VZCZCXRO0762
RR RUEHRN
DE RUEHMD #1510/01 2151449
ZNR UUUUU ZZH
R 031449Z AUG 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3141
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 3954
RUEHLA/AMCONSUL BARCELONA 2966

UNCLAS SECTION 01 OF 02 MADRID 001510 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN EIND ELAB ENRG ETRD KIPR PTER
SENV, SP, EINV, UK 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
JULY 30 
 
MADRID 00001510  001.2 OF 002 
 
 
Table of Contents: 
 
EFIN: VP & Finance Minister Solbes downplays IMF warning of 
possible 2008 overheating in the economy 
ECON/EFIN: GOS facing difficulties getting budget approved 
ECON: IBEX 35 profits up 32% during the first half of 2007 
ECON/ELAB: Spanish companies having difficulty attracting top 
minds 
ENRG: Iberdrola purchases gas power plant in Oregon 
ENRG: Spain compromises with Algeria over natural gas 
EAIR/SMIG: Easyjet to open more routes between Madrid and 
Bucharest 
ENRG/EIND: Minister of Industry responds to Barcelona blackout 
ENRG/ENV: 2.4 billion euros budgeted to combat climate change 
 
SOCI: Spanish life expectancy falls 
ENRG: Gas Natural gets approval for power plant 
 
 
VICE PRESIDENT AND FINANCE MINISTER PEDRO SOLBES DOWNPLAYS 
IMF WARNING OF POSSIBLE 2008 OVERHEATING IN THE ECONOMY 
 
¶1. (U) Both the GOS and the IMF agree on a 2007 growth 
forecast of 3.8% and a 2008 forecast of 3.3%.  However, the 
GOS is somewhat less apprehensive of the possibility of 
overheating in 2008 and plays up increased capital goods 
spending and slight productivity improvements as evidence 
that there is a "transition to a new model of growth." 
Productivity growth was 0.8% in 2006, but is slated to 
increase to 1% in 2007 and 1.1% in 2008, still very low by 
U.S. EU standards. (Expansion, 7/28/07) 
 
GOS FACING DIFFICULTIES GETTING BUDGET APPROVED 
 
¶2. (U) The PSOE government does not have a parliamentary 
majority and therefore relies on support from Catalan and 
Basque nationalist parties to get its budget approved.  With 
general elections that must be held by March 2008 and more 
demands for investment in Catalonia, gaining that support is 
proving difficult this year.  There is speculation that the 
GOS may have to abort attempts to get a budget approved prior 
to the elections and operate on what would loosely be the 
equivalent of an American continuing resolution, i.e. the 
same budget in nominal terms, until after the next elections. 
 (Expansion, 8/1/07). 
 
IBEX 35 PROFITS UP 32% DURING THE FIRST HALF OF 2007 
 
¶3. (U) Mergers, sales of assets, corporate stock purchases, 
and the continuing strength of the construction sector 
explain the extraordinary increase in profits for the IBEX 35 
in the first semester of 2007. Note: The Spanish stock market 
has displayed some of the same volatility as bourses around 
the world, but if corporate profits remain strong throughout 
2007, the IBEX 35 should close out the year with net gains. 
Last year, the IBEX 35 was the best performer in Europe. 
(Expansion, 7/31/07) 
 
SPANISH COMPANIES HAVING DIFFICULTY IN ATTRACTING TOP MINDS 
 
¶4. (U) Despite a growing economy, charming cities and 
favorable climate, Spanish companies complain of difficulty 
in attracting "top minds".  Many of Spain's skilled graduates 
in medicine, biotechnology, finance, consulting, and 
engineering seek jobs abroad in pursuit of higher salaries 
and better opportunities.  Spain also has trouble attracting 
skilled foreigners due to rigid foreign labor entrance laws. 
As a point of comparison, the UK allows almost immediate 
entry to foreign graduates of top 50 business schools, while 
in Spain a similar candidate would face a 6-8 month wait for 
a residency permit.  (Expansion, 7/30/07) 
 
IBERDROLA TO CLOSE 120 MILLION EURO PURCHASE FROM OREGON 
 
¶5. (U) Spain's Iberdrola is close to concluding a deal on a 
120 million euro purchase of a 506 MW combined cycle natural 
gas power plant in Klamath, Oregon.  The plant is expected to 
complement Iberdrola's recent acquisition of Maine based 
Energy East and will help ensure its customers' energy 
supply. (Expansion 7/30/07) 
 
SPAIN COMPROMISES WITH ALGERIA OVER NATURAL GAS 
 
¶6. (U) Ministry of Industry Joan Clos and Deputy Foreign 
Minister Bernardino Leon recently negotiated two natural gas 
concessions with Algeria's Minister of Energy Chakib Khelil. 
First, Clos and Leon agreed to increase the ceiling on the 
 
MADRID 00001510  002.2 OF 002 
 
 
amount of natural gas Sonatrech (Algeria's state energy 
company) can sell to Spain.  Second, Minister Clos agreed to 
lift the restrictions placed by Spain's National Energy 
Commission (CNE) on Sonatrech's membership to the Medgaz 
pipeline consortium (a pipeline that will be constructed in 
2008 between Spain and Algeria).  Though these concessions 
have helped smoothed over tensions with Algeria, Algeria 
continues its dispute with Spanish companies Gas Natural and 
Repsol over the construction delay of a liquefaction plant in 
Algeria. (Note: Algeria is Spain's largest supplier of 
petroleum and natural gas). (All Media, Embassy). 
 
EASYJET TO OPEN MORE ROUTES FOR ROMANIAN IMMIGRANTS BETWEEN 
MADRID AND BUCHAREST 
 
¶7. (U) Perhaps as a sign of the increasing Romanian immigrant 
population in Spain, Easyjet announced this past week that 
the company would be opening up a low-cost route between 
Madrid and Bucharest starting in November, 2007.  The company 
noted that the main thrust of these flights would be to serve 
the burgeoning Romanian immigrant population in Spain, 
currently estimated at 400,000.  Arnaldo Munoz, Director of 
Easyjet for Europe, signaled that this type of flight may be 
just the beginning of its kind, with low-cost flights 
targeting the Moroccan immigrant population potentially on 
the horizon. (Cinco Dias, July 31). 
 
MINISTER OF INDUSTRY RESPONDS TO CRITICS ON THE BARCELONA 
BLACKOUT 
 
¶8. (U) Minister of Industry Joan Clos assured opposition 
party critics in Barcelona that the Ministry was actively 
addressing the infrastructure deficiencies that led up to 
last week's massive blackout in Barcelona.  Clos assured the 
Catalan representatives that the Ministry would move up the 
implementation date of its infrastructure improvement plan to 
2008, and would be placing particular emphasis on Catalonia. 
He added that the National Commission on Energy (CNE) was 
going to produce a study that would more clearly delineate 
the factors and players at fault for the power outage.  Note: 
On July 24, the accidental collapse of a faulty power line 
set off a chain reaction causing a blackout that initially 
affected 90 percent of Barcelona, bringing traffic, public 
transport and commerce to a halt. (All Media, August 1). 
 
2.4 BILLION EUROS BUDGETED TO COMBAT CLIMATE CHANGE 
 
¶9. (U) Secretary General for the Prevention of Climate 
Change, Arturo Gonzalo Aizpiri, announced that Spanish 
compliance with the Kyoto Protocol during 2008-2012 will cost 
2-3 billion euros.  The 2-3 billion euros will be used to 
implement the 80 "urgent measures" recently announced as part 
of the GOS's E4 Energy Savings and Efficiency Plan through 
2012, as well as the required market purchase of excess CO2 
carbon emissions.  The GOS estimates its CO2 levels for the 
period 2008-2012 will exceed the Kyoto Protocol limits by 
20%. (El Mundo, Aug. 1) 
 
SPANISH LIFE EXPECTANCY FALLS 
 
¶10. (U) According to estimates calculated by the national 
Statistics Institute, the overall health of the Spanish 
population is gradually worsening.  The 2007 report predicts 
that the average Spanish woman will live to be 83.76, while a 
Spanish man can be expected to live 77.33 years.  In 2006 the 
life expectancy was slightly higher at 83.90 years for women 
and 77.38 for men.  Analysts are not sure why the change has 
occurred, but some say immigration may be a factor. 
 
GAS NATURAL GETS APPROVAL FOR POWER PLANT 
 
¶11. (U) Gas supplier Gas Natural won approval from the 
Environment Ministry to build a power plant in Barcelona's 
port area capable of producing 850 megawatts of electricity. 
The plant is due to begin service in 2010 following an 
investment of 500 million euros. 
AGUIRRE