioners live on less than 469 euros 
ELAB: Airline strike in the Canary Islands affects flights 
SOCI: Rising unemployment rate for immigrants 
ECON/EFIN: Savings banks growing faster than traditional 
EIND/ENRG: Increased electricity prices cause complaints 
 
OECD URGES SPAIN TO ADJUST THEIR GENEROUS PENSIONS 
 
¶1. (U) The OECD indicated this week that Spain needs a 
"fundamental and urgent" reform of their pension system, 
particularly given Spain's aging population. The OECD says 
that Spain is the fourth most generous of its member 
countries; a Spaniard with an average salary will receive 
approximately 81.2% of his salary compared with the average 
rate of 59% for other OECD countries.  Given its aging 
population, Spain's level of pensions will be difficult if 
not impossible to sustain in the long-term. 
 
SPAIN'S POPULATION REACHES 45 MILLION 
 
¶2. (U) Roughly five million people in Spain are immigrants. 
EU-27 immigrants number about 1.7 million; almost 800,000 are 
from Africa; and about 1.4 million from South America. 
Morocco, Romania, Ecuador, the UK and Colombia have sent the 
largest number of immigrants.  (Comment: The numbers are 
astonishing.  After the U.S., Spain is the OECD country that 
receives the most immigrants.  Spain has been a net recipient 
of people for about half a decade.  Spaniards are still 
getting used to this phenomenon.  Good economic times, as 
well as the large numbers of culturally and linguistically 
very assimilatable South Americans, have made immigration 
relatively uncontroversial.  However, problems with 
integrating more Muslim immigrants, and potentially lower 
economic growth in the future, may change this in the next 
couple of years.  For now though, Spaniards take pride in 
having a higher population.  With births per woman well below 
the replacement rate, a few years ago Spaniards feared 
population decline.) (El Pais, June 12, 2007) 
 
SPANISH FOREIGN INVESTMENT ATTRACTION BODY (INTERES) LISTS 
FOREIGN INVESTORS' MAJOR COMPLAINTS 
 
¶3. (U) Foreign investors (foreign investors in general, not 
just American firms) complain about the rigid labor market, 
uncertain legal framework, overzealous tax inspectors; and 
politicized regulators.  Net Foreign Direct Investment (FDI) 
has declined from Euros 29.4 billion in 2000 to Euros 3.6 
billion in 2006.  The Spanish government recently created 
Interes in order to stimulate additional investment, 
particularly in research & development-based industries. 
Many American firms share the same concerns. (Comment: With 
increasing wage rates, the glory days of major FDI in 
factories are over for Spain.  Spanish corporations, however, 
are much richer and can take up some of the slack.  Spanish 
companies are now also major investors overseas. 
Nevertheless, if Spain is going to transform itself from a 
bricks and mortar-based economy to a high tech value added 
goods and services producing economy, more foreign investment 
is critical.) (Expansion, 6/6/07) 
 
EU AGREES ON SUBSIDY REFORM 
 
¶4. (U) The European Union has agreed to reform the subsidy 
methodology used to support European producers of fruit and 
vegetables.  Because Spain is the most important producer of 
fruit and vegetables in the European Union, reform is of 
utmost concern to Spanish producers and Government 
representatives.  The Spanish Minister of Agriculture went on 
the offensive the day of agreement June 12, announcing on 
Spanish television that the Government had achieved all of 
its goals and had negotiated the ability to pay Spanish 
tomato growers 15 million Euros during this year's campaign 
to help ease the current economic crises.  Other important 
features of the reform will include four, and five-year 
transitions from payment for production, to payment based on 
hectares harvested for tomatoes and citrus fruit, 
respectively. 
 
¶5. (U) At first blush and without full disclosure of all of 
the details of the program, it appears to out of step with 
the reforms in other sectors, which featured a "single farm 
payment," based on historical subsidization.  This new 
approach appears to be a "Blue Box" program that will require 
specific limitations on the number of hectares a farmer can 
 
MADRID 00001199  002.2 OF 002 
 
 
produce of any given fruit or vegetable crop.  There are 
current World Trade Organization (WTO) limits on the amount 
of funding the Europeans can spend on "Blue Box" programs, 
but because they are transitioning some of their other 
previously "Blue Box" programs to the Single Farm Payment, 
which have the potential to be notified "Green Box" under 
current WTO rules, those "Blue Box" limits were not likely to 
have been pertinent in the reform discussions. 
 
2 MILLION PENSIONERS SURVIVE ON 469 EUROS A MONTH 
 
¶6. (U) Despite the OECD's indications that Spain must reform 
their "generous" pension system, the average income of the 8 
million pensioners that exist in Spain is 553 euros a month 
(according to a local study by UGT).  The majority of 
pensioners in fact live below poverty levels, and receive 
less than 469 euros a month.  UGT declared this situation to 
be a violation of article 50 of the Spanish Constitution, 
which established that authorities would guarantee through 
suitable pensions economic sufficiency to citizens during 
their senior years.  There is also an equality issue at play 
given that women receive 30% less than men.  On the other 
side of the scale, 10% of pensioners receive 1,200 euros a 
month. 
 
STRIKE RESULTS IN FLIGHTS CANCELED IN CANARY ISLANDS 
 
¶7. (U) Over the past two weeks, strikes on the part of pilots 
and employees from local airline company "Binter" has 
resulted in up to dozens of flights canceled in addition to 
delays.  The strikes, provoked by employee complaints of job 
instability, has affected local flights on the Canary Islands 
as well as to Mauritania and to Morocco. 
 
UNEMPLOYMENT RATE FOR IMMIGRANTS INCREASES 
 
¶8. (U) Though total jobs may be increasing overall, an 
increase in unemployment rates for immigrant populations in 
Spain has led some to believe that the influx of immigrants 
may be reaching a saturation point.  2007 estimates indicate 
that one in five unemployed workers is an immigrant worker 
compared with a 2005/2006 estimate of one in seven. 
 
THE SAVINGS BANKS PHENOMENON IN SPAIN 
 
¶9. (U) Recent statistics show that "Savings Banks" are 
steadily growing above and beyond the rate of traditional 
banks.  A summary of 2006 statistics show that more than one 
thousand new branches of various savings banks were opened 
with an increase in jobs of over 6,000. In contrast, Spanish 
traditional banks opened slightly over 500 new offices with a 
corresponding 1,229 jobs.  Observers say that Spanish savings 
banks are positioning themselves to make the foray into the 
international economy 
 
MINISTRY OF INDUSTRY TO PROPOSE AN INCREASE IN ELECTRICITY 
PRICES 
 
¶10. (U) The Ministry of Industry's recent announcement that 
electricity prices will once again increase in July above 
inflation rates have caused some to complain that the 
government is reneging on a December 2006 promise to keep 
electricity prices consistent with inflation. The Ministry of 
Industry, with the support of the National Commission on 
Energy, is expected to raise price levels by 1.8% -- an 
additional increase above the January 2007 increase of 2.86%. 
 Others point out that this increase is incongruent with 
decreasing energy costs (due to more cost-effective cheaper 
sources such as hydraulic and wind energy).  However, 
industry experts say that this increase is needed in order to 
address past and anticipated deficits caused by previous 
miscalculations. 
Llorens