VZCZCXRO2611
RR RUEHRN
DE RUEHMD #1734/01 2531103
ZNR UUUUU ZZH
R 101103Z SEP 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3359
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3017

UNCLAS SECTION 01 OF 03 MADRID 001734 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE, EEB/EFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ENRG ETRD SP EINV EAGR SOCI
ELAB 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
SEPTEMBER 3 
 
MADRID 00001734  001.2 OF 003 
 
 
Table of Contents: 
 
EINV: Macro picture getting a bit cloudier 
EFIN: New mortgages declining; evidence of housing market 
slowdown 
EFIN/SOCI: Employment numbers worsening, definitive data not 
available 
KIPR/BEXP/BTIO: Meeting with Ministry of Industry Subdirector 
General for EU trade policy 
SENV: UN Convention to combat desertification 
ETTC: GOS to appeal EC decision to fine Telefonica? 
ENRG: Algeria's Sonatrech terminates multi-billion dollar 
contract with Spanish gas companies 
ENRG/EINV: Germany's EON acquires Energi E2 Renewables 
Ibericas for 722 million euros 
EFIN: Two Spanish women make Forbes 100 list 
 
MACRO PICTURE GETTING CLOUDIER 
 
¶1. (U) For the first time, on 9/5/07, Economy and Finance 
Minister Solbes conceded that there was more "uncertainty" 
about prospects for the Spanish economy, although he was 
quick to add he still thinks that Spain will grow by "close 
to" 3% in 2008, which is still higher than the eurozone 
average.  Consistent with Zapatero's preferred upbeat 
disposition, the Spanish president met with Santander CEO 
Botin on 9/6/07, and both men agreed the Spanish banking 
sector was well positioned to withstand the fallout from the 
U.S. subprime mortgage problem.  However, the press continues 
to publish stories indicating a slowdown in the housing 
market.  There are more human interest stories about people 
having problems coping with their adjustable rate mortgage 
payments, which are rising rapidly as a result of increased 
Euro interest rates; on average, Spaniards already devote 
almost half their income to mortgage payments.  Moreover, the 
number of new unemployed people in August, 2007 was about 
twice as high as in August, 2006, putting a further damper on 
economic optimism.  The Ibex-35 rose by  0.76% on Monday and 
Tuesday but then dropped by a sharp 2.4% on Wednesday.  On 
Thursday, there was a modest fall of 0.29%.  As of midday, 
Friday, September 7, the market is down by almost 1%. 
(Comment: The European Central Bank's decision Thursday not 
to raise interest rates again should provide a boost to the 
Spanish economy.  However, there is no doubt that something 
is beginning to change in people's views about the economy.) 
(All media) 
 
NEW MORTGAGES DECLINING; EVIDENCE OF HOUSING MARKET SLOWDOWN 
 
¶2. (U) Almost 3% fewer mortgages were signed in the first 
half of 2007 compared with the first half of 2006, but the 
average mortgage amount is up by 6%.  This is the first time 
in six years that the number of new mortgages declined, which 
is being interpreted as evidence of a slowdown in the housing 
market.  In an effort to calm fears of a "hard landing," the 
new Housing Minister, Carme Chacon, has been saying that 
European Central Bank (ECB) interest rate hikes have probably 
neared their peak.  In another housing related story, 
Autonomous Community of Andalucia President Manuel Chaves 
promises to provide housing to all who earn less than 3,100 
euros a month as a "right".  Economy and Housing Minister 
Chacon supported the idea, but  Finance Minister Solbes 
expressed doubts about the initiative. (Comment: Chacon's 
statements on interest rates are speculative, of course, as 
the ECB sets interest rates independently.  Solbes' statement 
on the Chaves housing initiative is not the first time he has 
expressed public disagreement with another minister.  As the 
elections approach, he will find increasing demands for 
spending.  (El Pais, 9/4/07, all media) 
 
EMPLOYMENT NUMBERS WORSENING, DEFINITIVE DATA NOT AVAILABLE 
 
¶3. (U) Unemployment was 7.95% as of June 30, 2007, the lowest 
unemployment figure during the last 30 years.  However, since 
then there have been reports of layoffs in the construction 
sector.  Also, in August, 2007 the number of new registered 
unemployed people was almost 58,000.  In August, 2006, there 
were about 27,000 new registered unemployed individuals. 
(Comment: The doubling of this year's August unemployment 
figure has been interpreted as a sign of possible future bad 
news on the employment front.  The data are not definitive, 
but it may turn out that a 7.95% unemployment rate remains 
the best record on unemployment for a while.  In July 2007, 
EU unemployment was 6.8% and the eurozone unemployment rate 
was 6.9%.  These numbers are better than Spain's, but what 
often matters politically is trends and Spanish unemployment 
has been trending downwards for some time, contributing to 
the country's optimism.  Should the trend reverse, economic 
 
MADRID 00001734  002.2 OF 003 
 
 
psychology could change.) (El Pais, 9/5/07) 
 
MEETING WITH MINISTRY OF INDUSTRY SUBDIRECTOR GENERAL FOR EU 
TRADE POLICY 
 
¶4. (U) EconCouns and EconOff meet with Ministry of Industry 
Subdirector General for EU Trade Policy.  We delivered the 
IPR Special 301 demarche, expressed interest in working on an 
import safety dialogue, inquired about EU China textile 
safeguards, and urged settlement of the Rosalini case 
(separate reporting on these issues to come).  Our Industry 
contact said Spain would be interested in sharing ideas on 
import safety and noted that his ministry was now more active 
in this regard, as well as the Ministry of Health's Consumer 
and Safety Commission.  He expressed concern about future 
container scanning requirements and the possible 
extraterritorial dimension of U.S. Iran financial sanctions. 
He listened to what we had to say about Rosalini, but noted 
that the Spanish legal system allowed for criminal charges to 
be filed by Autonimous Community governments. (9/5/07 
meeting). 
 
UN CONVENTION TO COMBAT DESERTIFICATION 
 
¶5. (U) In conjunction with its sponsorship of the U.N. 
Convention to Combat Desertification conference taking place 
in Madrid this week and next, the GOS announced that its 
contributions to the U.N. to combat desertification since 
2001 total more than 155 million euros.  Since 2004, the GOS 
has increased its level of support, particularly through 
projects in African countries including Morocco, Tunisia, 
Algeria, Mauritania, Senegal and Guinea-Bissau.  In her 
speech to open the conference, Environment Minister Cristina 
Narbona emphasized the obligation developed nations have in 
doing more, particularly given their causal role in global 
climate change and its effect on water depletion and 
deforestation.  (NOTE:  The USG is also a party to the 
convention, and a USG delegation is participating in the 
conference in Madrid.  END NOTE).   (GOS, 9/5/07). 
 
GOS TO APPEAL EC DECISION TO FINE TELEFONICA? 
 
¶6. (U) Media reports indicate that GOS is seriously 
considering appealing the July European Commission decision 
to fine Telefonica 152 million euros for anti-competitive 
pricing practices.  The appeal would be based on complaints 
put forth by Spain's Telecommunications Market Commission 
(CMT), which argues that the EC ruling infringes on the 
competencies of member states' regulatory bodies.  The CMT, 
which approved the Telefonica rates that the EC later found 
to be "anti-competitive," adds that if the EC ruling holds 
firm, it may undermine the CMT's ability to act as a credible 
regulatory body in the future.  The CMT has further 
complained that Brussels failed to include Spain's regulatory 
body in its preliminary investigations against Telefonica, 
violating principles of cooperation between member states and 
the EC.  Telefonica, in its role of majority operator of 
wide-band service, was reportedly charging prices that were 
too high to allow rivals to obtain reasonable profits and 
compete fairly in that market. 
 
ALGERIA'S SONATRECH TERMINATES MULTI-BILLION DOLLAR CONTRACT 
WITH SPANISH GAS COMPANIES 
 
¶7. (U) Algerian parastatal gas company Sonatrech recently 
terminated a multi-billion euro gas development contract with 
Spanish companies Gas Natural and Repsol, saying that the 
Spanish companies were responsible for excessive project 
delays.  The decision, which caused stocks of both companies 
to fall significantly, has received prominent local press 
coverage over the past week and has raised questions about 
the role the GOS should have played in its interactions with 
Algeria. 
 
¶8. (U) Representatives from opposition Partido Popular have 
argued that the Zapatero Administration has not been 
sufficiently supportive of the Spanish gas companies and add 
that GOS' policy towards Algeria on natural gas has been too 
conciliatory.  For their part, GoS officials have attempted 
to express disapproval for Sonatrech's decision while 
distancing themselves from the dispute.  Algeria is Spain's 
largest supplier of natural gas, supplying almost a third of 
Spain's consumption. 
 
GERMANY'S EON TO ACQUIRE ENERGI E2 RENEWABLES IBERICAS FOR 
722 MILLION EUROS 
 
¶9. (U) Germany utility company E.ON, which lost its previous 
 
MADRID 00001734  003.2 OF 003 
 
 
bid to acquire Spanish power company Endesa, has agreed to 
acquire Energi E2 Renewables Ibericas (E2-I) for 722 million 
euros.  E2-I operates wind farms in Spain and Portugal that 
currently generate 260 megawatts of electricity.  The move is 
seen as an effort by E.ON to achieve a balanced portfolio of 
power generating assets by diversifying into renewable 
projects.  This acquisition, along with the announced 
purchase of Spanish power utility Viesgo, positions E.ON as 
the fourth largest company in Spain's power market.  (Energy 
Business Review Online, 9/5/07) 
 
TWO SPANISH WOMEN MAKE THE FORBES 100 LIST 
 
¶10.  (U) Ana Patricia Botin, chairwoman of Banesto bank, and 
Rosalia Mera, co-founder of the Inditex textile empire, 
ranked 40th and 76th, respectively, in this year's Forbes 
magazine's list of The World's 100 Most Powerful Women. 
Botin is considered front-runner to succeed her 72-year-old 
father Emilio as chairman of Grupo Santander when he retires. 
 Rosalia Mera is a philanthropist active in the real estate 
sector, and her personal wealth is estimated at over 1.2 
billion euros. (El Pais) 
AGUIRRE