VZCZCXRO8595
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0008/01 0041947
ZNR UUUUU ZZH(CCY ADX04995D5 MSI8640 611)
R 041947Z JAN 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4039
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3230

UNCLAS SECTION 01 OF 02 MADRID 000008 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
C O R R E C T E D  C O P Y (REMOVED SENSITIVE CAPTION, RENUMBERE PARAS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ELAB ELTN KIPR PGOV TBIO SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - DECEMBER 
31 - JANUARY 4 
 
MADRID 00000008  001.5 OF 002 
 
 
Table of Contents: 
 
ECON/PGOV: Economy becoming a bigger election issue 
ECON/EFIN: Santander aims to overtake Citigroup 
ECON/EFIN: FT's year in 2007 statistics show Spain's housing 
and equities markets up 
ECON/EFIN: Italian Prime Minister Prodi questions Spanish 
economic "sorpasso" of Italy 
ECON/EFIN: Housing prices up by 5.1% in 2007 
EFIN/ECON: Ibex-35 up by 8% during 2007 
SENV: Spain to appeal New York court's Prestige ruling 
 
ECONOMY BECOMING A BIGGER ELECTION ISSUE 
 
¶1. (U) "The economy hounds the socialists only two months 
before the elections" is the January 4th El Pais headline, a 
stinging statement coming from the largely pro-government 
daily, Spain's newspaper of record.  December's 4.3% 
inflation rate (annualized) and a 5.5% increase in 
unemployment gave rise to this headline.  The opposition 
conservative PP party is trying to make electoral hay out of 
the negative trends.  The socialists are emphasizing the 
positive overall economic record of the last four years. 
According to an El Mundo poll, 40.1% of Spaniards think that 
opposition leader Mariano Rajoy is best placed to manage the 
economy versus 39.3% who think Zapatero is better placed.  In 
terms of international coverage of the Spanish economy, the 
Financial Times ran a January 4 article entitled "Spain's 
house of cards has started tumbling down."  The article talks 
about the problems of a number of construction/real estate 
development companies, including Astroc, Llanera, and 
Colonial.  (Comment: It may be premature to talk about an 
economic "crisis" as El Mundo does.  However, in politics 
what often counts is the trend.  And the economic trend does 
not favor the socialists now.  There is a palpable difference 
in media coverage of the economy (lots of stories about 
inflation, housing problems and now growing unemployment). 
Given that the race between the socialists and the 
conservatives is very tight, the conservatives clearly have 
an opportunity if they can establish greater credibility on 
economic issues, something they will try to do from now until 
the March 9 elections.) (El Pais, 1/4/07; El Mundo, 1/4/07; 
FT, 1/4/07) 
 
SANTANDER AIMS TO OVERTAKE CITIGROUP 
 
¶2. (U)   The 73 year old tycoon, Emilio Botin, told 300 
executives at a Santander Christmas party that his objective 
for 2008 is to overtake Citigroup in terms of market 
capitalization.  On January 2, Citigroup's market 
capitalization was euros 206 billion and Santander's euros 
88.5 billion.  On December 28, Santander's market 
capitalization was euros 92.5 billion and Citigroup's 98.7 
billion.  Hitherto, Santander has come out relatively 
unscathed from the U.S. sub-prime mortgage crisis, which 
makes Botin's goal a possibility.  Botin also told the 
Financial Times that he is looking for additional buying 
opportunities in the U.S. and the U.K. (El Pais, 12/31/07); 
FT, 12/31/07) 
 
FT'S YEAR IN 2007 STATISTICS SHOW SPAIN'S HOUSING AND 
EQUITIES MARKETS UP 
 
¶3. (U)  Housing prices were up by 5% (lower than previous 
years, double digit increases) and the stock market up by 
7%.  Among large economies, only Germany's stock market 
performed better.  In the U.S., stocks were up by about 3%. 
(Comment: Most observers think housing prices will decline in 
Spain in 2008, at least in real terms.   With respect to 
Spain's Ibex-35, the future is less clear.  Given that 
Spanish companies, including construction companies, have 
diversified so aggressively overseas, the Spanish stock 
market could still perform relatively well in 2008.) (FT, 
12/31/07) 
 
ITALIAN PRIME MINISTER PRODI QUESTIONS SPANISH ECONOMIC 
"SORPASSO" OF ITALY 
 
¶4. (U) An angry Prodi signed a letter to Italian press agency 
Ansa explaining that in 2006, Italy's GDP per capita was 
euros 25,100 and Spain's was euros 22,300.  However, adjusted 
for purchasing power parity, Eurostat found that a Spaniard 
had higher purchasing power than an Italian.  Prodi referred 
to an IMF methodology which found that an Italian could, on 
average, buy more than euros 3,000 a year than a Spaniard. 
Prodi noted that there is no standard purchasing power parity 
calculation methodology.  However, the El Pais story on this 
topic notes that when Prodi was President of the European 
 
MADRID 00000008  002.5 OF 002 
 
 
Commission, he never referred to IMF statistics!  (El Pais, 
1/3/07) 
 
HOUSING PRICES UP BY 5.1% IN 2007 
 
¶5. (U) But, prices went up by 9.1% during the first half of 
2007 and only 1.1% during the second half of 2007.  This is 
one more indicator that 2008 will be a rough year for house 
prices in Spain. (El Pais, 1/3/07) 
 
IBEX-35 UP BY 8% DURING 2007 
 
¶6. (U) Telefonica, Iberdrola, Acciona and Santander were 
responsible for a large part of the uptick.  In fact, 
Telefonica alone was responsible for 76% of the growth. 
Medium-sized banks, construction companies, real estate 
development firms and TV channel were a drag on the stock 
index.  (Cinco Dias, 12/28/07) 
 
SPAIN TO APPEAL NEW YORK COURT'S PRESTIGE RULING 
 
¶7. (U) U.S. Federal courts dismissed on Wednesday a damage 
claim filed by Spain against the American Bureau of Shipping 
ruling that Spain must pursue its claims in its own courts in 
accordance with the International Convention on Civil 
Liability for Oil Pollution Damage (CLC).  In other words, 
the court ruled that it does not have standing on this 
matter.  The Prestige disaster was Spain's worst 
environmental disaster damaging  fishing, tourism and natural 
habitats in the region.  Spain argues that the bureau was 
negligent in it's classification of the 26 year old vessel 
clearing the single hulled vessel as fit to carry fuel.  The 
Justice Ministry issued a statement announcing they will 
appeal the decision.  (El Pais 1/3/07) 
AGUIRRE