VZCZCXRO8492
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0106/01 0350755
ZNR UUUUU ZZH
R 040755Z FEB 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4179
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3267

UNCLAS SECTION 01 OF 03 MADRID 000106 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN EINV ELAB ENRG ETRD SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - JANUARY 
28 - FEBRUARY 1 
 
REF: MADRID 000089 
 
MADRID 00000106  001.2 OF 003 
 
 
Table of Contents: 
 
ECON/EFIN: "Why the pain in Spain has mainly been contained" 
ECON: GDP rose 3.8 percent in 2007, slightly less than the 
year before 
ECON: Inflation rate still higher than EU average 
ECON/EFIN: ECJ leaves key copyright enforcement decision up 
to Member States 
ECON/EINV: BBVA reorganizes U.S. operations 
ENRG/EINV: Iberdrola defends itself against possible hostile 
takeover 
ENRG: Acciona to pioneer new clean energy technology - 
combining wind and water technology 
ECON/ELAB: Promise of jobs and money for Mali under new 
Cooperation Agreement 
ETRD/EAGR: Possible U.S. marketing order on Clementines 
causes concern 
 
 
"WHY THE PAIN IN SPAIN HAS MAINLY BEEN CONTAINED" 
 
¶1. (U) So reads the FT's Gillian Tett's lead into her insight 
column.  She asks how the big Spanish banks have so far 
weathered the storm well.  She says that Mexico's Central 
Bank Governor, Guillermo Ortiz, has said that a few years 
ago, big Spanish banks asked for permission from the 
regulators to set up Structured Investment Vehicles (SIVs), 
much like banks from other countries were doing at the time. 
However, the Spanish regulators insisted on an 8% capital 
charge against SIV assets, which effectively deterred the 
banks from creating such entities.  The regulators apparently 
never believed that SIVs were as detached from the banks as 
claimed.  Tett draws two conclusions from this.  First, it is 
beneficial to coordinate bank supervision and central 
banking.  Second, there has been a disconnect between heavily 
regulated balance sheet activities and virtually no 
regulation of off balance sheet activities. (Comment: Tett 
believes that there will be pain in Spain's housing sector 
and therefore that the real economy will be affected.  And 
she notes that the credit crunch has affected at least medium 
term Spanish lenders: "Spanish lenders are now furtively 
turning their mortgage loans into privately placed bonds to 
use these as collateral to get access to liquidity from the 
European Central Bank.  Meanwhile, the cost of buying 
insurance against default for medium Spanish lenders via the 
credit default swap market has recently soared, amid rumors 
that hedge funds can smell blood."  But, nonetheless Tett's 
reporting about the big banks' health tracks with what the 
Spanish government and private sector tell the Embassy.) (FT, 
2/1/08) 
 
GDP ROSE 3.8 PERCENT IN 2007, SLIGHTLY LESS THAN THE YEAR 
BEFORE 
 
¶2. (U) According to the Bank of Spain, the Spanish economy 
grew 3.8 percent in 2007, slightly less than 2006,s growth 
rate of 3.9 percent.  The central bank noted that during the 
course of the year there was a slight growth rate 
de-acceleration, evidenced by a 4th quarter figure of 3.5 
percent.  Despite slowing growth, the Bank of Spain asserted 
that growth was nonetheless strong.  It added that the 2008 
growth rate is somewhat more uncertain, particularly given 
the financial turbulence affecting world markets. (Bank of 
Spain) 
 
INFLATION RATE STILL HIGHER THAN EU AVERAGE 
 
¶3. (U) According to Eurostat data, Spain experienced an 
estimated 4.4 percent inflation rate between January 2007 and 
January 2008, which is the country's highest inflation rate 
since 1995.  Spain had the highest inflation among major 
Eurozone economies.  With general elections right around the 
corner, the higher prices of basic consumer goods such as 
milk, bread, and gasoline has become a central theme.  PP 
representatives have argued that the country needs a change 
in direction and that the government has been unable to 
counter inflation, while the PSOE points to the strong GDP 
growth levels.  The inflation rate has doubled since August. 
(All press) 
 
ECJ LEAVES KEY COPYRIGHT ENFORCEMENT DECISION UP TO MEMBER 
STATES 
 
¶4.  (U) The Luxembourg-based European Court of Justice (ECJ) 
issued a ruling on 1/29/08 that held that Spain's Telefonica 
did not have to divulge the identity of clients to Promusicae 
(Spain's main music copyright organization) in civil cases. 
 
MADRID 00000106  002.2 OF 003 
 
 
However, the ECJ said that while Member States are not 
obliged to compel Internet Service Providers (ISPs) to 
divulge data about suspected infringements in civil 
proceedings, they may if they wish to.  Moreover, governments 
are supposed to ensure a "fair balance" between privacy 
rights and the legitimate rights of copyright owners to 
protect their property.  Promusicae says that the decision as 
to whether the data must be disclosed is now in the hands of 
a Spanish judge.  International copyright organizations 
emphasized the decision's call for a balance between privacy 
rights and copyrights.  (Comment: Copyright owners in Spain 
and elsewhere are putting a brave face on this decision. 
However, they are likely disappointed because Members States 
are now free to develop their own jurisprudence on this key 
aspect of protecting copyrights in the digital age.  It is 
telling that while both the Financial Times and El Pais 
reported this story factually, their headlines in effect gave 
the victory to copyright opponents.  The FT headline reads: 
"Court deals blow to copyright owners."  El Pais' headline 
reads: "European judges rule in favor of privacy on the 
internet.") (FT, 1/30/08; El Pais, 1/30/08) 
 
BBVA REORGANIZES U.S. OPERATIONS 
 
¶5. (U) BBVA is integrating four banks it owns in the U.S.: 
Laredo National Bank, Texas State Bank, and State National 
Bank will become part of the much larger Compass Bank.  Jose 
Maria Garcia Meyer has been appointed head of Compass and 
reportedly will also head up the other banking entities BBVA 
owns in the U.S., including BBVA Puerto Rico, Bancomer 
Financial Holding and BTS.  BBVA hopes that 10% of its 
profits will come from its U.S. operations in 2008. 
(Expansion, 1/30/08) 
 
IBERDROLA DEFENDS ITSELF AGAINST POSSIBLE HOSTILE TAKEOVER 
 
¶6. (U) Iberdrola, one of the world's largest electricity 
companies and the world's largest wind power generator, is 
working out strategies to defend itself against a hostile 
takeover bid.  Specifically, there are rumors that Spanish 
construction company ACS, which owns 5.2% of Iberdrola's 
stock, might team up with French energy giant EDF to buy the 
company.  Adding to the media interest are reports of a 
personal rivalry between Iberdrola CEO Ignacio Sanchez Galan 
and ACS CEO Florentino Perez.  GOS Second Vice President and 
Finance Minister Pedro Solbes insinuated on 1/31/08 that the 
GOS would oppose such a bid.  He also said that Spain was 
considerably more liberal than France on the issue of 
cross-border takeovers.  (Comment: The last couple of years 
have been turbulent for the Spanish energy sector, and the 
last thing the government would want is a protracted takeover 
battle for Iberdrola.  Given that the French government has 
recently indicated that it would not allow Societe Generale 
to fall into non-French hands, the Spanish government 
probably feels that it is acting within its rights.  The 
"national champion" concept lives on in Spain's socialist 
government and France's conservative administration.) (FT, 
1/31/08; El Pais, 2/1/08) 
 
ACCIONA TO PIONEER NEW CLEAN ENERGY TECHNOLOGY - COMBINING 
WIND AND WATER TECHNOLOGY 
 
¶7. (U) Leading energy firm Acciona is implementing a new 
initiative to harvest hydrogen from offshore wind parks using 
both water and wind.  Hydrogen, seen by the International 
Energy Agency as an important source of energy for the 
future, is generally harvested from methane through a process 
which produces harmful greenhouse gases.  Acciona, supported 
by public-private partnership entity CENIT, will pilot one 
its offshore wind parks in Navarra, Spain for a project that 
would use wind power to separate out hydrogen atoms from 
ocean water - manipulating two forms of energy sources to 
create clean energy without the harmful greenhouse gases. 
(ABC, 1/29/2008) 
 
PROMISE OF JOBS AND MONEY FOR MALI UNDER NEW COOPERATION 
AGREEMENT 
 
¶8. (U) Minister of Foreign Affairs Miguel Angel Moratinos 
signed the first Mixed Commission of Cooperation between 
Spain and Mali in Bamako on Saturday, January 26 during his 
tour of Sub Saharan Africa.  The agreement will assist Mali 
in several areas.  Two key ones are the temporary employment 
of 300 Mali's laborers to work in Catalonia in agriculture 
and grants of 10 million euros a year for three years.  This 
amount does not include the additional offer of small loans, 
up to 10 million euros, available to associations and young 
businessmen and women.  The Minister was also seeking 
increased cooperation in the fight against terrorism. (Europa 
 
MADRID 00000106  003.2 OF 003 
 
 
Press) 
 
POSSIBLE U.S. MARKETING ORDER ON CLEMENTINES CAUSES CONCERN 
 
¶9. (U) The Government of Spain has officially expressed 
concern over the possibility that the U.S. Government might 
establish a Marketing Order (MO) for Clementines (reftel). 
The California Clementine Board has, through the California 
members of the House of Representatives, introduced the 
possibility of including Spanish Clementines in the list of 
agricultural products for the application of special import 
conditions under Section 8e of the Agricultural Marketing 
Agreement Act of 1937.  The vehicle for that introduction is 
the new farm bill currently in House-Senate conference.  If 
Spanish Clementines are added to the list as a result of the 
farm bill, the U.S. Department of Agriculture will be 
required to consider a Marketing Order for all Clementines 
produced and/or marketed in the United States during a 
specified period of time (the harvest period for California 
Clementines). 
 
¶10. (U) The Spanish are concerned that an MO may pose a 
non-tariff barrier for Spanish exports by setting restrictive 
size and appearance marketing requirements, and have promised 
to fight MO establishment using all means at its disposal. 
Among the options, the GOS has alerted the European 
Commission, and is considering hiring private U.S. attorneys 
to represent its interests in the MO determination process. 
LLORENS