VZCZCXRO8536
RR RUEHRN
DE RUEHMD #1555/01 2250853
ZNR UUUUU ZZH
R 130853Z AUG 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3185
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 3956
RUEHLA/AMCONSUL BARCELONA 2978

UNCLAS SECTION 01 OF 03 MADRID 001555 
 
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 - 
AUGUST 6 
 
MADRID 00001555  001.2 OF 003 
 
 
Table of Contents: 
 
EFIN: Madrid stock market suffers fifth biggest loss in its 
history on Friday, August 10 
EFIN: Spanish economy up by 4.1% 
ECON/ENRG Abengoa buys Brazilian Dedinia Agro 
ELAB/ECON Salaries' share of GDP declining 
ECON: Telefonica (Vivo) acquires Brazil's Telemig and 
Amazonia Cellular 
KIPR: Editorial supports Indian court judgment against 
Novartis 
EIND/ECPS: Telefonica to face populist opposition to 
expansion in Latin America 
ENRG: New GOS law will allow offshore construction of wind 
farms 
ENRG/EIND: Gamesa reports strong financial results 
ECPS: Post office to be fully integrated by 2008 
EAIR: Madrid Barajas airport increasing in international 
prominence 
EAGR: EC requirement will cause higher grain and oilseed 
prices 
TSPA: NASA receives positive coverage 
 
SIPDIS 
 
MADRID STOCK MARKET SUFFERS FIFTH BIGGEST LOSS IN ITS HISTORY 
ON FRIDAY, AUGUST 10 
 
¶1. (U) The Madrid exchange lost 2.59% of its value on Friday. 
 Banks and real estate groups lost most value.  What is 
happening in Spain is similar to what is happening in other 
major equities markets.  The major Spanish banks continue to 
say they are not overly exposed to the American subprime 
market, but analysts are not sure.  Local commentators 
overwhelmingly approve of the European Central Bank,s 
injection of liquidity into the system.  Next week is likely 
to be volatile as well for the Madrid stock market.  (Cinco 
Dias, 8/10/07) 
 
SPANISH ECONOMY UP BY 4% 
 
¶2. (U) The Bank of Spain says Spanish economy grew by 4.1% 
during the second quarter of 2007.  The Bank also highlights 
the 11% increase in investment in capital goods - 
construction accounted for a comparatively modest 5%.  This 
is important because the GOS is looking to change the Spanish 
"growth model" from one dependent on construction and 
internal demand to one more reliant on investment in capital 
goods/R&D and exports.  (El Pais, 8/7/07) 
 
ABENGOA BUYS BRAZILIAN DEDINIA AGRO FOR USD 684 MILLION 
 
¶3. (U)  Dedinia is a major ethanol and sugar producer.  This 
acquisition is part of Abengoa's strategy to become a global 
leader in renewable energy.  The Andalucia-based firm is 
already the fifth largest bioethanol producer in the U.S. 
(Expansion, 8/7/07) 
 
SALARIES' SHARE OF GDP DECLINED BY 13% 
 
¶4. (U) Bank of Spain releases study showing that salaries' 
share of GDP has declined by 13% in the eurozone since 1980 
as a result of increased labor market flexibility and 
technological change.  In Spain the decline has been a 
relatively modest 4% since 1980.  (El Pais, 8/7/07) 
 
TELEFONICA (VIVO) ACQUIRES BRAZIL'S TELEMIG AND AMAZONIA 
CELLULAR 
 
¶5. (U) Telefonica-controlled Vivo beat Carlos Slim's Claro in 
acquiring Brazil's Telemig and Amazonia Celular for euros 469 
million:  This acquisition is being characterized as a 
Telefonica win by the national and international press. 
Comment: Telefonica appears to believe there is still some 
merit in the acquisitions route even though the company said 
recently it planned more "organic", i.e. internal, growth. 
(Expansion, August 4, 2007; Financial Times, August 4, 2007) 
 
 
EL PAIS EDITORIAL SUPPORTS INDIAN COURT JUDGMENT AGAINST 
NOVARTIS 
 
¶6. (U) Spain's leading daily says it supports robust patent 
protection for innovative drugs, but that some companies have 
gone too far in submitting incrementally improved drugs for 
new patent terms.  (El Pais, 8/8/07) 
 
TELEFONICA FACES POPULIST OPPOSITION TO EXPANSION IN LATIN 
AMERICA 
 
MADRID 00001555  002.2 OF 003 
 
 
 
¶7. (U) Telefonica is said to face "populist" opposition to 
expansion in Brazil, Ecuador, Venezuela and Argentina.  The 
company is especially worried about overly restrictive final 
prices imposed by the local regulators.  (Expansion, 8/8/07) 
 
 
NEW GOS LAW WILL ALLOW OFFSHORE CONSTRUCTION OF WIND FARMS 
 
¶8. (U) The GOS passed a new law that will allow offshore 
construction of wind farms.  With over 400 wind farms and 
12,000 turbines generating 8 percent of Spain's energy, wind 
farm construction is nothing new to the world's second 
largest producer of wind energy.  However, although 
experimental offshore wind farms have been built, this will 
be the first time that larger scale commercial development 
will be allowed.  Under the new law, a committee of five GOS 
ministries will review all proposals and have the authority 
to grant operating licenses within government designated 
zones.  The law is consistent with the GOS target of having 
12.1% of its total energy consumption from renewable sources 
by 2010.  (GOS Official Bulletin, 8/1/07;  El Pais, 8/2/07) 
 
GAMESA REPORTS STRONG FINANCIAL RESULTS 
 
¶9. (U)  Spain-based Gamesa, the world's second largest wind 
turbine manufacturer, reported strong financial results for 
the first half of 2007 with 67 percent revenue growth and 20 
percent operating profit growth (adjusted EBITDA).  With four 
new production facilities in Pennsylvania, 30 percent of 
Gamesa's global wind energy sales are now U.S. generated. 
Year to date, Gamesa's share price has increased over 45 
percent.  However, the company reported that the lack of 
critical component availability (blades and towers) - a 
constraint experienced across the industry - is slowing 
revenue growth.  (Gamesa Quarterly Earnings Statement, 
7/31/07) 
 
POST OFFICE TO BE FULLY INTEGRATED BY 2008 
 
¶10. (U) The state-owned Spanish Post Office expects to 
complete operational and commercial integration with Kahala 
Posts Group (KPG) by early 2008.  KPG, a collaborative 
network of nine national postal administrations, was created 
in 2005 to compete more effectively against multi-national 
carriers TNT, UPS, FedEx and DHL.  Spain's Post Office, whose 
participation in the alliance has lagged other partners, said 
it is accelerating its integration effort to improve the 
competitiveness of its export service.  Export volumes among 
all alliance members have grown 40% annually.  (Expansion, 
8/7/07) 
 
MADRID BARAJAS AIRPORT INCREASING IN INTERNATIONAL PROMINENCE 
 
¶11. (U) The investment that GoS has made to expand Madrid's 
Barajas airport over the past several years is beginning to 
bear fruit.  Over the past four months, this airport 
experienced one of the largest increases in the number of 
passengers served, increasing the airport's ranking to 10th 
worldwide.  AENA, Spain's airport management authority, 
predicts that Barajas, capacity will continue to grow, and 
that it will soon surpass airports such as Frankfort and 
Peking, currently ranked at 9th and 8th respectively.  AENA 
estimates that Barajas-Madrid will service a total of 51 
million passengers by the end of 2007, six million more than 
in 2006. 
 
NEW EC REQUIREMENT WILL CAUSE HIGHER GRAIN AND OILSEED PRICES 
 
¶12. (U) The European Commission's (EC), agriculture 
directorate just published an impact statement estimating 
that the EC's new ten percent (by 2020) renewable fuels 
mixing requirement will result in higher grains and oilseeds 
prices.  The EC's report indicates that to meet the new 
mixing requirement, European Union (EU) farmers will need to 
dedicate about 15 percent of currently available agricultural 
land to the production of renewable fuels feedstock.  They 
forecast price increases (from today's historically high 
prices) of from 3 to 6 percent for cereals and 8 to 10 
percent for oilseeds prices. 
 
¶13. (U) The EC's new forecasts are sure not to please those 
who argue against the diversion of farmland from the 
production of food to the production of fuels, but, as with 
all such forecasts, it is clear that with time and experience 
the EC will submit revised projections.  For instance, if the 
EC were to modernize its agriculture biotechnology evaluation 
 
MADRID 00001555  003.2 OF 003 
 
 
policy before 2020, new biotechnology seed varieties would 
likely help EU farmers produce increased yields far in excess 
of those needed under current projections to meet the 
increased demand for renewable fuels feed stock. 
 
NASA RECEIVES POSITIVE COVERAGE 
 
¶14. (U) The August 8 launch of Space Shuttle Endeavour 
received positive, accurate press coverage in Spain.  The 
websites of both El Pais and El Mundo carried the launch as 
lead stories the morning of August 9, and provided accurate 
descriptions of the mission and its objectives.  The El Pais 
coverage was positive and included the story of 
teacher-turned-astronaut Barbara Morgan's more than twenty 
year journey to fly in space, as well as the role that 
Zaragoza plays in case of an emergency.  El Mundo's coverage 
mentioned scientific experiments being conducted by 
Endeavour's crew in coordination with the Spanish national 
Research Council (CSIC).  El Mundo's report did reference 
"various scandals" that have "seriously damaged" NASA's 
professional image, including a subcontractor's recent 
attempted sabotage, allegations of astronauts consuming 
alcohol before missions, and the attempted kidnapping charges 
against former astronaut Lisa Nowak. (El Pais.com 
8/9/07;elmundo.es, 8/9/07) 
AGUIRRE