VZCZCXRO8047
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #2292/01 3551412
ZNR UUUUU ZZH
R 211412Z DEC 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3992
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3209

UNCLAS SECTION 01 OF 03 MADRID 002292 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ELAB ELTN KIPR PGOV TBIO SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - DECEMBER 
17-21 
 
REF: MADRID 2236 
 
MADRID 00002292  001.2 OF 003 
 
 
Table of Contents: 
 
ECON: Per capita GDP passes Italy,s 
ECON/EFIN: How long can high current account deficit continue? 
ECON: Solbes criticized for inflation remarks 
ECON/ELAB: Labor, business confederations agree on 2 percent 
2008 wage increases 
EFIN/PGOV: 2008 budget approved 
ELTN/PGOV: Senate censures Public Works Minister 
KIPR: "Digital Copying Charge" renewed, modified 
EIND/ELTN/EFIN: Four Spanish bids expected on Pennsylvania 
Turnpike concession 
EFIN/EIND/KIPR: More companies considering IPOs 
EIND: Major Galicia companies anticipate creating new jobs in 
2008 
ETRD/TBIO: Call for EC investigation of U.S. biodiesel exports 
 
PER CAPITA GDP PASSES ITALY'S 
 
¶1. (U) The PSOE government can point to another piece of good 
news on the economic front as the campaign approaches. 
Eurostat statistics for 2006 showed Spain's per capita GDP 
passing Italy's for the first time.  This puts Spain in 
eighth place among the 13 Euro countries, with a per capita 
income 5 percent below the Eurozone average but 5 percent 
above the broader EU average.  GDP and GDP per capita have 
steadily grown faster than the European average over the last 
decade. 
 
HOW LONG CAN HIGH CURRENT ACCOUNT DEFICIT CONTINUE? 
 
¶2. (U) Observers believe that in 2007, Spain's current 
account deficit may reach 10% of GDP.  The question that many 
analysts have asked for several years is how long can Spain, 
a member of the euro currency union, continue to run such 
high current account deficits?  The Spanish Foreign Trade 
Institute commissioned a dozen economists to try to answer 
that question.  Their essays were recently published by the 
Madrid College of Economists.  The short answer to the 
question, yet again, is that nobody really knows.  Before 
Spain's adoption of the euro, the economists calculated that 
a current account deficit on the order of about 5% of GDP 
would produce downward pressure on the former currency, the 
peseta.  However, well after the current account deficit 
passed the 5 percent level, Spain continued to receive 
investment and Spanish companies continued to raise money on 
international capital markets with ease.  So it is not 
exactly clear through which mechanism Spain would adjust its 
current account deficit downwards.  However, the current 
account deficit is being financed through massive borrowing 
by both consumers and firms.  A possible adjustment could 
happen at the point when accumulated debt reaches such 
dangerous levels that Euro Zone creditors begin to establish 
interest rate differentials and credit limits on Spain.  The 
resulting credit squeeze would force a slowdown in economic 
activity and a consequent narrowing of the balance of 
payments gap.  Another possibility is for FDI and portfolio 
investment to decline and Spanish companies to find it more 
difficult to issue bonds.  Highly qualified commentators and 
analysts regularly argue that Spain's current account deficit 
is "unsustainable," but nobody has a perfect explanation for 
the mechanics of forcing an adjustment.  (El Pais, 12/17/07) 
 
 
SOLBES CRITICIZED FOR INFLATION REMARKS 
 
¶3. (SBU) The Second Vice President and Finance Minister 
suggested on December 17 that one reason inflation is 
relatively high is that Spaniards have still not internalized 
the value of the euro and, for instance, leave a one-euro tip 
for two cups of coffee that cost a euro each.  The PP 
immediately pounced on Solbes, who attempted to make light of 
the remarks a day later. (Comment: Solbes is conceivably on 
to something, but he undoubtedly opened himself up to charges 
of insensitivity.  Inflation is shaping up to be a real 
election issue.  This was a rare gaffe on Solbes, part.) 
(Expansion 12/17-18/07) 
 
LABOR, BUSINESS CONFEDERATIONS AGREE ON 2 PERCENT 2008 WAGE 
INCREASES 
 
¶4. (U) The CCOO and UGT labor confederations and the CEOE 
employers' confederation agreed on a 2 percent wage increase 
for 2008, matching the government's inflation forecast.  The 
contracts included clauses guaranteeing maintenance of 
employee purchasing power in case inflation is above the 
 
MADRID 00002292  002.2 OF 003 
 
 
expected rate. (El Pais 12/17-19) 
 
2008 BUDGET APPROVED 
 
¶5. (U) On December 21, the Congreso (lower house) approved 
the government's 2008 budget, overriding the Senate's earlier 
"veto" by a 182-165 total.  The governing PSOE was able to 
obtain enough votes from smaller parties to reach a majority 
despite the impending electoral campaign, which gives the 
smaller parties incentives to distance themselves from the 
government. 
 
SENATE CENSURES PUBLIC WORKS MINISTER 
 
¶6. (SBU) The Senate voted on December 18 to approve a 
non-binding resolution calling for the resignation of 
Minister of Infrastructure and Public Works Magdalena 
Alvarez.  The Minister has been widely criticized in 
Catalonia this year for electricity blackouts, delays in the 
completion of the Madrid-to-Barcelona high-speed rail line, 
and accidents in the construction of that line that blocked 
service on three of Barcelona's seven commuter rail lines for 
six weeks.  While the resolution has no practical impact, it 
is a symbolic victory for the opposition Partido Popular 
(PP).  The resolution passed because the PP has more seats in 
the Senate than the governing PSOE, and all the other parties 
abstained.  In the more important Congreso, the PSOE has more 
seats than the PP and was able to attract the votes of enough 
other parties to defeat a similar motion by 3 votes on 
November 27.  On November 16, the Catalan Autonomous 
Community legislature passed a similar motion.  Alvarez 
became the first minister to be censured by either a regional 
legislature or the Senate since the return to democracy.  She 
is a longtime ally of President Zapatero, who is not expected 
to replace her before the election. 
 
"DIGITAL COPYING CHARGE" RENEWED, MODIFIED 
 
¶7. (U) After a week of controversy, the Congreso approved on 
December 20 a revised version of the "canon digital," a 
charge on digital copying, storage, and playing devices.  The 
canon, which dates from 2003, is an attempt to compensate 
authors, editors, and distributors for the copies individuals 
are allowed by Spanish law to make for their personal and 
private use of protected intellectual property.  The 
government's approved proposal reduced the charges on some 
devices, such as CD/DVD recorders, CD-ROMs and DVD-ROMs, 
maintained charges on other devices, and imposed new charges 
on mobile phones, USB memory and MP3/MP4 players.  The 
previous week, the Senate had unexpectedly approved an 
amendment calling on the government to eliminate the canon 
within a year, but the Congreso voted down that amendment. 
The canon is not a major issue for the USG, as several U.S. 
content providers are among those who benefit, and internet 
downloading is a greater concern.  However, we are concerned 
about claims by some users that having paid the canon gives 
them the right to download unlimited copies of intellectual 
property. 
 
FOUR SPANISH BIDS EXPECTED ON PENNSYLVANIA TURNPIKE CONCESSION 
 
¶8. (U) Four Spanish companies or groups of companies have 
prequalified to bid on the planned concession of the 532-mile 
Pennsylvania Turnpike.  One consortium includes ACS 
subsidiary Iridium, Isolux, and Banco Santander, along with 
Citi and the Swiss bank UBS.  Another includes Cintra, a 
subsidiary of Ferrovial.  The other two are Abertis and 
Global Via, a joint venture of FCC and the Caja Madrid 
savings bank.  The concession, expected to be the largest in 
the U.S., is expected to require 18 billion dollars in 
investment. 
 
MORE COMPANIES CONSIDERING IPOs 
 
¶9. (U) Undeterred by the volatility of world stock markets, 
several Spanish companies are seeking to emulate last week's 
IPO of 18 percent of Iberdrola's renewable energy unit that 
valued the full unit at 33 billion dollars.  The Eolia wind 
and solar power group is expected to offer between 20 and 25 
percent of its shares sometime in the first quarter of 2008. 
The firm, which is expected to be valued at just under a 
billion euros, has 40 projects with a potential generating 
capacity of 1,325 megawatts from wind and 64 from solar.  A 
quarter of the firm's capacity is in Mexico.  Separately, as 
many as four pharmaceutical biotechnology companies could 
issue shares in 2008, some of them on the soon-to-open 
Alternative Stock Market aimed at smaller companies. 
 
 
MADRID 00002292  003.2 OF 003 
 
 
MAJOR GALICIA COMPANIES ANTICIPATE CREATING NEW JOBS IN 2008 
 
¶10. (U) Expansion plans in Galicia are going as planned 
despite fear of economic difficulties.  The 10 largest 
companies with headquarters in Galicia - Inditex, PSA Peugeot 
Citroen, Constructora San Jose, Pescanova, Finsa, Coren, 
Gadisa, Caixa Galicia, Banco Pastor and Caixanova Galicia - 
anticipate creating more than 2,000 jobs next year to 
accommodate their expansion plans.  Of the companies, the 
Inditex clothing firm is programmed to create the most jobs 
worldwide at 11,000, of which only 100 will be located in 
Galicia. (El Pais 12/17) 
 
CALL FOR EC INVESTIGATION OF U.S. BIODIESEL EXPORTS 
 
¶11. (U) Why did U.S.-produced biodiesel (B99) exports to 
Europe increase tenfold in one year?  Because of U.S. 
subsidies, according to the European Biodiesel Board (EBB). 
Trade Commissioner Peter Mandelson now has 45 days to 
consider launching an investigation into U.S. biofuels 
subsidies and dumping after receiving a formal complaint from 
the EBB.  B99 Biodiesel blends classify as "organic 
chemicals" in Europe, because they contain from 0.1 to 1 
percent petroleum-based diesel.  As a result, European 
importers do not pay import tariffs.  In addition, U.S. 
biodiesel producers reap a U.S. subsidy of a dollar per 
gallon regardless of where the biodiesel is used.  As a 
result, the EBB claims that imported U.S.-produced B99 blends 
undercut EU producers' prices by up to 150 euros per ton. 
The EBB alleges that European B99 imports soared from 100,000 
tons in 2006 to one million tons this year.  Spanish biofuels 
producers have expressed concern that these U.S. exports are 
unfair competition. 
AGUIRRE