VZCZCXRO0011
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0407/01 1021404
ZNR UUUUU ZZH
P 111404Z APR 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 4594
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3387

UNCLAS SECTION 01 OF 02 MADRID 000407 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELTN PGOV SENV SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE APRIL 5-11 
 
 
MADRID 00000407  001.2 OF 002 
 
 
 Table of Contents: 
 
¶1. ECON/PGOV: Zapatero Announces Economic Measures During 
Investiture Debate 
¶3. ECON: IMF, BBVA Revise Growth Projections Down, Economy 
Top Concern. 
¶4. ECON/EFIN: Housing Downturn Continues to Hit Construction, 
Real Estate 
¶5. ECON: Per Capita GDP Still Below Italy's After All 
¶6. ECON/ELTN: Spain Leads in EU Transportation Project Delays 
¶7. SENV: Rain in Spain not Falling on the Plain -- or 
Anywhere Else 
 
 
ZAPATERO ANNOUNCES ECONOMIC MEASURES DURING INVESTITURE DEBATE 
 
¶1. (U) The PSOE leader, who was elected President on Friday, 
April 11, with the votes of the PSOE's plurality of seats, 
discussed the economy in the April 8 investiture debate. He 
said the next two years would see lower growth and higher 
unemployment, but he added that Spain would return to higher 
growth rates in the two years afterwards, i.e. during the 
second half of the four-year legislature.  He called the 
slowdown a "deceleration" and avoided the use of terms 
preferred by the opposition conservative PP party such as 
"crisis" or "recession."  He announced a package of planned 
measures to address the economic problems of the next two 
years.  They include the following actions. 
 
-A euro 400 income tax rebate for workers, retirees, and 
self-employed individuals - this was a widely publicized 
election promise. 
-Value-Added-Tax refunds for companies will be paid more 
quickly. 
-Additional tax incentives for home improvements. 
-Public works contract awards will be expedited. 
-Stimulate improvements in buildings (presumably "green" 
improvements in many cases). 
-Public guarantees to ensure continued bank credits for 
low-income housing. 
-Programs to create construction jobs for unemployed people. 
-Incentives for businesses to employ women between the ages 
of 45 and 60. 
 
¶2. (SBU) Other proposed measures related to the economy 
included incentives for immigrants to return to their home 
countries and a somewhat more open attitude towards 
nuclear-generated electricity.  The opposition criticized the 
package as too little too late and as not containing 
meaningful structural reform. (Comment:  The opposition has a 
point, although the PP has not offered detailed structural 
reform proposals.  Spain needs additional labor market 
reform, better education, more investment in R&D, more 
competition in factor markets such as energy, and probably 
lower corporate taxes.  Given Zapatero,s promise to continue 
to increase spending on social programs during the next four 
years, it is difficult to see how all of these different 
needs will be met adequately.  Moreover, Zapatero,s many 
proposals with respect to construction fly in the face of the 
widely agreed upon need to wean Spain away from its 
overreliance on construction as the engine of economic 
growth.)(Expansion, 4/9/08) 
 
 
IMF, BBVA REVISE GROWTH PROJECTIONS DOWN, ECONOMY TOP CONCERN 
 
¶3. (U)  The IMF revised its 2008 growth forecast for Spain 
down to 1.8 percent and now anticipates 1.7 percent growth in 
¶2009.  BBVA revised its forecasts down to 1.9 percent for 
2008 and 1.4 percent in 2009.  The pesimissm may be affecting 
public concerns.  In the March "Spain Today" poll, 68 percent 
of Spaniards thought the economy should be the next 
government,s top priority, while terrorism and immigration 
were cited by the second and third largest percentages.  (El 
Mundo, 4/10/08; BBVA report; Expansion, 4/5/08) 
 
 
HOUSING DOWNTURN CONTINUES TO HIT CONSTRUCTION, REAL ESTATE 
 
¶4. (U) Real estate and construction companies are continuing 
to face difficulties.  Contrary to the U.S. situation, it is 
not so much that homeowners are defaulting on mortgages, but 
rather that construction companies and real estate developers 
risk default for billions of euros in loans for unsold 
properties.  The extent of the problem is not fully known, 
and the good news is that many of these troubled companies 
appear to be working with their banks to restructure their 
loans.  However, a recent study produced by a local insurance 
firm notes that that 119 real estate and construction 
companies filed for bankruptcy in the first quarter of 2008, 
compared to 48 in the same period of 2007.  This 147 percent 
 
MADRID 00000407  002.2 OF 002 
 
 
increase in filings was much greater than the 42 percent 
increase in filings by companies outside the sector. 
(Expansion, 4/9/08) 
 
 
PER CAPITA GDP STILL BELOW ITALY'S AFTER ALL 
 
¶5. (U)  Revised IMF/World Bank estimates of countries, 
purchasing-power-parity (PPP) GDP show that Spain,s per 
capita GDP has not passed Italy,s after all.  At the end of 
last year, EC information based on earlier IMF/WB estimates 
indicated that Spain had passed Italy in 2006.  President 
Zapatero declared this &a unique historic event,8 and 
Italian PM Prodi questioned the data.  The revised GDP 
estimates and new population estimates show Spain's 2007 PPP 
per capita GDP as usd 30,120 and Italy's as usd 30,444.  With 
neither economy expected to grow much this year or next and 
Spain,s population continuing to grow faster than Italy,s, 
Spain is not expected to pass Italy until 2010.  (El Pais, 
4/10/08) 
 
 
SPAIN LEADS IN EU TRANSPORTATION PROJECT DELAYS 
 
¶6. (U) According to a study commissioned by the European 
Parliament, Spain is the EU country that has experienced the 
most severe delays in completing major EU transportation 
projects.  Two major projects in particular have suffered a 
10-year delay each: the cargo rail line project to connect 
Sines (Portugal), Madrid, and Paris and the high-speed rail 
line between France and Spain.  These projects are now 
scheduled to be completed in 2010.  The study futher notes 
that implementation has been hindered by insufficient 
financing and other administrative reasons. (El Pais, 4/8/08) 
 
 
RAIN IN SPAIN NOT FALLING ON THE PLAIN -- OR ANYWHERE ELSE 
 
¶7. (U) Despite some rain this week, Spain is experiencing one 
of its worst droughts since the 1940s.  For the six-month 
period from October 2007 through March 2008, rainfall in 
Spain was 40 percent below average.  Particularly severe 
along the Mediterranean coast, the drought is affecting 
farmers, hydropower generators and consumers.  The WSJ Europe 
reported that the drought could reduce vegetable production 
in some areas by as much as 30 to 40 percent.  Spain produces 
nearly half of the oranges grown in Europe, and Valencia, 
Spain,s largest citrus-producing region, expects a 
significant reduction in overall production.  The region of 
Catalonia began imposing water restrictions in February, 
prohibiting the use of potable water for washing cars or 
filling swimming pools.  The Financial Times reports that 
Barcelona will begin importing water by ship in May from 
southern France.  Barcelona,s reservoirs are only at 22 
percent of capacity; additional restrictions could be imposed 
if they fall below 20 percent.  The situation has caused 
political trouble, with President Zapatero at odds with Jos 
Montilla, the Catalan regional president, over Zapatero,s 
decision to prohibit the diversion of water from the Segre 
river, a tributary of the Ebro.  (WSJ Europe, Financial Times) 
 
 
AGUIRRE