VZCZCXRO1043
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0179/01 0461825
ZNR UUUUU ZZH
R 151825Z FEB 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4289
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3313

UNCLAS SECTION 01 OF 03 MADRID 000179 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: BTIO EAGR ECON EFIN EINV ENRG KFRD SCUL SENV
SOCI, SP 
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - FEBRUARY 
11-15 
 
 
MADRID 00000179  001.2 OF 003 
 
 
Table of Contents: 
 
EFIN: European Central Bank (ECB) President Claude Trichet in 
Madrid 
ENRG/EINV: European court rules against Spanish law on 
foreign investment in electricity firms 
ECON/EFIN: Rate of small business closings increases 
ECON/SCUL: Spanish Banking Association protests Financial 
Times and Daily Telegraph coverage 
ECON/KFRD: Tax administration cracks down on fiscal fraud, 
turns eye towards 500 euro bills 
EAGR/BTIO: Will U.S. poultry-meat exporters ever regain 
access to the European Market? 
SENV: Wrecked ship spills more fuel off Gibraltar and 
Algeciras 
EINV/ECON: The King offers Spain's economic experience to 
Egypt 
SOCI: Ovules for sale - Spain's reproductive tourism 
 
 
EUROPEAN CENTRAL BANK (ECB) PRESIDENT CLAUDE TRICHET IN MADRID 
 
¶1. (U) Speaking to an overflow audience at a February 15 
event, Trichet argued for further structural reform in the 
Eurozone, citing particularly the need for more flexibility 
in the labor, products and services markets.  He argued 
strongly that price stability was not inconsistent with job 
creation and growth, indeed that it was a necessary condition 
for job creation and growth in the medium term.  He noted 
that since 1995 the Eurozone had enjoyed such price stability 
and had created 15 million new jobs, vice 13 million in the 
U.S.  He would not be drawn into a discussion as to whether 
interest rates should come down, and he would not comment 
substantively on the observation that the Fed and the ECB 
appear to be "rowing in different directions," as one 
questioner put it.  In both cases, he emphasized that his job 
was to look at the Eurozone as a whole, not individual 
members, and that price stability was the ECB's overriding 
priority.  (Comment: No surprises from Trichet.) 
 
EUROPEAN COURT RULES AGAINST SPANISH LAW ON FOREIGN 
INVESTMENT IN ELECTRICITY FIRMS 
 
¶2. (U) The European Court of Justice on February 14 ruled 
that EC jurisprudence was violated by a Spanish law that 
requires publicly owned foreign firms acquiring more than 3 
percent of a Spanish energy company to seek Spanish 
government approval to use their voting rights.  Spain argues 
this law is necessary to maintain fair competition in the 
European energy market.  Why?  Several years ago, Spain 
privatized its energy companies.  However, France and Germany 
still have integrated publicly owned energy giants. 
Recently, there has been a lot of speculation in the media 
that French energy company EDF might team up with Spanish 
construction firm ACS to buy Iberdrola, something the Spanish 
government would prefer not to see happen.  The Court ruled 
that the Spanish provision contravened the EC Treaty's 
regulation of the free movement of capital within the EU. 
Despite Spanish arguments for the law, Economy Minister Pedro 
Solbes says Spain is unlikely to appeal and will introduce 
means to comply with the court ruling. (El Pais and 
International Herald Tribune, February 15) 
 
RATE OF SMALL BUSINESS CLOSINGS INCREASES 
 
¶3. (U) In the month of January, over 4,000 small stores went 
out of business across Spain, a 300 percent increase from 
January of 2007.  According to Spanish trade union UGT, many 
businesses were affected by lower-than anticipated holiday 
spending as well as growing competition from major 
supermarkets and store chains.  Small store shopping has long 
been prevalent in Spain, where going to the local produce 
store or clothing boutique instead of a supermarket or a 
store chain is common. (Expansion, February 13) 
 
SPANISH BANKING ASSOCIATION PROTESTS FINANCIAL TIMES AND 
DAILY TELEGRAPH COVERAGE 
 
¶4. (SBU) Recently, the AEB has sent letters to the editors of 
the FT and the Daily Telegraph criticizing these 
publications, coverage of possible weaknesses in the Spanish 
banking sector.  The AEB was particularly concerned about a 
Daily Telegraph article comparing credits requested by 
Spanish banks from the European Central Bank (ECB) with loans 
requested by bankrupt British bank Northern Rock. (Comment: 
It is a fair bet that BBVA's Francisco Gonzalez and 
Santander's Emilio Botin approved the letters to the editors. 
 Both the GOS and many members of the Spanish business 
 
MADRID 00000179  002.2 OF 003 
 
 
establishment are irritated with the FT's depiction of the 
Spanish economy.) (El Pais, February 14) 
 
TAX ADMINISTRATION CRACKS DOWN ON FISCAL FRAUD, TURNS EYE 
TOWARDS 500 EURO BILLS 
 
¶5. (U) The Presidency reiterated its commitment this past 
week to combating money laundering and fiscal fraud.  In 
addition to having quadrupled the number of its fraud 
investigative units in 2007, Spain's Tax Agency will focus 
more intensely on 500 euro bill transactions.  Up to 25 
percent of 500 euro notes in Europe are reportedly in 
circulation in Spain. The use of these large notes has often 
been linked to money laundering and tax evasion schemes, in 
many cases tied to Spain's real estate boom of recent years. 
Spain's Tax Agency reported that up to 70 percent of reported 
2003 transactions involving 500 euro bill notes have 
exhibited signs of potential fraud.  In 2007, the Tax Agency 
collected an additional 6 billion euros as a result of its 
fraud investigations. (El Pais, February 14, Moncloa website) 
 
WILL U.S. POULTRY-MEAT EXPORTERS REGAIN ACCESS TO THE 
EUROPEAN MARKET? 
 
¶6. (U)   New reports indicate that the European Commission 
(EC) will soon grant U.S. poultry exporters renewed access to 
the European market, which the EC has denied for the last ten 
years because some Europeans (poultry producers) reportedly 
"thought" that U.S. poultry might be unsafe to eat.  The EC 
has denied market access while the Europeans studied the 
possibility that U.S. chlorine-treated poultry carcass meat 
might produce cancer when consumed.  The intervening 
countless studies and trials have not produced any support 
for the theory, so after the issue was raised in the 
Transatlantic Economic Council (TEC), the EC has reportedly 
said that it will follow the TEC's guidance and grant renewed 
access as early as this next summer.  Potential Spanish 
importers (in the Canary Islands) are watching the EC 
maneuvering with guarded optimism, while U.S. officials will 
likely keep the issue high on the agenda of future meetings. 
 
WRECKED SHIP SPILLS MORE FUEL OFF GIBRALTAR AND ALGECIRAS 
 
¶7. (U) The release of additional oil from a wreck that sank 
in disputed waters off the coast of Gibraltar has sparked new 
tensions between Spain and Great Britain.  The 
Panamanian-flagged vessel "New Flame" had collided with a 
tanker in August in waters claimed by both Gibraltar and 
Spain.  Although the majority of the oil had been removed 
from the water since then, a small portion remained trapped 
underwater and was released after a heavy storm this past 
weekend, which covered nearby Spanish beaches with oil slick. 
 The British ambassador was summoned to the MFA, which 
demanded that the UK clean up the mess.  Authorities in 
affected municipalities are considering suing Gibraltar for 
damages. (ABC February 11, Embassy-UK Embassy meeting) 
 
THE KING OFFERS SPAIN'S ECONOMIC EXPERIENCE TO EGYPT 
 
¶8. (U)  Visiting Egypt, King Juan Carlos offered Spain's 
experience during a business meeting with Commerce and 
Industry Minister, Mohamed Rashid.  The King cited Spain's 
experience in tourism - Spain receives 50 million foreign 
tourists a year, while Egypt receives 11 million - energy, 
telecommunications, the environment, and transportation.  The 
King also encouraged the exploration of joint business 
opportunities with outside markets such as Africa, the Middle 
East and Latin America.  Through a Memorandum of 
Understanding, Spain will make available 250 million euros to 
be used for public projects or small businesses that contract 
Spanish companies.  Spain agreed to take part in a study for 
the viability of building a high speed train from Alexandria 
to Egypt, and the Spanish company Eliop was granted a 100 
million euro contract to improve security and sign postings 
on the main lines of Egypt's accident-prone rail system. 
(ABC, February 11) 
 
OVULES FOR SALE - SPAIN'S REPRODUCTIVE TOURISM 
 
¶9. (U) Restrictive laws in their home countries and a desire 
for anonymity are some of the reasons foreign women hoping to 
have babies are seeking ovules (eggs) in Spain.  More than 
50% of the patients seeking donations are from countries such 
as Italy (which prohibits ovule donations), France (which 
limits them), and Britain (where there is no anonymity).  The 
price is 6,000 euros per attempt with a successful pregnancy 
rate of 80%.  Donating is a business for some donors, who 
receive 1,000 euros as compensation for the "discomfort" 
 
MADRID 00000179  003.2 OF 003 
 
 
caused by the process.  While total statistics are not 
available, the two leading Madrid clinics performed the 
procedure 720 times in 2007, up from 500 the previous year. 
(20 minutos, February 14) 
AGUIRRE