VZCZCXRO7508
RR RUEHRN
DE RUEHMD #2155/01 3301325
ZNR UUUUU ZZH
R 261325Z NOV 07 ZDK RUEHBS #0602 ZDK
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3849
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3185

UNCLAS SECTION 01 OF 02 MADRID 002155 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EUR/WE 
EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB ETRD KIPR PTER SOCI TBIO SP
EINV 
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE - NOVEMBER 
19-23 
 
MADRID 00002155  001.3 OF 002 
 
 
Table of Contents: 
 
PGOV: Solbes indicates he will likely stay if PSOE wins March 
2008 election 
ECON: PP proposes big tax cut for lower-paid 
EINV: Investment in Latin America declining as share of 
foreign investment, but still important to largest companies 
SMIG/ECON: Immigrants to Spain account for largest outflow of 
remittances from EU 
EAGR: Analysts predict low world wheat stocks despite record 
production 
EIND/TBIO: Colgate toothpaste recalled after bacteria found 
EAGR: 130,000 Barcelonans consume carcinogens in water 
BEXP: Travelodge to "reign in Spain" 
ETRD/EINV: Bilateral investment agreements with West African 
nations 
 
SOLBES INDICATES HE WILL LIKELY STAY IF PSOE WINS MARCH 2008 
ELECTIONS 
 
¶1. (U) There is much media speculation that Second Vice 
President and Finance Minister Solbes will run for a 
parliamentary seat, perhaps as the number two to President 
Zapatero in the Madrid area. (Comment: Getting Solbes to 
stay, and to run, is all about shoring up the PSOE's centrist 
and center right voters.) (El Pais, 11/ 19/07 and 11/20/07) 
 
PP PROPOSES BIG TAX CUT FOR LOWER-PAID 
 
¶2. (SBU) The opposition PP proposes that workers or retirees 
earning less than 16,000 euros (USD 23,360), up from the 
current threshold of euros 9,000, be exempt from paying 
income tax.  That would mean roughly 7 million people who 
currently pay taxes would not have to do so.  The PP is also 
proposing to reduce taxes for households in which both 
spouses work outside the home.  The PP says that controls on 
spending plus the "supply-side" effect of the tax cuts would 
over the long run pay for the tax cuts.  Second Vice 
President and Finance Minister Pedro Solbes initially said he 
did not think the PP proposal was "a very brilliant idea." 
He said the proposal omitted crucial details, such as whether 
the euros 16,000 included non-work income, and added that the 
cost of the PP proposal could amount to 1.5% of GDP, i.e. 
virtually wipe out Spain's budget surplus.  However, he later 
indicated that the government might also reduce taxes on low 
earners as long as the surplus was sufficient.  (Comment: 
This is another indication that the race is clearly on and 
that economic issues will be a significant feature of the 
electoral debate.  Perhaps the most interesting aspect of the 
PP's gambit is that it focuses on the lower paid, which is 
reminiscent of the approach taken by Sweden's conservatives. 
It appears that that the PP is making good on its pledge to 
make economics a more central part of its message to voters.) 
(El Pais, 11/19/07; Expansion, 11/20/07) 
 
INVESTMENT IN LATIN AMERICA DECLINING AS SHARE OF FOREIGN 
INVESTMENT, BUT STILL IMPORTANT TO LARGEST COMPANIES 
 
¶3. (U) During the 1993-2000 period, almost half of Spain's 
foreign investment went to Latin America.  During the 
2001-2006 period, the percentage dropped to about 18%.  Much 
more investment went to the U.S., Europe and Asia, a trend 
that has continued in 2007.  However, some large Spanish 
companies' Latin American operations are extraordinarily 
profitable.  For example, in 2006, 55% of BBVA's profits, 37% 
of Santander's profits, and 33% of Telefonica's profits came 
from Latin American subsidiaries.  Indeed, Latin America 
represents high risk but a high return for Spanish firms. 
These are Spain's three largest companies as measured by 
stock market capitalization.  (Comment: The profitable Latin 
American operations affect major Spanish corporations' stock 
values, so Latin America still has an outsize importance for 
the Spanish economy.  Over time though, the trend is clear. 
Latin America is becoming relatively (not in absolute terms) 
less important to the Spanish economy.  For cultural and 
political reasons though, Spain will still likely continue to 
show a special interest in Latin America.) (El Pais, 
11/18/07) 
 
IMMIGRANTS TO SPAIN ACCOUNT FOR LARGEST OUTFLOW OF 
REMITTANCES FROM EU 
 
¶4. (U) In 2006, immigrants in Spain sent 5.6 billion euros to 
countries outside the EU.  The equivalent number for the UK 
was 4.7 billion euros, for Italy it was 3.7 billion euros, 
and for Germany it was 2.0 billion.  (El Pais, 11/19/07) 
 
MADRID 00002155  002.3 OF 002 
 
 
ANALYSTS FORECAST LOW WORLD WHEAT STOCKS DESPITE RECORD 
SPANISH PRODUCTION 
 
¶5. (U) Even with this year's record wheat production in 
Spain, world wheat analysts are forecasting 30 year low world 
wheat stocks for the current marketing year (MY).  Analysts 
cite continued strong consumer demand that has exceeded 
weather-reduced production since MY 2000/01, and strong 
prices for crops that compete for wheat-production acreage as 
the reasons for the record-low stocks.  Ukrainian, Canadian, 
Australia, and European (with the exception of Spanish) 
farmers took the brunt of weather-related crop reductions 
during MY 2007-08, while U.S. wheat producers produced an 
excellent crop. 
 
¶6. (U) Consumers in Spain and all other rich developed 
countries continue to demand high-quality processed wheat 
products, in spite of recent price increases.  Currently, 
Spanish wheat traders import more North American (U.S. and 
Canadian) hard spring red wheat than traders in any other 
European country.  They import this very high quality wheat, 
because millers need it to blend it with locally-produced 
inferior-quality wheat used in bread and pastry products. 
 
¶7. (U) While current world wheat stocks are sufficient to 
cover current demand, another weather-reduced world wheat 
crop could push currently very high prices into chaos.  All 
wheat analysts, traders, Government officials, and savvy 
milers will remain focused on weather-related developments, 
including Spain's current lack of rain, during the coming 
year. 
 
COLGATE TOOTHPASTE RECALLED AFTER BACTERIA FOUND 
 
¶8. (U) The Galicia autonomous community government pulled 
Colgate Herbal White toothpaste off the shelves in Galicia 
after detecting toxic bacteria in 9 tubes.  This substance is 
normally found in fecal matter. (20 minutos) 
 
CARCINOGENS IN WATER OF 130,000 BARCELONANS 
 
¶9. (U) Barcelona Public Health agency head Joan Guix 
announced that 8% of the city's population (130,000 
residents) consumes water that may cause cancer "with 
accumulation and over many years."  Water from the Llobregat 
river contains a concentration of trihalomethanes higher than 
the maximum allowed, 150 micrograms per liter.  The amount of 
this chemical, which is generated in the process of making 
the water potable, sometimes reaches 156.6 micrograms.  The 
distribution company Aguas Ter-Llobregat, affirmed that its 
water meets "all health requirements imposed by the 
sanitation authorities."  A public health agency study notes 
that matters will not change until a reversible 
electrodialysis treatment plant that will reduce the level of 
these chemicals in the water begins operation, scheduled for 
¶2009.  There also are plans to desalinate the river 
Llobregat, which would improve water quality. (20 minutos) 
 
TRAVELODGE TO "REIGN IN SPAIN" 
 
¶10. (U) Budget hotel Travelodge announced Monday, November 19 
that it will open 100 sites in Spain and create 2,000 new 
jobs.  The company currently has three pilot sites in Madrid 
and Barcelona and plans to include Valencia, Malaga, Zaragoza 
and Bilbao in its expansion.  The company will aim for the 
domestic low-budget market.  (The Sunday Times) 
 
BILATERAL INVESTMENT AGREEMENTS WITH WEST AFRICAN NATIONS 
 
¶11. (U) The GOS is promoting West Africa as an investment 
destination, in part in an effort to reduce the flow of 
illegal immigrants from the region.  Ministry of Industry, 
Tourism and Trade Joan Clos led a delegation of 60 companies 
including executives from energy, agro-business, 
infrastructure and tourism companies, to Angola and Senegal. 
Minister Clos signed a bilateral investment agreement with 
Angola and was scheduled to sign one with Senegal.  This is 
the continuation of the government's "Plan Africa," which was 
launched last year to strengthen political and economic 
engagement with the West African region.  The GOS is also 
negotiating an investment agreement with Mauritania. 
LLORENS