VZCZCXRO8292
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0469/01 1161548
ZNR UUUUU ZZH
R 251548Z APR 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4664
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3404

UNCLAS SECTION 01 OF 03 MADRID 000469 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: BTIO EAIR ECON ECPS EFIN EINV ELAB KNNP SENV
SP 
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE APRIL 21 - 25 
 
REF: MADRID 443 
 
MADRID 00000469  001.2 OF 003 
 
 
Table of Contents: 
 
¶1. ELAB: Unemployment increases one full point to 9.6% 
¶2. EFIN: IMF says no more room for additional fiscal stimulus 
¶3. EFIN: Banks returning to capital markets 
¶4. EFIN: 198 suspected of tax evasion via Liechtenstein 
¶5. EINV/ECPS: "Everyone expects the Spanish telecoms 
acquisition" 
¶6. EAIR: Airlines lose 9% of Madrid-Barcelona passengers to 
the AVE 
¶7. SENV: EC investigating Madrid air pollution 
¶8. SENV/KNNP: Asco I radiation leak update 
¶9. BTIO: Herbalife blamed for 9 cases of liver toxicity 
 
UNEMPLOYMENT INCREASES ONE FULL POINT TO 9.6% 
 
¶1. (U) According to Spain's National Institute of Statistics 
(INE), the unemployment rate increased to 9.6% in the first 
of quarter of 2008, a full point increase from the last 
quarter of 2007.  This increase represents one of the highest 
quarter to quarter increases in 15 years.  The housing 
construction slowdown was one of the primary factors behind 
the increase, and in fact the construction and services 
sector suffered the greatest job losses.  Meanwhile the 
agriculture and industry sectors experienced a slight growth, 
but not enough to overcome the losses in the other sectors. 
Second Vice President and Economy and Finance Minister Pedro 
Solbes recently warned that in the next two years the rate of 
unemployment could reach as high as 10 percent.  INE data 
shows that the total number of unemployed in the first 
quarter reached 2,174,200. (Cinco Dias, 4/25; EFE, 4/25) 
 
 
IMF SAYS NO MORE ROOM FOR ADDITIONAL FISCAL STIMULUS 
 
¶2. (U) The IMF,s Europe Director, Michael Deppler, conceded 
that Spain had the maneuvering room to use fiscal policy to 
stimulate the economy and therefore supported President 
Zapatero,s 2008 euro 10 billion fiscal stimulus package 
approved by the Council of Ministers April 18.  However, 
Deppler said there was little additional margin for fiscal 
stimulus.  He noted that Spain had enjoyed 14 years of 
uninterrupted strong growth, but he added that Spain had 
allowed imbalances to arise, especially the very high current 
account deficit of the balance of payments.  Therefore, Spain 
needed supply-side, not demand-side stimulus, reforms to 
increase productivity and competitiveness.  Specifically, the 
energy, distribution, transportation and telecommunications 
sectors needed further market opening and competition.  The 
IMF is forecasting 1.8% growth for Spain in 2008 and 1.7% in 
¶2009.  Other forecasters are somewhat more optimistic.  The 
Bank of Spain forecasts 2.4% economic growth in 2008 and 2.1% 
in 2009.  (Comment: The growth numbers are not terrible 
compared to projected growth rates for other major economies, 
but they are a major slowdown compared with the 3.8% growth 
Spain enjoyed in 2007.) (Expansion, 4/22; WSJ, 4/21) 
 
 
BANKS RETURNING TO CAPITAL MARKETS 
 
¶3. (U) Spanish banks have carried out three senior debt 
(bond) issuances this month in what may be a sign of the 
reopening of capital markets to Spanish issuers.  In the 
first week of April, Santander placed 2.5 billion euros in 
three-year debt, the first issuance realized by a Spanish 
bank this year.  The cost was considered high -- 90 basis 
points over the 3-month Euribor rate.  The same week, the 
Caja Madrid savings bank issued 1.25 billion euros in 
three-year debt with an even higher rate of Euribor plus 105 
basis points.  Last week, Santander placed 2.5 billion euros 
in two-year debt with a smaller differential of 75 basis 
points.  In the second half of 2008 and all of 2009, Spanish 
banks will need to renew over 100 billion euros of expiring 
debt.  (ABC, 4/21) 
 
 
198 SUSPECTED OF TAX EVASION VIA LIECHTENSTEIN 
 
¶4. (U) The Tax Agency has forwarded to the Anticorruption 
Prosecutor the names of 198 Spaniards suspected of tax 
evasion for having hidden money in Liechtenstein.  The funds 
involved surpass 200 million euros, and the tax evasion is 
believed to be more than 24 million euros.  The information 
was based on leads provided to Spanish authorities by German 
authorities in February after they found over 1,000 Germans 
implicated in evasion via accounts in Liechtenstein. 
(Finance Ministry press release, 4/23) 
 
 
 
MADRID 00000469  002.2 OF 003 
 
 
"EVERYBODY EXPECTS THE SPANISH TELECOMS ACQUISITION" 
 
¶5. (U) So says the Financial Times, Paul Betts in his April 
25 European View column.  Betts believes that Europe will be 
soon be dominated by four big operators: Telefonica, Deutsche 
Telekom, France Telecom, and Vodaphone.  The columnist 
reports that there are rumors that Telefonica is once again 
considering acquiring the Dutch operator, KPN.  The Spanish 
company had thought about buying KPN three years ago but 
opted not to because of the Dutch government's 43 percent 
stake in the company.  The Dutch government subsequently sold 
its shares, so that consideration no longer applies.  Betts 
says a KPN acquisition would strengthen Telefonica,s 
position in Germany.  Telefonica may be considering the KPN 
deal more urgently now because the chances of the newly 
elected Berlusconi allowing Telefonica to merge with Telecom 
Italia are remote, so buying KPN may be a more viable way for 
Telefonica to strengthen its position in Europe.  (FT, 4/25) 
 
 
AIRLINES LOSE 9% OF MADRID-BARCELONA PASSENGERS TO THE AVE 
 
¶6. (U)  Many travelers between Madrid and Barcelona are 
choosing the high-speed AVE train over the traditional 
airplane.  In the first month after the opening of 
Madrid-Barcelona AVE service, airlines lost 187,174 
passengers on Europe,s busiest route compared to March 2007 
figures.  After adjusting for the fact that Holy Week was in 
March 2008 but not March 2007, it appears that the number of 
air passengers was down about 9 percent.  The impact on 
Madrid-Malaga air service after the AVE began to serve that 
route at the end of last year has been similar.  The airlines 
have not cut the number of flights. They are utilizing 
smaller planes, offering special promotions and pampering the 
business traveler. (El Pais 4/22) 
 
 
EC INVESTIGATING MADRID AIR POLLUTION 
 
¶7. (U) The EC announced this week that it was investigating 
the level of air pollution in Madrid.  In its written notice, 
the EC,s Environment Commissioner, Dimas Stavros, said the 
Commission was aware of Madrid,s poor air quality and 
requested more information about measures the city had 
adopted to limit pollution.  Although Madrid,s air pollution 
does not exceed currently mandated limits, it is considerably 
higher than the limits established for the year 2010.  One 
monitoring station in Madrid has already recorded 18 days 
this year in which the level of nitrogen dioxide in the air 
has exceeded the current limit, the direct result of auto 
emissions, according to El Pais.  The debate over whether to 
adopt additional measures is ongoing.   In January, former 
Environment Minister Cristina Narbona publicly urged the 
Madrid city government to adopt more restrictive measures. 
Madrid mayor Alberto Ruiz-Gallardon had earlier said that in 
2008 the city would prevent the "most polluting vehicles" 
from entering the city.  However, implementation of this plan 
has been delayed until 2010 by Madrid Environment Councillor 
Ana Botella.  (El Pais, 4/23) 
 
 
ASCO I RADIATION LEAK UPDATE 
 
¶8. (U) 1,550 workers and others who have been in the Asco I 
nuclear power plant in Tarragona are being examined for 
radiation contamination as a result of the November 2007 leak 
that was discovered last month and made public this month 
(reftel).  The Nuclear Security Council (CSN) announced that 
none of the 900 who have been examined so far have been 
contaminated.  Among those given a clean bill of health were 
40 schoolchildren who visited the plant in April after plant 
managers knew about the leak but before they disclosed it. 
Separately, the CSN found that a truck carrying soil and 
scrap from the plant to a junkyard on April 21 contained soil 
contaminated with cobalt 60 particles that likely were 
released in the November leak.  Environmental groups have 
filed a request that GOS prosecutors investigate the leak and 
impose sanctions.  They also have asked the EC to investigate 
whether the plant management and GOS authorities have applied 
correctly EC norms. (ADN, 4/23) 
 
 
HERBALIFE BLAMED FOR 9 CASES OF LIVER TOXICITY 
 
¶9. (U) U.S.-based company Herbalife is blamed for 9 cases of 
liver toxicity in Spain.  According to the Health Ministry, 
the Center of Regional Pharmacological Vigilance in Asturias 
has recorded the cases and presumes they are due to use of 
Herbalife products manufactured between 2003 and 2007. 
Herbalife products are distributed worldwide by independent 
dealers.  This disbursement process makes it difficult to 
 
MADRID 00000469  003.2 OF 003 
 
 
trace the trail of the product, i.e. from origin to consumer. 
 There are several cases in Spain that are yet unconfirmed 
and at least 9 known cases elsewhere in the EU, 6 in Iceland, 
22 in Switzerland and Israel.  More than half the recorded 
Spanish cases are from Asturias.  The Ministry advised 
Spaniards to seek medical advice before purchasing 
supplements and warned against buying such products through 
"alternative channels" that do not offer guarantees.  (Terra 
4/21) 
AGUIRRE