VZCZCXRO5555
RR RUEHRN
DE RUEHMD #1998/01 2950814
ZNR UUUUU ZZH
R 220814Z OCT 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3643
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3125

UNCLAS SECTION 01 OF 02 MADRID 001998 
 
SIPDIS 
 
SIPDIS 
 
EUR/WE, EEB/EFD/OMA 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EFIN EIND ELAB KIPR SP EINV
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
OCTOBER 15-19 
 
 
MADRID 00001998  001.2 OF 002 
 
 
Table of Contents: 
 
ECON: Ibex 35 reaches new high 
ECON/EIND: More signs of end of housing boom 
ECON: Catalan banks optimistic about economic prospects 
ECON/EINV: Spanish banks continue active abroad 
EFIN/SOCI: Baby bonuses expected by year's end 
EAIR: Takeover Bids Heating up for Iberia Airlines 
EPET: Madrid to Host 19th World Petroleum Congress in June 
2008 
 
IBEX 35 REACHES NEW HIGH 
 
¶1. (U) The index closed on October 18 at 15,501 points, its 
highest level ever, despite lingering fears of the impact of 
the subprime mortgage crisis. Analysts say that the good 
results posted by Telefonica, Santander, BBVA, Iberdrola, 
Endesa and other energy companies, plus the U.S. Fed's 
interest rate cut, have propelled the Spanish stock exchange 
upwards. (El Pais, 10/19/07; Expansion, 10/19/07) 
 
MORE SIGNS OF END OF HOUSING BOOM 
 
¶2. (U) Average prices for housing sales rose only 0.3 percent 
between the second and third quarters of the year, though 
they were 5.3 percent above their level of a year ago.  This 
is the lowest quarterly rate of increase since 2000. 
Anecdotal evidence suggests that houses are taking longer to 
sell and that a significant number of sellers are unable to 
find buyers at the prices they want.  In the year's second 
quarter, construction was completed on 20 percent more houses 
and apartments than a year ago, adding to the supply on the 
market, but construction began on 15 percent fewer dwellings 
than a year ago.  In a sign of the extent of the building 
boom of recent years, the Environment Ministry announced that 
half of all Spanish beach-front acreage is now urban.  (El 
Pais, 10/18/07; Cinco Dias, 10/18/07) 
 
CATALAN BANKS OPTIMISTIC ABOUT ECONOMIC PROSPECTS 
 
¶3. (U) EconOff met in Barcelona with Caixa Catalunya Chief 
Economic Ramon Roig l Sole and BancoSabadell Director of 
Macroeconomics Sofia Rodriquez Rico on October 18.  Both 
banks are revising their 2008 growth estimates downwards to 
something between 2.7% to 3.0%.  Also on October 18, BBVA 
revised its 2008 Spain growth forecast downwards to 2.8%. 
The Caixa Catalunya chief macroeconomist said that the next 
two to three months will be critical - he said the financial 
markets were already returning to normal, and if the trend 
persisted, Spain should fare well in 2008.  Both bank 
representatives noted that obtaining finance for Spanish 
companies would be somewhat more expensive, but still much 
lower than by historic Spanish standards.  The Caixa 
Catalunya economist noted that mortgage delinquency rates in 
Spain were much higher before the adoption of the euro, and 
that they are now among the lowest in the industrial world. 
Both banks echoed the government's line that investments in 
R&D and investments in capital goods will eventually improve 
Spanish competitiveness.  Long-term, the BancoSabadell 
economist was most concerned about the poor state of Spanish 
education.  (EconOff 10/18/07 meetings with Caixa Catalunya 
and Banco Sabadell) 
 
SPANISH BANKS CONTINUE ACTIVE ABROAD 
 
¶4. (U) The largest bank purchase ever, the 71-billion-euro 
purchase of the Dutch bank ABN Amro by Spain's Banco 
Santander, the Benelux-based Fortis, and Royal Bank of 
Scotland, was completed this week.  Santander paid 19.85 
billion euros for ABN Amro's Brazilian and Italian retail 
banking operations.  In combination with its existing 
Brazilian bank, it will have Brazil's third (or second, 
depending on the measure) largest bank.  It will be Italy's 
seventh largest bank.  Santander president Emilio Botin told 
reporters that Santander would next seek to expand into Asia 
and the U.S.  Separately, Spain's other large bank, BBVA, 
announced that it would combine within a year its four U.S. 
banks, Compass, Laredo, Texas Regional, and State National. 
The resulting bank would have almost 50 billion dollars in 
assets, putting it within the US's 30 largest. (El Pais, 
10/18/07; ABC, 10/18/07; Federal Reserve website) 
 
BABY BONUSES EXPECTED BY YEAR'S END 
 
¶5. (U) Labor and Social Affairs Minister Jesus Caldera told 
reporters October 18 that he expected the Senate to approve 
in November and the government to implement before the end of 
the year the proposed 2,500 euro bonus for parents of 
children born after July 1.  The measure was approved by the 
 
MADRID 00001998  002.2 OF 002 
 
 
legislature's lower house October 18.  The measure is 
popular, though the opposition has criticized it as 
electorally motivated and fiscally irresponsible.  In 
discussion of the proposal, there has been surprisingly (to 
us) little mention of the low birth rate of native-born 
Spanish women, which has fallen well below replacement level 
in the last decade.  (Europa Press, 10/18/07) 
 
TAKEOVER BIDS HEATING UP FOR IBERIA AIRLINES 
 
¶6. (U) Iberia Airlines, the largest airline in Spain andQfourth largest in Europe is being courted by various 
consortiums wishing to purchase the company.  A consortium 
led by Texas Pacific Group and British Airways has formally 
submitted a bid to Iberia; a counterbid by an Air-France-KLM 
led consortium appears to coming soon as well.  Both 
consortiums must partner with Spanish firms to comply with 
air services agreements between Spain and non-EU countries 
(or non-Open Skies agreement countries).  These agreements 
require that Iberia remain 51 percent Spanish-owned to retain 
its right to fly to these countries from Spain.  Otherwise 
the highly lucrative Latin American market would be at risk. 
(Newspaper and Iberia websites) 
 
MADRID TO HOST 19TH WORLD PETROLEUM CONGRESS IN JUNE 2008 
 
¶7. (U) Representatives from governments, oil and gas industry 
companies, and stakeholders from around the world will come 
together in Madrid from June 29th until July 3rd 2008 for the 
19th World Petroleum Congress.  Congresses are held every 
three years in coordination with the World Petroleum Council 
(WPC), which includes 61 member countries representing over 
90 percent of the world's major oil and gas producing and 
consuming nations.  The Congresses, which have traditionally 
covered aspects of the industry, ranging from exploration to 
downstream activities, have recently expanded to include 
topics such petroleum finance, management and environmental 
issues.  The theme for the 2008 congress will be "A World in 
Transition: Delivering Energy for Sustainable Growth." 
(Econoff 10/18/07 meeting) 
AGUIRRE