VZCZCXRO4592
RR RUEHRN
DE RUEHMD #1834/01 2641624
ZNR UUUUU ZZH
R 211624Z SEP 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3466
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3060

UNCLAS SECTION 01 OF 03 MADRID 001834 
 
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 17-21 
 
MADRID 00001834  001.2 OF 003 
 
 
Table of Contents: 
 
ECON: Budget Negotiations Complicated by Dispute over 
Retroactivity for GOS's Promised 2,500 Euros/Baby 
ECON/SOCI: Election Economics: Rental Housing Incentives 
Announced 
ECON/KNNP: New Spanish Employers Federation (CEOE) President 
Unveils Economic Proposals, Supports Nuclear Energy 
EFIN: Heavy Central Bank Gold Sales Coming to an End, May 
Push Prices Up 
ENRG: Spanish Energy Transmission Firms to Expand Abroad 
EINV: Procter & Gamble (P&G) President/CEO Inaugurates 
Alcobendas Building 
EINV/PREL: Brazil's President Lula visits 
TBIO: Report on Biofuels challenges Claims of Environmental 
Benefits 
KIPR: Olive Oil Label War 
 
BUDGET NEGOTIATIONS COMPLICATED BY DISPUTE OVER RETROACTIVITY 
FOR GOS'S PROMISED 2,500 EUROS/BABY 
 
¶1. (U) First Vice President and Finance Minister Pedro Solbes 
would like to make this benefit prospective (not clear from 
media reports as of exactly when), but all the opposition 
parties want to make the benefit applicable to parents of 
children born as of January 1, 2007.  (Comment: Usually the 
minority PSOE government has been able to pass a budget with 
the help of the Basque and Catalan nationalist parties, but 
this year's negotiations are proving Qre difficult, no doubt 
a result of positioning for electoral advantage.  It is worth 
noting that on this expensive spending proposal, the 
opposition conservative PP party is now favoring more 
spending while at the same time it criticizes the government 
in other contexts for loosening the fiscal spigot for 
electoral reasons.) (El Pais, 9/20/07) 
 
ELECTION ECONOMICS: RENTAL HOUSING INCENTIVES ANNOUNCED 
 
¶2. (U) With only six months until the elections, President 
Zapatero and Minister of Housing Carme Chacon announced this 
past week an initiative to provide lower-income renters 
between the ages of 22-30 with financial incentives to rent. 
The proposal, which will be the last major initiative to be 
considered during this term, will provide residents who earn 
an annual gross income of 22,000 euros or less the ability to 
receive 210 euros per month in rental subsidies as well as an 
additional tax deduction similar to those received by 
homeowners.  The GOS estimates that 700,000 families will 
benefit from this program (out of a pool of those renting the 
1.7 million apartments that exist in Spain).  Monthly average 
rents vary, but in Madrid the average is approximately 1,138 
eQos/mo while the average nationwide is 720 euros/mo.  Over 
80 percent of Spaniards live in homes they or their families 
own, and the GOS is seeking to encourage renting, including 
other measures to encourage homeowners to offer their 
properties for rent.  The new "housing plan" will cost the 
government approximately 784.5 million euros per year to 
implement.  Criticisms surrounding this proposal center on 
the plan's cost as well as its similarity to a 2004 rental 
program introduced at the beginning of the PSOE 
administration. 
 
NEW SPANISH EMPLOYERS FEDERATION (CEOE) PRESIDENT UNVEILS 
ECONOMIC PROPOSALS, SUPPORTS NUCLEAR ENERGY 
 
¶3. (U) EconOff attended a breakfast on 9/18/07 at which 
Gerardo Diaz Ferran expressed continued confidence in the 
SpanishQonomy's prospects.  But, he conceded that there 
were clouds on the horizon and said that the CEOE would 
shortly release a document with substantive economic 
proposals designed to make Spain more competitive.  The CEOE 
would like more "unity" in the Spanish market, i.e. fewer 
different laws in Spain's 17 autonomous communities; more 
deregulation; streamlined government administration; 
liberalized markets, especially in the energy sector; more 
government use of private sub-contractors; tax policies 
designed to stimulate savings and investment; and social 
policies designed to promote more flexible labor markets.  In 
general, Diaz called for more budget restraint.  He made 
favorable remarks about nuclear energy responding to a 
question. (Comment: In part, the call for more "unity" in the 
Spanish market is code for resisting separatist initiatives 
in the Basque Country and Catalonia. (Nueva Economia Forum 
Ritz Hotel breakfast, 9/18/07) 
 
HEAVY SPANISH CENTRAL BANK GOLD SALES COMING TO AN END, MAY 
PUSH PRICE UP 
 
 
MADRID 00001834  002.2 OF 003 
 
 
¶4. (U) The Spanish Central Bank had no comment on its plans 
and/or motivations behind its sales of bullion. (FT 9/18/07) 
 
 
SPANISH ENERGY TRANSMISSION FIRMS TO EXPAND ABROAD 
 
¶5. (U) The Hydrocarbon Logistic Company (CLH), Spain's 
primary petroleum pipeline operator, plans to expand 
operations abroad, particularly in Portugal.  CLH is 
currently in negotiations with Portuguese government and 
private sector officials to build pipelines in north Portugal 
that it says would create better distribution efficiencies 
for both countries.  The Electric Network of Spain (REE), 
Spain's primary electricity network provider, similarly 
announced plans to develop more projects abroad, particularly 
in Brazil.  REE President Luis Atienza said September 21 that 
REE planned to enter the Brazilian market through an alliance 
with Brazil's National Electric Network (REN).  Atienza added 
that REE would go after any opportunities offered by 
privatization elsewhere in Europe. 
 
PROCTER & GAMBLE (P&G) PRESIDENT/CEO INAUGURATES ALCOBENDAS 
BUILDING 
 
¶6. (U) EmbOff represented Embassy in this event, which also 
included the President of the Madrid autonomous community, 
Esperanza Aguirre, and the Mayor of Alcobendas.  Alcobendas 
is a rapidly growing suburb close to Madrid.  Many businesses 
are opening facilities there. (9/20/07) 
 
BRAZIL'S PRESIDENT LULA VISITS 
 
7 (U) On 9/17/07, President Luis Rodriguez Zapatero received 
President Lula and signed a Memorandum of Understanding on 
cultural matters.  There were no specific agreements on 
economic/commercial matters (at least none publicly 
released), but Zapatero focused on the economic agenda and 
encouraged Spaniards to invest in Brazil.  Santander is now 
poised to become a banking giant in Brazil if it is able to 
buy ABN AMRO's Brazilian subsidiary.  Santander CEO Emilio 
Botin reportedly has a good relationship with the Brazilian 
president because he kept trade lines open to Brazil 
immediately after Lula's first election victory at a time 
when many banks were holding back. (Moncloa website:, IHT 
9/18/07) 
 
REPORT ON BIOFUELS CHALLENGES CLAIMS OF ENVIRONMENTAL 
BENEFITS 
 
¶8. (U) A recent OECD report challenged the benefits of 
biofuels, government subsidies for their production, 
distribution, and use, and high national tariffs that 
preclude biofuels trade.  The report raised the specter that 
the "cure" (biofuels) may be more prejudicial than the 
"disease" (petroleum fuels) in that: 1) the environmental 
costs of producing biofuels may well be greater than any 
potential environmental gains generated from use of the 
biofuels in the transportation sector; 2) government 
subsidies and mandates are stimulating the production and use 
of biofuels where otherwise there would be little-to-no 
economic incentive to invest in this sector; 3) high biofuels 
tariffs in the developed world preclude development and 
transport of biofuels in developing countries; and, 4) the 
increased use of agricultural commodities in the production 
of transportation fuels is creating a non-productive and 
threatening food-versus-fuel debate. 
 
¶9. (U) The report recommends that: "The strategic importance 
of an objective for first generation biofuels need to be 
refocused and refined.  International organizations such as 
the IEA, OECD, FAO and World Bank need to continue to adopt a 
soundly-based, common understanding of the limits of both 
traditional and second-generation biofuels in their analysis 
of energy futures;" and, that policy-makers "secure continued 
R&D for second-generation biofuels, phase out biofuel 
production mandates and incorporate "technology-neutral 
policies such as a carbon tax," while also placing 
international renewable certification on the agenda of the 
new World Trade Organization committee on trade and 
environment. (Biofuels: Is the cure worse than the disease? 
www.oecd.org/dataoecd/33/41/39276978.pdf) 
 
OLIVE OIL LABEL WAR 
 
¶10. (U) After years of unfruitful lawsuits, leading olive oil 
company Carbonell has won a battle against the La  Espanola 
brand, which it accuses of imitating Carbonell,s label since 
¶1982.  The Court of First Instance of the European Union 
 
MADRID 00001834  003.2 OF 003 
 
 
(TUE) has ruled that La Espanola's label is very similar to 
its competitor's and therefore "causes an elevated risk of 
confusion for the consumer."  Following the favorable ruling 
in Strasbourg, Carbonell's parent company's president said he 
would turn to all the necessary courts until he succeeds in 
obtaining the cancellation of the registered label La 
Espanola in every country.  He added that he would also seek 
indemnification for damages he said were caused during 25 
years of "piracy." 
LLORENS