VZCZCXRO6167
RR RUEHRN
DE RUEHMD #1708/01 2431614
ZNR UUUUU ZZH
R 311614Z AUG 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3337
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3013

UNCLAS SECTION 01 OF 02 MADRID 001708 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ENRG ETRD SP EINV EAGR SMIG
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
AUGUST 27 
 
MADRID 00001708  001.2 OF 002 
 
 
Table of Contents: 
 
EFIN/ELAB: Ford to invest 400 million euros in Valencia 
EFIN: Madrid growth to remain unaffected by global crisis 
TBIO/ENRG: UN Food and Agriculture Organization in favor of 
renewable fuels 
EFIN: Preliminary budget negotiations drawing to a close 
SOCI: Housing Minister attempts to promote renting to younger 
workers 
ETTC: Economist study ranks Spain 24th in technology 
competitiveness 
EINV: Iberdrola granted approval to sell shares on U.S. 
securities market 
ECON/SOCI:Spain's Average household debt exceeds average 
annual household income by 15 percent. 
 
FORD TO INVEST 400 MILLION EUROS IN VALENCIA 
 
¶1.  (U) John Fleming, President and Chief Executive Officer 
of Ford's European division signed an agreement with union 
leaders at the group's Valencia plant on Wednesday in which 
Ford has pledged to invest 400 million euros to maintain 
production through 2013.  In turn the unions have agreed to 
"moderate" their demands during forthcoming collective 
wage-bargaining negotiations. 
 
MADRID GROWTH TO REMAIN UNAFFECTED BY GLOBAL CRISIS 
 
¶2. (U) Secretary of State for the Economy, David Vegara, 
announced at a news conference on Wednesday that the 
government has no reason to change its forecasted GDP growth 
of 3.8 percent this year and 3.3 percent in 2008 after the 
National Statistics Institute confirmed that the economy 
expanded by 4 percent in the second quarter.  The Minister 
further said "Although the data is provisional, nothing 
suggests that the impact of the financial crisis will be 
relevant to growth."  A senior official in the Economic 
Ministry also assured that the credit crunch in the U.S. 
should have no notable impact on Spain's economic growth this 
year or next. 
 
UN FOOD AND AGRICULTURE ORGANIZATION IN FAVOR OF RENEWABLE 
FUELS 
 
¶3. (U) The United Nations Food and Agriculture Organization 
(FAO) has decided in favor of renewable fuels, especially if 
they can be produced by developing countries and imported 
free of import tariffs by developed countries, in particular, 
the United States and Europe.  FAO Director General Jaques 
Diouf recently proclaimed that renewable fuels production 
could "fast forward" poverty and hunger alleviation in 
developing countries.  He called on the United States, 
Europe, and other key international players to develop an 
international renewable fuels strategy that would include the 
reduction, or elimination of tariffs on renewable fuels in 
the richest economies, and funding measures to initiate 
renewable energy production by small landowners in developing 
countries.  In addition, Mr. Diouf suggested that the current 
focus of producing renewable fuels for the transportation 
sector is short sighted.  He recommended that developed 
economies augment their focus to the use of renewable fuels 
in the production of electricity. 
 
¶4. (U) The FAO's initiative is clearly designed to help poor 
developing-economy farmers take advantage of the current 
renewable fuels frenzy.  The notion that developed economies 
would reduce or eliminate tariffs on renewable fuels, while 
not unattainable, is fraught with the same difficulties 
currently seen in the Doha Development Agenda negotiations on 
agricultural tariffs.  However, the notion that 
developing-country farmers could somehow organize, or be 
organized to efficiently produce renewable fuels in 
quantities large enough to be economically viable for 
developing-country importers is complicated, with the 
exception of Brazil.  Nonetheless, assisting 
developing-country Governments and potential producers 
understand the economic challenges of producing and using 
renewable fuels may help them to take appropriate policy 
decisions with respect to renewable fuels production and 
domestic use. 
 
PRELIMINARY BUDGET NEGOTIATIONS DRAWING TO A CLOSE 
 
¶5. (U) Informal agreement over the 2008 budget is close to 
being achieved between the incumbent socialist party (PSOE) 
and two minority parties.  This agreement, if finalized, 
would garner the number of votes needed for a majority, 
ensuring easy passage of the bill when Congress reconvenes in 
September.  The PSOE, which needs only 12 votes in order to 
 
MADRID 00001708  002.2 OF 002 
 
 
obtain a majority, agreed to CiU and ERC demands to increase 
the amount of investment in infrastructure in the minority 
parties' corresponding region (Catalonia).  With these 
additional votes, the PSOE's 2008 budget will not be blocked 
by the opposition party (Partido Popular) during this 
election year.  The current draft budget proposes an increase 
of 6.7 percent in public spending over 2007 (an increase of 
approximately 10 billion euros) and an increase of 15 percent 
of research and development funding. 
 
HOUSING MINISTER ATTEMPTS TO PROMOTE RENTING TO YOUNGER 
WORKERS 
 
¶6. (U) Recently appointed Minister of Housing Carme Chacon 
expects to present a package in October to provide financial 
incentives for those under 35 who decide to rent instead of 
buy.  The Minister indicated this past week that she will 
continue to reach out to stakeholders, such as unions, 
businesses, and young workers, to incorporate other measures 
in the plan that may make renting more palatable to young 
workers (and therefore make housing more accessible overall). 
 Despite these efforts, a recent survey of 1,000 young 
workers conducted by the Ministry of Housing showed that 
these workers would prefer to buy rather than rent. 
Currently, Spain's percentage of household renting is very 
low at 11 percent compared with an EU average of 38 percent. 
 
ECONOMIST STUDY RANKS SPAIN 24th IN TECHNOLOGY COMPETITIVENESS 
 
¶7. (U) According to a study sponsored by the Economist, Spain 
occupies the 24th position worldwide for technological 
competitiveness, lagging behind Italy but ahead of Poland and 
Estonia.  In this report, Spain fell well behind the EU 
average in rankings. 
 
IBERDROLA GRANTED APPROVAL TO SELL 5.5 BILLION DOLLARS WORTH 
OF SHARES ON U.S. SECURITIES MARKET 
 
¶8. (U) Iberdrola, the world's largest wind generation 
company, won approval yesterday from the U.S. Federal Energy 
Regulatory Commission for a 5.5 billion dollar plan to sell 
shares of its Renewable Energy unit on the U.S. securities 
market.  Shares of Iberdrola increased nearly 2 percent on 
the news, with high expectations for the upcoming listing. 
(Bloomberg, 8/31/07) 
 
SPAIN'S AVERAGE HOUSEHOLD DEBT EXCEEDS ANNUAL HOUSEHOLD 
INCOME BY 15 PERCENT 
 
¶9. (U) Since 2000, household debt has grown 16 percent per 
year, increasing from 70.7 percent of annual household income 
in 2000 to 115 percent in 2006.  Contrasted with this 
increase in debt, the value of household assets grew only 4 
percent annually in the same period.  As a result, the net 
worth of Spanish families has declined and now averages just 
27.8 percent more than annual household income, down from 46 
percent in 2000.  As a general rule, Spanish households 
continue to prefer lower risk investments with more than 38 
percent of net financial assets held in cash and cash 
equivalents as of 2006.  In the first quarter of 2007, 
household cash deposits increased 13.5 percent over the same 
period in 2006.  (Comment:  Reflecting an even greater 
aversion to higher risk, higher return investments, this 
increased shift to cash deposits will negatively impact 
consumer spending and economic growth.  End Comment).  (Cinco 
Dias, 8/31/07) 
AGUIRRE