VZCZCXRO7789
RR RUEHRN
DE RUEHMD #2065/01 3090920
ZNR UUUUU ZZH
R 050920Z NOV 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3742
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3160

UNCLAS SECTION 01 OF 02 MADRID 002065 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EUR/WE 
EEB/EFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN EIND ELAB EPET SOCI SP EINV
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - 
OCTOBER 29 - NOVEMBER 2 
 
MADRID 00002065  001.2 OF 002 
 
 
Table of Contents: 
 
ECON: October inflation number worse than expected at 3.6% 
ECON/ELAB: Unemployment and employment both rise 
ECPS: GOS appeals EU's 152 million euro fine on Telefonica 
EFIN: Morocco largest recipient of remittances 
EFIN: Spanish companies have 6 billion euros in tax havens 
EINV: Mapfre to buy 20th largest U.S. insurer for $2.2 
billion 
EINV/EPET: Repsol to sell 200 gas stations in Chile 
SOCI: Spaniards Living Longer 
 
 
OCTOBER INFLATION NUMBER WORSE THAN EXPECTED AT 3.6% 
 
¶1. (U) Second Vice President and Finance Minister Pedro 
Solbes said the announcement of the European-harmonized 
inflation rate was a "bad figure without redeeming features." 
 The 3.6% was an unexpectedly steep increase from the 
September figure of 2.7%, which itself was already 0.6% above 
the euro zone average.  Higher fuel and food prices are to 
blame.  This represents a continuing erosion in Spain's 
relative competitive position.  Assuming the official 
consumer price index shows a similar jump, as is expected, 
the higher inflation means that government expenditure on 
pensions and salaries will rise more than had been 
anticipated.  (Comment: It is too early to tell whether the 
higher prices will affect the March 2008 national elections, 
but this is not good news for the GOS.  Opposition 
politicians and newspapers decried what they described as the 
30% increase in inflation.) (All newspapers, 10/31/07) 
 
UNEMPLOYMENT AND EMPLOYMENT BOTH RISE 
 
¶2. (U) Spain's unemployment rate rose from 7.95% to 8.03% in 
the July-September quarter, bringing unemployment above its 
level of a year ago for the first time since early 2004.  The 
increase was not due to jobs being destroyed but to an 
increase in the number of people entering the labor market. 
Labor Minister Caldera called the news "reassuring" because 
the number of people working increased by 143,000 in the 
quarter, leading to a record 20.5 million people employed. 
The female unemployment rate of 10.53% was well above the 
male rate of 6.21%. (El Pais, 10/27/07) 
 
GOS APPEALS 152 MILLION EURO EC FINE ON TELEFONICA 
 
¶3. (U) This week, the GOS formally appealed the European 
Commissioner for Competition's decision to fine Telefonica 
$152 million euros for abuse of its dominant position in the 
wide band-width market (charging competitors rates that were 
too high to allow competitive profit margins).  In its 
appeal, the GOS argued that the fine undermines the 
credibility of Spain's telecommunications regulatory body, 
the CMT, which had issued prior approval for the Telefonica 
rates on which the EC later based its sanction.  In its brief 
to the EU's Court of First Instance, the GOS added that the 
fine generates consumer and business uncertainty, given that 
any decision taken by CMT could later be invalidated by the 
EC.  The fine is the second largest imposed by Brussels, 
surpassed only by the 497 million euro fine of Microsoft. 
(All Media, October 31) 
 
MOROCCO LARGEST RECIPIENT OF REMITTANCES 
 
¶4. (U) According to an EC study, in 2004 921 million euros in 
remittances were sent from Spain to Morocco.  Colombia 
received 658 million euros, Ecuador 571 million, Romania 310 
million, Bolivia 139 million, and the Dominican Republic 127 
million.  Between 40 and 99 million were sent to each of 
Brazil, Peru, Algeria and Venezuela.  (Comment: Like the 
U.S., Spain is a significant source of remittances to a 
number of developing countries.  Remittances from Spain are 
responsible for a relatively high percentage of GDP for a 
number of countries, especially Ecuador and Bolivia.) (El 
Pais, 10/29/07, Source: European Commission) 
 
SPANISH COMPANIES HAVE 6 BILLION EUROS IN TAX HAVENS 
 
¶5. (U) The Cayman Islands, Panama, the Virgin Islands, and 
Bermuda are the top destinations in that order.  The money is 
not necessarily illegally acquired, nor is it necessarily 
invested illegally in tax havens.  However, the OECD and 
Spain do believe this money needs to be better regulated and 
monitored.  (El Pais, 10/29/07) 
 
MAPFRE TO BUY 20TH LARGEST U.S. INSURER FOR $2.2 BILLION 
 
MADRID 00002065  002.2 OF 002 
 
 
 
¶6. (U) Mapfre, Spain's largest insurance company, agreed to 
buy the Massachusetts - based insurer Commerce for 2.2 
billion dollars.  Commerce, which specializes in auto and 
homeowner's insurance, is the 20th largest insurer in the 
U.S.  Mapfre will finance the purchase with a capital 
expansion of 500 million euros, 800 million euros in new 
debt, and over 200 million euros in internal resources.  The 
price is around 20 percent above Commerce's stock market 
capitalization.  Mapfre now owns five companies in the 
continental U.S. and one in Puerto Rico, in addition to 
operations in 36 other countries. 
 
REPSOL TO SELL 200 GAS STATIONS IN CHILE 
 
¶7. (U) Spain's leading petrochemical company, Repsol, 
announced the imminent sale of its 200 gasoline stations in 
Chile to Colombia's Terpel.  According to Repsol 
representatives in Spain, this sale marks the beginning of a 
Repsol strategic realignment that will focus more on North 
Africa, the Middle East and the Gulf of Mexico.  Repsol is 
expected to unveil its new strategic plan in the coming 
weeks.  (Expansion, October 31) 
 
SPANIARD LIVING LONGER 
 
¶8. (U) Spaniards' life expectancy at birth has increased by 
two years between 1995 and 2005 and has surpassed 80 for the 
first time, according to the National Statistics Institute. 
Female life expectancy is 83.5 years, while male expectancy 
is 77 years.  These figures are among the highest in the EU. 
(El Pais, 10/30/07) 
AGUIRRE