VZCZCXRO1985
RR RUEHRN
DE RUEHMD #2045/01 3021433
ZNR UUUUU ZZH
R 291433Z OCT 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3709
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3148

UNCLAS SECTION 01 OF 04 MADRID 002045 
 
SIPDIS 
 
SENSITIVE 
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 22-26 
 
 
MADRID 00002045  001.2 OF 004 
 
 
Table of Contents: 
 
ECON/ETRD: USTR Director for EU affairs visit 
ECON: FT Special report on Spain's economic prospects 
ECON/EINV: Big banks appear unfazed by market turbulence 
EFIN: Basque savings banks fined for anti-competitive 
practices 
SENV/PGOV: Opposition leader's climate change comment draws 
fire during Gore visit 
ELTN/PGOV: Railway woes plague Barcelona commuters 
ELTN: Texas group visits for high-speed rail discussions 
EAID: Zapatero repeats 2004 promise to increase aid budget 
dramatically 
SOCI/SMIG: Madrid world's fifth largest "Ecuadorian" city 
PTER/SNAR: Andorran action on money laundering impressive, 
economic reforms modest 
ETRD/EAGR: Spain supports EC approval of four biotech crops 
 
USTR DIRECTOR FOR EU AFFAIRS VISIT 
 
¶1. (SBU) In meeting with Ministry of Industry, Tourism and 
Trade Deputy Director for EU Trade Policy, Inigo Febrel, USTR 
Director for EU Affairs, David Weiner emphasized President 
Bush's personal engagement on Doha matters, and that the USG 
does see a possibility for a successful conclusion of the 
Round.  Febrel and accompanying staff agreed that with all 
the emphasis on agricultural and non-agricultural market 
access (NAMA), services were being somewhat neglected, and 
that this had to change.  Weiner noted that the U.S. remained 
very interested in internet-related IPR matters.  He met with 
Ministry of Culture Subdirector General for Intellectual 
Property, Pedro Colmenares, and repeated the message. 
Colmenares was pessimistic about making progress on 
internet-related piracy issues prior to Spain's general 
election, which is expected to be held in March 2008. 
 
¶2. (U) Separately, Weiner discussed import safety issues in 
meetings with Ministry of Health Director General for 
Consumer Affairs Angeles M. Heras Caballero, Deputy Director 
for Quality Carlos Arnaiz and Ministry of Industry, Tourism 
and Trade Deputy Director for Coordination and Bilateral 
Trade Relations with the EU, Cristina Teijelo Casanova. 
Weiner mentioned that the USG is interested in a dialogue 
with the EU and with Member States on these issues.  Heras 
said that the GOS would be announcing a series of import 
safety measures on October 26, focusing especially on better 
coordination between the Ministry of Health and Spain's 
customs authorities. 
 
FT SPECIAL REPORT ON ECONOMIC PROSPECTS 
 
¶3. (U) The lead article in the Financial Times' recently 
published a special report on Spain titled "Economic 
Prospects Looking Less Rosy."  The report is generally 
consistent with what most analysts believe here in Spain. 
However, the FT notes that despite financial market 
turbulence, neither the real economy nor the banking sector 
has "imploded" and accepts the Bank of Spain's and other 
analysts' explanation as to why.  First, because they were 
making so much money in Spain, Spanish banks did not invest 
significantly in off-balance sheet vehicles ("conduits") to 
invest in high-risk American mortgages.  Second, Spanish 
banks are not facing liquidity problems.  In fact, in recent 
weeks Spanish banks have been lenders in short-term money 
markets, suggesting an excess, rather than lack, of 
liquidity.  The banks' borrowing has mostly been long-term. 
 
¶4.  (SBU) The FT mentions that construction is likely to 
experience a contraction.  Should housing starts begin to 
decline from 800,000 a year to a more "sustainable" 500,000 a 
year, that could result in 600,000 more unemployed people. 
This could be offset somewhat by higher government spending 
on infrastructure.  One market concern is the future of the 
respected Minister of Finance, Pedro Solbes.  The 
conventional wisdom is that Solbes will retire following the 
March, 2008 general elections, even if the socialists win. 
This would undermine business confidence as he is seen as 
pro-business and has the power and influence to control 
spending.  (Comment: The Spanish government, and many 
businessmen as well, consider the FT's reporting on Spain to 
be overly negative.  Influential Spaniards are sensitive to 
FT reporting because the publication is a credible 
publication for Europe's business and political elite. 
Overall, however, government and business should be modestly 
pleased with the overall tone of the report.  It contains 
fairly positive articles on Spanish companies, entrepreneurs, 
and R&D spending while warning about dampening consumer 
demand and construction activity.  The FT writes that 
 
MADRID 00002045  002.2 OF 004 
 
 
Spaniards are "determined to prove, once again, that 'Spain 
is different.'  Maybe this time it is."  That's a somewhat 
upbeat assessment for the FT.) (FT, 10/24/07) 
 
BIG BANKS APPEAR UNFAZED BY MARKET TURBULENCE 
 
¶5. (SBU) Coinciding with the FT special report, the 
International Herald Tribune published an article with the 
title: "Big Spanish banks appear unfazed by market 
turbulence."  This article tracks with what the FT says about 
the Spanish banking sector with one addition: that Spanish 
investments in Latin America could offset weakness at home. 
(Comment: The IHT and FT articles are consistent with what 
our banking and other contacts tell us.  Spanish government 
contacts and business people have been adamant that Spain 
will continue to do well, albeit growing somewhat more slowly 
than during the last ten years.  However, given all the 
insistence from both government and business, the smallest 
sign of a problem, could conceivably lead to disproportionate 
reactions from investors.) (IHT, 10/24/07) 
 
BASQUE SAVINGS BANKS FINED FOR ANTI-COMPETITIVE PRACTICES 
 
¶6. (U) Spain's National Open Competition Commission (CNC) has 
imposed fines totaling 24 million euros on four savings banks 
in the Basque and Navarra region that it says conspired for 
15 years to fix prices and share markets.  According to the 
investigation, from 1990-2005 the Navarra Savings Bank (Caja 
Navarra) and Basque savings banks BBK, Kutxa, and Caja Vita 
never opened branches in each other's markets although they 
successfully pursued expansions in other close locations in 
the region.  The investigation results also indicate that in 
addition to price fixing practices, the savings banks 
colluded by sharing operational information that would allow 
the banks to block out other competition.  Drawing attention 
to the strong market expansion that Spanish savings 
institutions have enjoyed over the past several years (to the 
detriment of some banks), sources close to the CNC suggest 
that the fines will serve as a warning to other savings banks 
that may be engaging in anti-competitive practices.  These 
fines are second only to the 38 million euro fine the CNC 
levied against Iberdrola in March 2007. 
 
OPPOSITION LEADER'S CLIMATE CHANGE COMMENT DRAWS FIRE DURING 
GORE VISIT 
 
¶7. (U)  Popular Party leader and expected presidential 
candidate Mariano Rajoy has been widely criticized for a 
skeptical comment about climate change that coincided with a 
well-publicized visit of former Vice President Gore.  In 
response to a question at an October 22 conference, Rajoy 
responded that "we have to pay a lot of attention to this 
matter, but we can not turn it into a big global problem." 
He also referenced his cousin, a professor of theoretical 
physics, with whom he has discussed the difficulties in 
predicting future climate conditions.  Rajoy said that, if 
"no one can guarantee what the weather will be like 
tomorrow...how can anyone claim to know what will happen to 
the world in 300 years' time?"  Rajoy's comments drew 
criticism from the GoS environment and interior ministers and 
several environmental NGOs, and even King Juan Carlos cited 
climate change as a pressing challenge for the world.  Other 
officials of Rajoy's party distanced themselves from his 
comment. 
 
¶8. (U) Former vice president Gore, who was also participating 
in the conference, did not directly cite Rajoy by name but 
noted that "politicians are also a renewable resource."  Gore 
was in Spain this week to receive the prestigious Prince of 
Asturias Award for International Cooperation for his climate 
change efforts.  During his remarks at the conference, Gore 
also said that Spain is one of the most vulnerable countries 
in Europe to climate change citing an increase over the past 
70 years in intervals between rainfall, which leads to more 
common droughts. (All Media, 10/24/07) 
 
RAILWAY WOES PLAGUE BARCELONA COMMUTERS 
 
¶9. (U) Landslides and infrastructure damage caused by efforts 
to finish the last segments of the long-delayed high speed 
AVE railway line from Madrid to Barcelona have resulted in 
the closure of three of Barcelona's six commuter trail lines, 
affecting an estimated 160,000 commuters.  Despite stopgap 
measures to deploy 220 buses to temporarily take the place of 
the out-of-service rail lines, local government officials and 
residents are outraged by the latest in a series of Barcelona 
infrastructure mishaps ongoing since the summer.  Barcelona 
politicians have called for an investigation of these 
 
MADRID 00002045  003.2 OF 004 
 
 
problems, heavily criticizing local, regional, and federal 
government representatives and calling for the resignation of 
national Minister of Public Works and Infrastructure 
Magdalena Alvarez.  Administration officials are expected to 
back away from their long-standing insistence that the 
Barcelona-Madrid AVE line will be completed on December 21. 
Political analysts suggest that the railway mess and last 
summer's blackouts will reduce support in the March national 
elections for the Catalan socialist party, on whose members 
the ruling socialist party relies to help it reach a majority 
in the national legislature. 
 
TEXAS GROUP VISITS FOR HIGH-SPEED RAIL DISCUSSIONS 
 
¶10. (U) At an October 25 reception for a visiting Texas High 
Speed Rail and Transport Corporation  (THSRTC) delegation, 
the Ambassador gave remarks highlighting the strong ties 
between the US and Spanish business communities and praising 
the increasing level of cooperation between the two 
countries, including potentially in the high-speed rail 
sector.  The THSRTC came to Spain for final discussions with 
the Spanish firm Pointrec on a tender for construction of a 
high-speed rail system in Texas' "T-bone corridor."  The 
group also visited various Spanish governmental entities 
involved in Spain's high speed rail network. 
 
ZAPATERO REPEATS 2004 PROMISE TO INCREASE AID BUDGET 
DRAMATICALLY 
 
¶11. (U) At a government-sponsored conference on foreign aid 
attended by econoff, President Zapatero announced that, if he 
is reelected, Spain would increase its development aid budget 
to 0.7 percent of GDP by 2012, which he said would make Spain 
the first of the world's ten richest countries to do so. 
Current Spanish aid spending is 0.4 percent of GDP; Zapatero 
had promised in his 2004 campaign to reach the 0.7 percent 
level by 2012.  Without providing many details, Zapatero did 
say that Spanish foreign assistance would, among other 
objectives, be used to fight global warming.  (Econoff, All 
Media) 
 
MADRID WORLD'S FIFTH LARGEST "ECUADORIAN" CITY 
 
¶12. (U) With a registered population of 155,000 Ecuadorians, 
Madrid ranks fifth in the world after Guayaquil, Quito, 
Cuenca (Ecuador) and New York City.  Madrid Autonomous 
Community President, Esperanza Aguirre announced the recent 
census results as she inaugurated the 2nd Integration and 
Participation Center for Hispanic - Ecuadorian Immigrants in 
the Madrid city district of Arganzuela.  The Ecuadorians are 
the second most numerous immigrant population of the region 
behind the Romanians.  Aguirre went on to say that Ecuador is 
a "priority" country for the Madrid regional government. (20 
minutos) 
 
ANDORRAN ACTION ON MONEY LAUNDERING IMPRESSIVE, ECONOMIC 
REFORMS MODEST 
 
¶13. (SBU) EconOff visited Andorra October 15-16.  The 
Director of the Unit for the Prevention of Money Laundering, 
Jordi Pons Lluelles (a 2006 International Visitor grantee) 
explained that he attends Financial Action Task Force (FATF) 
meetings four times a year and Moneyvall meetings as well. 
He emphasized that while there are numbered accounts in 
Andorra's five banks, they are not "secret" in the sense that 
the banks know the identities of the numbered account 
holders, and that his Unit can obtain identifying information 
rapidly.  Pons noted that he cooperates regularly with the 
Madrid-based U.S. Embassy Legatt and other law enforcement 
officers at the Embassy.  He said that recently Andorra had 
frozen the account of a suspected narcotrafficker containing 
4 million euros. 
 
¶14. (SBU) With respect to general economic reform, Andorran 
officials emphasize a new planned Investment Law that would 
open up the economy to foreign investment in areas Andorrans 
are not active in.  Energy and telecoms are excluded from the 
law.  Moreover, in the all-important tourism sector 
(responsible for more than 80% of Andorra's GDP), foreigners 
would still only be able to own 49% of a business.  Perhaps 
most importantly, there are significant restrictions on the 
ability of immigrants to open and own businesses; in 2006, 
roughly 52,000 out of Andorra's population of almost 82,000 
were characterized as immigrants.  (Comment: Andorra seems to 
have gotten religion on money laundering, if for no other 
reason than that closer economic ties with the EU depend in 
part on eliminating it's reputation as a tax haven.  However, 
other economic reforms - mostly yet to be enacted -  are on 
 
MADRID 00002045  004.2 OF 004 
 
 
the timid side, perhaps because the country remains rich, and 
there is no pressing need yet for more radical reform.) 
 
SPAIN SUPPORTS EC APPROVAL OF FOUR BIOTECH CROPS 
 
¶15. (U) The European Commission (EC) took another very small 
step forward in the European Union's exceptionally slow 
biotechnology review process on October 24, 2007.  After 
years on the approval pipeline, including the time necessary 
for the European Food Safety Authority to review and agree 
with U.S. regulators regarding the safety of the four 
biotechnology varieties (three corn and one sugar beet), the 
EC authorized their importation into Europe and use in feed, 
food, and processing.  U.S. corn exporters remain 
disappointed with the approvals process, noting that the 
October 24 vote does very little to enhance U.S. access to 
the European market.  Essentially, European grain traders 
can't import U.S. corn, because the European bureaucracy has 
not yet reviewed most of the U.S. - grown biotechnology 
varieties.  As part of the approvals process, EU Member 
States are asked by the EC to vote on new biotechnology 
varieties.  In the case of the above mentioned varieties, the 
Spanish representative to the food and feed committee was 
reported to have voted in favor, in contrast to the French, 
Austrians, Italians, etc.  The Spanish reportedly conducted a 
scientific review of the information and voted in favor of 
the science. (FAS) 
AGUIRRE