VZCZCXRO9880
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1440/01 2041330
ZNR UUUUU ZZH
R 231330Z JUL 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3056
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2929

UNCLAS SECTION 01 OF 03 MADRID 001440 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN EIND ELAB ETRD KIPR SP EINV UK
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
JULY 16 
 
 
MADRID 00001440  001.2 OF 003 
 
 
EFIN/EINV: Ambassador hosts Finance Minister Solbes with 
AMCHAM 
PGOV/ECON: Juan Costa to oversee PP's electoral program 
EINV/ECON: Spain 24th in World Technology Competitiveness 
league 
EINV/EFIN: Possible Real Estate Bubble will not affect all 
companies equally 
ELAB: Businesses have not yet complied with new gender 
equality law 
EAGR/BEXP: Aflatoxin inspections to begin on US almond exports 
ECPS/EFIN: Telefonica to focus on internal growth 
SENV/EINV: Inditex attempts environmentally friendly growth 
EINV: New law to reduce minority shareholder's ability to 
prevent takeover bids 
 
RAISING THE PROFILE OF ECONOMIC-COMMERCIAL ISSUES IN THE 
BILATERAL RELATIONSHIP - AMBASSADOR HOSTS FINANCE MINISTER 
SOLBES WITH AMCHAM ON JULY 17 
 
¶1. (U) In what we hope to be the first of biannual meetings, 
the Ambassador led a discussion with Vice President and 
Finance Minister Solbes and AmCham board members on economic 
issues of interest to the AmCham.  Ambassador attended a 
similar event with the Minister of Industry on May 10, and we 
intend to organize a meeting along similar lines with the 
Minister of Agriculture towards the end of the year.  The 
AmCham members raised the double taxation treaty, holding 
company tax issues, public sector contract bidding 
challenges, the lack of English proficiency in Spain, and the 
difficulty of getting visas for high-tech staff in Spain. 
The Minister of Finance was in his element.  Without 
necessarily agreeing with all of the lunch participants, he 
provided perspective and was open to reviewing the AmCham 
suggestions.  The Minister also said growth would slow down 
next year to 3.2% from 4% this year, although that was a good 
thing according to him.  His main concern is not the effect 
of European Central Bank interest rate hikes per se but 
rather how the stronger euro might affect the economic 
situation.  Septel to follow. 
 
OPPOSITION CONSERVATIVE PP PARTY CHOOSES RODRIGO RATO PROTEGE 
JUAN COSTA TO OVERSEE DEVELOPMENT OF ELECTORAL PROGRAM 
 
¶2. (U) The 42 year old Costa is a former Science and 
Technology Minister.  He will edit the PP's electoral 
program.  (Comment: The Costa appointment is widely seen as 
evidence of resigning IMF Chairman and former Finance 
Minister Rodrigo Rato's influence on the PP.  The appointment 
may presage economics gaining greater prominence in the PP's 
message.  (Expansion, July 17, 2007) 
 
SPAIN NUMBER 24 IN WORLD TECHNOLOGY COMPETITIVENESS LEAGUE 
 
¶3. (U) The Economist Intelligence Unit (EIU) says Spain is 
ranked 24th in its world technology competitiveness report. 
The EU says the UK occupies the number 4 spot, Germany number 
16, France number 18 and Italy number 23 so Spain is last 
among the big five EU economies.  The EIU study was financed 
by the Business Software Alliance, which also factored in the 
importance of a good Intellectual Property Rights 
environment. (Cinco Dias, July 12, 2007) 
 
NOT ALL SPANISH COMPANIES EQUALLY EXPOSED TO POSSIBLE REAL 
ESTATE BUBBLE BURST 
 
¶4. (U) The well known FT commentator Leslie Crawford, 
recently said: "Since the start of the year, the Spanish 
economy has felt like a huge party on the Titanic, cruising 
heedlessly onto an iceberg of corporate debt."  She focuses a 
lot on the increase in corporate debt and signs that the 
housing market is finally cooling down.  For instance, 
property sales fell 7% in 2006 compared with 2005.  Crawford 
then goes on to separate Spanish companies into three broad 
categories.  First, firms that are investing in capital goods 
(increased investment in this sector is something the 
government likes to trumpet) to meet demand from Germany in 
many cases.  GE Spain CEO Mario Armero says: "Investment in 
capital goods is a new motor of economic growth."  Second, 
companies, often construction firms, that have bought 
controlling stakes in other enterprises such as Ferrovial's 
purchase of UK airport operator BAA.  Third, construction 
groups that have borrowed heavily to buy non-controlling 
stakes in other companies - Crawford mentions Sacyr 
Vallehermosa, ACS, Acciona and Colonial.  She thinks these 
companies are very vulnerable to interest rate hikes and a 
consequent slowdown in real estate.  Crawford concludes that 
this economic cycle will not necessarily "end in tears," but 
does think that some major Spanish firms are no longer 
"masters of their own destiny."  (Comment: Interestingly the 
 
MADRID 00001440  002.2 OF 003 
 
 
only firm in the capital goods investing category that 
Crawford mentions is an American company, GE.  That does not 
mean there aren't Spanish firms that invest in capital goods. 
 There are a number, especially in the renewable energies 
sector, but it is interesting nonetheless.  Spain still does 
not have a single really big flagship technology-based 
company.)  (FT July 14) 
 
EQUALITY LAW UPDATE: BUSINESSES HAVE NOT YET COMPLIED 
 
¶5. (U) Minister of Labor Jesus Calderon reported this week 
that businesses had yet to draft plans that would comply with 
the recently passed "equality law" (Ley de Igualdad 2007). 
Among other provisions, the law mandates that any business in 
Spain with more than 250 employees develop a "gender action 
plan" to actively "prevent discrimination based on gender." 
The law envisions for example that businesses would provide 
additional family benefits such as paternity leave to those 
workers who have not traditionally received it, and would 
potentially take measures to increase female representation 
in higher levels of the corporate world.  This law has 
received much criticism from local businesses who say it is 
unwieldy and interventionist.  Though still early for full 
implementation, experts worry that the more than 4,700 
businesses currently subject to the law will have difficulty 
complying with it. 
 
AFLATOXIN INSPECTIONS TO BEGIN ON US ALMONDS 
 
¶6. (U) Spain is the most important export market for U.S. 
almonds, and the Government of Spain (GOS) will start 
inspecting all U.S. almond shipments for aflatoxin beginning 
September 1, 2007, in compliance with a European Commission 
(EC) directive.  The inspection rate will be 100 percent for 
U.S. shipments that are not exported under the Almond Board's 
voluntary aflatoxin sampling program (VASP) and at a five 
percent rate for VASP shipments.  In a July 18, 2007, meeting 
with the health ministry (charged with conducting the 
increased inspections), the GOS agreed to provide the U.S. 
Government through the U.S. Embassy any and all U.S. almond 
inspection-related data beginning September 1, 2007. 
USDA/Washington will use the data to monitor aflatoxin levels 
in shipments under the VASP, versus those not under the VASP, 
and to ensure that the inspection rates are not in excess of 
those mandated by the EC. 
 
TELEFONICA SWEARS OFF FURTHER LARGE ACQUISITIONS TO FOCUS ON 
INTERNAL GROWTH 
 
¶7. (U) Spanish telecom giant Telefonica has promised no more 
major deals.  Although this would fly in the face of industry 
trends, for Telefonica the move makes sense.  More than 100 
billion euros worth of acquisitions over the last ten years 
has kept Telefonica a step ahead of rivals through growth 
abroad.  However, Telefonica has accumulated 55 billion euros 
worth of debt.  Furthermore, Telefonica faces the industry 
wide challenges of poor business in fixed-line phone service, 
and high competition in European mobile phone and high speed 
internet markets.  Telefonica says that now the time is right 
to start paying down debt and concentrating internally on 
improving its services.  Whatever Telefonica's course, the 
future looks bright.  Analysts believe that estimates of a 
14%-20% increase in operating profits this year could be 
realistic if Telefonica performs strongly in Mexico and 
Brazil.  If Telefonica can improve overall service to win 
business in Europe and reap the benefits of Latin American 
growth, the firm should continue to prosper. 
 
INDITEX ATTEMPTS ENVIRONMENTALLY FRIENDLY GROWTH 
 
¶8. (U) The Spanish textile group and owner of the Zara 
fashion brand is in the process of spending 380 million euros 
improving logistical operations from 2006-2008 in order to 
facilitate growth, particularly in Europe, but also in 
emerging markets.  As part of this plan, Inditex expects to 
spend 70 million euros in order to obtain 50% of the energy 
required to run its logistical operations from renewable 
sources by 2010.  This will be accomplished through the 
installation of solar panels on its logistical operations 
centers, the use of bio diesel fuels and low emission 
vehicles in its transportation fleet, and by improving energy 
efficiency in its stores and factories.  Inditex, which 
already uses solar power at its headquarters in Arteixo, says 
that it expects its investment to be both environmentally 
friendly and profitable. 
 
NEW LAW TO REDUCE THE POWER OF MINORITY SHAREHOLDERS TO 
PREVENT TAKEOVER BIDS 
 
 
MADRID 00001440  003.2 OF 003 
 
 
¶9. (U) The GOS is finalizing a new law that will reduce the 
ability of a minority shareholder protecting a company from a 
potential takeover bid.  The new law, scheduled to take 
effect on August 13, says that a minority shareholder must 
have 30% of the voting rights versus 25% today, in order to 
be able to prevent a takeover bid.  Another "lesson learned" 
from the controversial takeover attempt of the energy utility 
Endesa reflected in the new law is the requirement that a 
company that decides to defend itself from a takeover bid 
must submit to a general meeting of shareholders. (Expansion, 
July 17) 
AGUIRRE