VZCZCXRO7771
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0370/01 0881910
ZNR UUUUU ZZH
P 281910Z MAR 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 4551
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHBO/AMEMBASSY BOGOTA 5339
RUEHME/AMEMBASSY MEXICO 0663
RUEHLA/AMCONSUL BARCELONA 3374

UNCLAS SECTION 01 OF 02 MADRID 000370 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ECPS EFIN EIND EINV ELTN ENRG EPET
SP 
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE - MARCH 
15-28 
 
 
MADRID 00000370  001.2 OF 002 
 
 
Table of Contents: 
 
¶1. ECON/EFIN: 2008 Economic Growth Forecast at 2.5 Percent 
¶2. ECON/EFIN: Budget Surplus Declines 
¶3. EIND: Housing Sales Decline Continues 
¶4. ECON/EFIN: Catalan Economy Minister Concerned About U.S., 
Global Woes 
¶5. ELTN: Emboffs Meet with Rail Security Lead 
¶6. ENRG: Renewable Electricity Cost Rising 
¶7. EAGR: Ag Minister Welcomes EU Dairy Quota Increase 
¶8. ECON/EFIN: Santander, GE to trade over 1B euros in assets 
¶9. ECPS: Telefonica to Compete in Mexico? 
¶10. ECON/EINV: Construction Firm Wins Florida Road Contract 
¶11. EPET: CEPSA to Explore for Oil in Colombia 
 
2008 ECONOMIC GROWTH FORECAST AT 2.5 PERCENT 
 
¶1. (U) Economic analysts forecast 2.5 percent economic growth 
for Spain in 2008 and not more than 2.1 percent in 2009: The 
Savings Bank Studies Foundation (Funcas) recently came out 
with these forecasts based on interviews with 14 national 
economic consultancies.  (Comment: There is a widespread 
sense that President Zapatero,s second government will focus 
much more on economic issues than his first government.  So 
far, Spanish banks seem to be in good shape.  However, in a 
sign that problems in the construction sector may be more 
serious than so far acknowledged, the Dubai Sovereign 
Investment Fund has decided not to buy the troubled real 
estate firm Colonial after all.) (Expansion, 3/26/08) 
 
BUDGET SURPLUS DECLINES 
 
¶2. (U) The GOS collected euros 9.3 billion more than it spent 
in January and February of this year as opposed to the euro 
13 billion surplus it had during the same period in 2007. 
This represents a 27.5 percent decline in the size of the 
surplus.  Higher spending explains a lot of the decline in 
the surplus - in fact spending was up by 17 percent during 
this period.  The government is spending a lot more on 
infrastructure and higher pension payments.  Tax collection 
is down, especially value added taxes from smaller companies, 
which reportedly reflects the cooling construction sector, 
especially in the residential area.  Income tax collection 
actually went up during this period, although income tax 
rates are not higher. The Secretary of State for the Budget, 
Carlos Ocana, remains confident that in 2008 Spain will still 
run a budget surplus of 1.2% of GDP.  (Comment: Given the 
uncertainties in the global and Spanish economies, it is 
difficult to forecast with any certainty what Spain,s budget 
picture will be by the end of 2008.  We do know, however, 
that the government is likely to try to use spending to 
maintain growth - interest rate cuts are not possible as 
rates are controlled by the European Central Bank - so the 
budget surplus will be under severe pressure this year.) 
(ABC, 3/28/08) 
 
HOUSING SALES DECLINE CONTINUES 
 
¶3. (U) The number of sales of new and used homes in January 
was 27 percent below the January 2007 number.  Sales of used 
homes fell by 36 percent, while sales of new homes fell by 15 
percent, suggesting that owners were more reluctant than 
builders to lower their asking prices.  The amount of new 
mortgage lending was 28 percent below the January 2007 level, 
the largest one-year percentage drop since INE began 
publishing the statistic in 1995.  (El Pais 3/27/08) 
 
CATALAN ECONOMY MINISTER CONCERNED ABOUT U.S., GLOBAL WOES 
 
¶4. (SBU) Catalan autonomous community Economy and Finance 
Minister Antoni Castells described to visiting Econ Counselor 
on March 27 his concerns about the possible impact on Spain's 
economy of U.S. and global difficulties.  Castells thought 
that, if there were no global difficulties, the housing 
slowdown in Catalonia and resulting slowing growth would be 
manageable.  However, he was concerned that the situation 
would be aggravated by either global financial system turmoil 
or the impact of a possible U.S. recession on the rest of the 
world. 
 
EMBOFFS MEET WITH RAIL SECURITY LEAD 
 
¶5. (SBU) On March 27, Econ officers and TSA program analyst 
met with the Director for Security for ADIF, the 
quasi-governmental agency in charge of Spain's railway 
 
MADRID 00000370  002.2 OF 002 
 
 
infrastructures.  The Director, Antonio Bertomeu, provided 
Emboffs with a general overview of Spain's rail system and 
described security measures employed by ADIF to protect 
against general crimes and terrorism.  TSA rep put forward 
various suggestions for information exchanges between TSA and 
ADIF, for which the Director was extremely appreciative.  He 
also committed to a closer relationship with the Embassy. 
 
RENEWABLE ELECTRICITY COST RISING 
 
¶6. (U) The Ministry of Industry, Tourism, and Commerce, which 
has responsibility for energy issues, announced that the cost 
of subsidies in the electricity "special regime," which 
primarily applies to projects that generate electricity from 
renewable sources, would climb to 2.7 billion euros this 
year, up from 1.5 billion in 2006 and 2.2 billion in 2007. 
This year's total amounts to about 60 euros per Spaniard. 
(Expansion 3/17/08) 
 
AG MINISTER WELCOMES EU DAIRY QUOTA INCREASE 
 
¶7. (U) Minister of Agriculture Elena Espinosa welcomed the 
EU's decision to increase milk production by two percent 
after prices in Spain and other countries rose significantly 
in the second half of 2007.  The Minister said the increase 
would allow price stability.  Spain's quota will be 6.24 
million tons, 4 percent of the EU total; annual consumption 
is around 9 million tons.  Spain accepted a low quota as one 
of its conditions of entry into the EU in 1986. 
 
SANTANDER, GE TO TRADE OVER 1B EUROS IN ASSETS 
 
¶8. (U) Banco Santander and General Electric have reached a 
preliminary agreement to exchange businesses in Europe valued 
at 1 billion euros.  Under the terms of the preliminary 
agreement, Banco Santander would acquire GE Money's units in 
Germany, Finland and Austria, and its card and auto 
businesses in the UK, while GE Commercial Finance would 
acquire Italian commercial bank Interbanca.  (Santander and 
GE press releases reported 3/27/08) 
 
TELEFONICA TO COMPETE IN MEXICO? 
 
¶9. (U) Telefonica and Mexico-based Televisa consider teaming 
up to compete with Carlos Slim-owned Telmex and 
America Movil: Telefonica,s reported interest stems from the 
fact that it needs to find a big cable 
operator in Mexico in order to offer fixed-line telephone, 
mobile telephone, internet and pay TV 
services.  Televisa needs a partner with Telefonica,s size 
to compete with Telmex.  So far no formal 
deal has been announced, but there is media speculation about 
a possible deal.  (Expansion, 
3/5/08) 
 
CONSTRUCTION FIRM WINS FLORIDA ROAD CONTRACT 
 
¶10. (U) OHL with U.S. subsidiary Community Asphalt wins 
second road construction contract in Florida:  This second 
deal is for a USD 197 million contract to expand a section of 
I-95 from four lanes to six lanes and to build a second story 
for the extension of the Pineda Causeway.  The first contract 
was for a USD 111 million project to refurbish a section of 
US-1.  The Caja de Madrid is helping with the financing. 
(Comment: Presumably the willingness of Spanish banks to help 
in the financing makes it easier for OHL and Community 
Asphalt to win contracts in Florida.  Caja Madrid is also a 
partner in a joint venture with another construction firm 
that is bidding on U.S. contracts.) (Expansion 3/25/08) 
 
CEPSA TO EXPLORE FOR OIL IN COLOMBIA 
 
¶11. (U) Oil company CEPSA announced March 24 that it had 
signed a purchase and sale agreement to acquire the rights to 
explore the Caracara Block in Colombia.  The Caracara Block 
has estimated reserves of 40 million barrels of crude oil. 
CEPSA is expected to invest up to $1 billion on this 
particular project and plans to raise its overall level of 
crude oil reserves and production worldwide.  The company has 
increased its presence in Colombia, pursuing various 
contracts related to exploration.  It is also involved in 
exploration and production activities in Algeria and in 
Egypt. (El Pais 3/25/08, CEPSA press release) 
AGUIRRE