VZCZCXRO2305
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #2250/01 3481723
ZNR UUUUU ZZH
R 141723Z DEC 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3962
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3203

UNCLAS SECTION 01 OF 03 MADRID 002250 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: BEXP EAGR ECON EIND EINT EINV ENRG KIPR KNNP
SP 
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - DECEMBER 
10-14 
 
REF: MADRID 2236 
 
MADRID 00002250  001.2 OF 003 
 
 
Table of Contents: 
 
ECON: Ambassador talks with Circulo de Confianza business 
group 
ECON: Solbes forecasts 2008 growth around 3 percent 
ECON: ECB study shows high processed food inflation 
KNNP/ENRG: Union group suggests reopening nuclear debate 
EINT: First Vice President, Telefonica CEO praise broadband 
penetration 
ECON/ENRG: International press stories suggest varied picture 
for Spanish companies 
EINV: FCC buys two U.S. waste treatment firms, becomes 2nd 
largest in U.S. market 
EAGR/BEXP: Export subsidies manipulating market signals 
EINV/EIND: Delphi to close another plant 
EINV: Las Vegas-style casinos approved for Aragon 
EIND: Sustainable tourism plan unveiled 
 
AMBASSADOR TALKS WITH CIRCULO DE CONFIANZA BUSINESS GROUP 
 
¶1. (SBU) The Ambassador spoke on December 10 to the Circulo 
de Confianza, a blue-chip collection of important businessmen 
that also includes a few politicians and government 
officials.  The Circulo meets periodically for off-the-record 
conversations with prominent individuals.  Spaniards have a 
tradition of the &tertulia,8 which in this case meant a 
structured way of maintaining a question and answer session. 
The Ambassador was asked questions on topics ranging from 
foreign policy to the marketing of Spanish wine in the U.S. 
Perhaps the biggest benefit of the evening was the 
opportunity the Ambassador had to put U.S. Iran and Cuba 
policy in perspective for this audience of movers and 
shakers.  The Ambassador emphasized that U.S. Iran policy was 
unchanged and highlighted two critically suspicious aspects 
of Iranian behavior: Iran's continued enrichment of uranium 
and Iran's continued development of ballistic missiles. 
Cuba, as is often the case here, came up when a businessman 
asked why the U.S. maintains the embargo against Cuba while 
at the same time having normal relations with Vietnam.  The 
Ambassador turned the question around by saying he was 
surprised that the Spanish government maintains normal 
relations with a communist dictatorship.  He also said that 
for both the U.S. and Spain, Cuba was more of a domestic than 
a foreign policy matter.  He said that it was unthinkable for 
the U.S. to have normal relations with Cuba unless 
democratization and respect for human rights emerges. 
 
SOLBES FORECASTS 2008 GROWTH AROUND 3 PERCENT 
 
¶2. (U) The new forecast is down from the Government,s 
estimate several months ago of 3.3 percent, but may be on the 
high side as many analysts are leaning towards an estimate 
closer to 2.5 percent.  Solbes also says that despite lower 
growth, the budget surplus for 2008 will still be about 1.15 
percent of GDP.  The Second Vice President and Finance 
Minister says he is considering a reduction in corporate tax 
rates, although "it is not a priority now."  Solbes is also 
forecasting that there will be less inflationary pressure. 
(Expansion, 12/12/07) 
 
ECB STUDY SHOWS HIGH PROCESSED FOOD INFLATION 
 
¶3. (U) The European Central Bank compared annualized 2007 
processed food (the survey also included bread, cereal and 
dairy) inflation in the eurozone.  Average processed food 
inflation in the Euro area was 4.0 percent.  Among the big 
euro economies, Spain had the highest increase, 6.8 percent 
and France the lowest, 1.3 percent.  (Comment: It is not 
clear why there is such a big difference.  One thing is clear 
though.  Higher food prices are a subject of national debate 
in Spain and something the government is sensitive about. 
End comment.)  (Financial Times, 12/14/07) 
 
UNION GROUP SUGGESTS REOPENING NUCLEAR DEBATE 
 
¶4. (U) The federal secretary of the influential PSOE-allied 
Union General de Trabajadores (UGT), Ignacio San Miguel, said 
on 12/11/07 that Spain should have a calm ("sereno") debate 
about nuclear energy. (Comment: This was an important 
intervention, as the Socialist government is basically 
anti-nuclear power, although President Zapatero did say at a 
recent Economist Intelligence Unit seminar that he was not a 
"fundamentalist" on the topic.) (Expansion, 12/12/07) 
 
FIRST VICE PRESIDENT, TELEFONICA CEO PRAISE BROADBAND 
 
MADRID 00002250  002.2 OF 003 
 
 
PENETRATION 
 
¶5. (SBU) Maria Teresa Fernanda de la Vega and Cesar Alierta 
presented the eighth Information Society Report on December 
¶11.  According to the report, 75% of Spanish households with 
internet access have broadband internet, which is 13 
percentage points above the EU average. (Comment: The 
high-level Spanish government participation was one more 
indication of the Spanish government's treatment of 
Telefonica as something of a "national champion."  This 
treatment is a complicating factor in our efforts to get 
Telefonica, Spain's by far and away most important Internet 
Service Provider, to crack down on internet piracy.  End 
comment.) (Expansion, 12/12/07) 
 
INTERNATIONAL PRESS STORIES SUGGEST VARIED PICTURE FOR 
SPANISH COMPANIES 
 
¶6. (SBU) International newspaper stories this week painted a 
mixed picture of Spanish companies, prospects.  IHT has a 
story on the real estate market slowdown called "Spanish real 
estate: All work but no sales."  The IHT also has a story 
entitled "Inditex profit mirrors consumer slowdown."  Inditex 
owns the well-known Zara clothing brand that has 3500 stores 
worldwide.  The company is underperforming in Spain, and the 
article suggests a link to the weaker construction sector. 
Other newspapers reported favorably on Iberdrola,s spinoff 
of 20 percent of its renewable electricity unit in an IPO 
(reftel).  The Financial Times also reports that "Savings in 
Endesa greater than Enel expected."  (Comment: No doubt about 
it, Spain's construction- and consumer-led expansion is 
slowing.  Some Spanish companies have been very aggressive in 
diversifying into other areas, such as construction companies 
in the renewable electricity sector.  Some companies have 
gone heavily international.  Whether these efforts will be 
enough to compensate for a downturn in housing construction 
remains an open question.  End comment.)  (IHT, 12/13/07; FT 
12/13/07) 
 
FCC BUYS TWO U.S. WASTE TREATMENT FIRMS, BECOMES SECOND 
LARGEST IN U.S. 
 
7.(U) Spanish construction and services group FCC has bought 
two U.S. industrial oils and oil residue treatment companies 
from Siemens Water Technologies for 182.5 million dollars. 
FCC plans on integrating the companies into its industrial 
waste division, making it the second largest player in the 
U.S. market. (Reuters, 12/11/07) 
 
EXPORT SUBSIDIES MANIPULATING MARKET SIGNALS 
 
¶8. (SBU) The European Commission (EC) will now reportedly 
subsidize the export of European-produced pork into the world 
market.  While the practice is permissible under the EU,s 
obligations under the Uruguay Round Agreement of the World 
Trade Organization (WTO), it is a practice almost completely 
abandoned by all other WTO Members, because it is so 
trade-distorting.  In the current round of WTO negotiations, 
the very first objective of WTO Member negotiators was to 
agree to a date-certain elimination of export subsidies. 
 
¶9. (SBU) Unfortunately, the Government of Spain voted in 
favor of these production- and trade-distorting subsidies, 
ostensibly because Spanish pork producers are struggling 
economically with historically high grain prices, relatively 
weak pork prices, and a strong Euro.  The EC could have 
helped hog producers to access competitively-priced feed 
ingredients by expediting the biotechnology approvals process 
in Brussels.  However, it appears that reigniting export 
subsidies was more expedient and politically acceptable. 
 
DELPHI TO CLOSE ANOTHER PLANT 
 
¶10. (U) Bankrupt auto-parts company Delphi announced this 
week that it would be closing its plant in Tarazona beginning 
in January 2008, leaving 320 workers jobless.  The company 
will soon present its contract termination proposal for this 
closure and for the plant's employees.  Also at risk is its 
plant in Belchite that currently employs 120 people.  Earlier 
this year, Delphi closed its 1,600-employee plant in Cadiz, 
prompting massive strikes by hundred of thousands of workers 
in support of their Delphi colleagues.  Ultimately, Delphi 
agreed to a 120 million-euro settlement.  (Comment: Given the 
Cadiz experience, Delphi will presumably approach the 
Tarazona closure with more caution.  We will continue to 
follow this potentially problematic issue.  End comment.) 
(ABC, 12/11/07) 
 
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LAS VEGAS-STYLE CASINOS APPROVED FOR ARAGON 
 
¶11. (U) The President of the Autonomous Community of Aragon 
and a private consortium announced December 13 plans to build 
a massive casino complex that would be second only to Las 
Vegas.  Construction on this 17 billion-euro development 
would begin in the second quarter of 2008 with opening of the 
first phase predicted for 2010.  The development would 
include 232 restaurants, 70 hotels and 32 casinos. (print and 
TV media 12/13/07) 
 
SUSTAINABLE TOURISM PLAN UNVEILED 
 
¶12. (U) Tourism Plan Horizon 2020, an initiative by the GOS 
to increase demand and spread out the impact of tourism by 
extending the season and promoting lesser-known areas.  The 
Spanish tourism office expects Spain to receive 60 million 
visitors by the end of 2007, a 2 percent increase from 
2006,s total.  Tourism accounts for 10 percent of the 
country's GDP. (eTN 12/11/07) 
 
AGUIRRE