VZCZCXRO5059
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0143/01 0421702
ZNR UUUUU ZZH
R 111702Z FEB 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4235
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3283

UNCLAS SECTION 01 OF 02 MADRID 000143 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: EAGR EAIR ECON EFIN EINV ELAB ELTN ENRG ETRD
SP 
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - FEBRUARY 
4-8 
 
MADRID 00000143  001.2 OF 002 
 
 
Table of Contents: 
 
ECON/ELAB: Record one-month jump in unemployment 
ECON/EFIN: Banks report healthy profits 
EINV/ENRG: Zapatero says EDF needs to negotiate to enter 
Spanish electricity market 
EAGR: EU policy to propel Spanish wine shift 
EAGR/ETRD: French protest against agricultural imports from 
Spain 
ELTN/EAIR: AVE set to compete for travelers on 
Madrid-Barcelona run 
EAIR: Varig opens new route to Brazil 
 
 
RECORD ONE-MONTH JUMP IN UNEMPLOYMENT 
 
¶1. (U) Registered unemployment rose by 132,000, or 6.2 
percent, in January, the largest one-month increase in the 21 
years that records have been kept in their current form.  The 
month's increase was primarily concentrated in temporary 
employment, but the permanent sector is likely to be affected 
too; unemployment is predicted to worsen during 2008 as a 
result of the slump in the construction and real estate 
sectors.  The deceleration of the economy appears to be 
somewhat worse than had been expected a few months ago, and 
some analysts now predict 2008 GDP growth of only 2.5 
percent.  Despite the recent increase, the unemployment rate 
- 8.6 percent in the fourth quarter of 2007 - remains well 
below the 11.5 percent rate when Socialists came to power in 
¶2004.  However, the number of registered unemployed has 
increased to 2.26 million because of growth in the labor 
force, including the arrival of approximately 2.5 million 
immigrants.  Opposition PP presidential candidate Mariano 
Rajoy is using this decline to sway Spanish voters against 
the present government by calling unemployment reports, "a 
real drama."  Others argue that despite slow employment 
growth the economy is far from a recession or a "drama," but 
that spurring growth and employment will require quick 
government action, such as encouraging more public 
investment. (EL PAIS, 2/5/08 and 2/6/08) 
 
BANKS REPORT HEALTHY PROFITS 
 
¶2. (U) Santander reported a 9 billion euro profit and BBVA a 
6.1 billion euro profit for 2007.  Out of 15 banks listed in 
El Pais, only two reported losses: La Caixa and Banco 
Sabadell.  This is of course in stark contrast to some of the 
big losses racked up elsewhere by Citigroup, Merrill Lynch, 
UBS, Morgan Stanley, Bank of America, JPMorgan, HSBC, 
Barclays and Societe Generale.  (Comment: It appears to be 
true that the Spanish banks were less exposed to U.S. 
sub-prime related instruments in 2007 than many of their 
foreign counterparts.  However, given that most observers 
believe that housing will face a tough 2008 in Spain, it will 
be a distinct challenge for Spanish banks to do as well in 
2008 as they did in 2007.) (El Pais, 2/7/08) 
 
ZAPATERO SAYS EDF NEEDS TO NEGOTIATE TO ENTER SPANISH 
ELECTRICITY MARKET 
 
¶3. (U) At a February 6  KPMG event, Zapatero insinuated that 
if EDF wants to get into the Spanish energy sector, i.e. buy 
Iberdrola with Spanish construction giant ACS, it would have 
to do so through a "process of good understanding." 
(Comment: There has been lots of local press speculation 
about EDF teaming up with ACS to launch a hostile takeover 
bid of Iberdrola.  Many commentators have noted the 
discrepancy inherent in President Sarkozy's insistence that 
Societe Generale remain in French hands while French national 
champion EDF maneuvers to buy one of Spain's leading 
companies, Iberdrola.) (El Pais, 2/7/08) 
 
EU POLICY TO PROPEL SPANISH WINE SHIFT 
 
¶4. (U) While Spanish wine producers, among the top five in 
the world, have for years been shifting to higher-quality 
wine production at the expense of table wines and wines for 
distillation, the recent agreement to reform the European 
Union wine policy will propel them to shift at a much greater 
pace.  The new EU wine policies maintain the same budget 
levels; but shift spending emphasis from propping up 
production for distillation, of which Spain has been a major 
beneficiary, to promoting higher-quality wine production, 
consumption, and marketing.  The Spanish Government has said 
that Spain, and Spain's producing regions, must invest the 
money wisely, because they believe that more competition in 
the wine sector is just around the corner when the Doha Round 
trade negotiations are concluded.  New-world wine producers 
 
MADRID 00000143  002.2 OF 002 
 
 
have already had tremendous success in the European wine 
market, and lower tariffs associated with the conclusion of 
the Doha negotiations will make them more price competitive 
vis-a-vis Spanish wines. 
 
¶5. (U) The Spanish government recently launched "Wine 
Strategy 2010," which will encourage and help wine producers 
become more competitive in European and third-country 
markets, while potentially improving the sector's income, 
long-term viability, and cachet worldwide.  In that regard, 
the new marketing emphasis of European wine-sector reform 
will likely become a welcome complement to the Spanish 
strategy.  Recently the Spanish have ramped up marketing 
efforts in the United States, Russia, and Asia.  The U.S. 
market is very attractive right now, because of the surge of 
interest in Spanish foods and wines.  The strength of the 
euro vis-a-vis the dollar may hinder somewhat their efforts, 
but they apparently consider the long-term potential gains 
for the sector to outweigh the current monetary pressures. 
Spanish exporters have more than doubled wine exports to 
Russia during the last year, now exceeding French exports in 
volume, while still trailing the French in export value. 
They are also focusing on Japan, recently taking part in a 
five-city tour to enhance the exposure and image of Spain's 
diverse selection of wines. 
 
FRENCH PROTEST AGAINST AGRICULTURAL IMPORTS FROM SPAIN 
 
¶6. (U) French farmers detained, vandalized and destroyed 
produce and wine in the South of France in protest of 
agricultural imports from Spain.  Members of the young 
farmers group Jeunes Agriculteurs blocked and overturned 
trucks carrying wine and produce at a toll station outside 
Montpellier on Tuesday, spilling over 100,000 liters of red 
and white wine in the hopes of causing authorities to take 
notice of what they say are Spanish agricultural goods 
treated with banned pesticides that enter France daily and go 
unchecked.  (20 minutos 2/7/08) 
 
AVE SET TO COMPETE FOR TRAVELERS ON MADRID-BARCELONA RUN 
 
¶7. (U) The long-delayed opening of high-speed rail (AVE) 
service between Madrid and Barcelona appears likely to take 
place in the next few weeks, before the March 9 elections. 
The government has not yet announced a date, perhaps hoping 
to avoid a repeat of the criticism it has faced for not 
meeting previous deadlines, but trains are now making trial 
runs.  The over 200-mph train will set off a battle for 
passengers with airlines; Iberia alone carries 8,000 
passengers a day on its 60 shuttle flights between Spain's 
two largest cities.  Iberia officials have said they expect 
to see a decline in volume but that they expect to hold their 
own among business passengers, because their flights will 
still be shorter than the train trip.  Improving railway 
infrastructure has been a major effort of the Zapatero 
government, which has invested 21 billion euros - 70 percent 
of it on the AVE lines - as the first part of a 15-year 
project.  The Madrid-to-Malaga and Madrid-to-Valladolid AVE 
service opened in December have proven to be very successful, 
with passenger numbers doubling on the Malaga line and 
increasing by 75 percent on the Valladolid line.  On the 
Madrid-to-Seville route, where AVE service began in 1992, 80 
percent of passengers now choose rail over air.  Railway 
officials say public subsidies will end by 2010. 
Environmental benefits - trains produce less CO2 per 
passenger-mile than planes - may give them another advantage 
as the EU moves towards measures to make polluters pay the 
cost of emissions. (El Pais 2/9/08, Guardian 2/2/08) 
 
VARIG OPENS NEW ROUTE TO BRAZIL 
 
¶8. (U) Brazilian airline Varig hopes to transport 7,000 
passengers a month on its new route from Madrid to Sao Paolo 
and Rio de Janeiro.  The airline, acquired a year ago by 
GLAI, added the new route in hopes of opening up a trade and 
tourism market with Spain. (Terra 02/01/08) 
LLORENS