VZCZCXRO1683
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0525/01 1331058
ZNR UUUUU ZZH
R 121058Z MAY 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4752
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3417

UNCLAS SECTION 01 OF 02 MADRID 000525 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: BEXP ECON EFIN EINV ELAB ENRG SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE APRIL 28 - 
MAY 9 
 
 
MADRID 00000525  001.2 OF 002 
 
 
Table of Contents: 
 
ELAB: Number of Unemployed Jumps in April 
ECON: Inflation Falls in April, Still Expected to Remain High 
EFIN: Solbes Rejects Tax Incentives for Construction Sector 
EFIN: Big Banks Report Strong 1Q Profit Growth 
ECON: GOS delays Taguas Conflict of Interest Report 
BEXP/EINV/ENRG: Iberdrola Renewables Orders 200 Windmills 
from GE for 430 Million Euros 
 
Number of Unemployed Jumps in April 
 
¶1. (U) According to recently released Ministry of Labor 
statistics, the number of unemployed workers in Spain rose in 
April by 37,542, bringing the total number to over 2.3 
million.  What is significant about the April increase is 
that typically April is a seasonally dynamic month in Spain, 
and has not been subject to adverse employment data (until 
now) in over 20 years. In March, there was a slight decrease 
in unemployment.  Following the data release, the Ministry of 
Labor's Secretary of State for Employment, Maravillas Rojas, 
admitted that the current situation was unfavorable.  Rojas 
did not back away, however, from the government's projections 
that unemployment will ultimately average 9.8% in 2008. 
First quarter data shows that the unemployment rate has 
already attained 9.6%, one full point higher than the 2007 
fourth quarter rate of 8.6%.  A significant portion of newly 
unemployed workers hail from the construction sector. (El 
Pais, 5/8) 
 
Inflation Falls in April, Still Expected to Remain High 
 
¶2. (U) The preliminary National Statistics Institute 
inflation figure for April was 4.2%, four tenths below 
March's 4.6% and lower than in any of the previous four 
months.  Despite the good news, Second Vice President and 
Finance Minister Solbes later acknowledged that unless oil 
prices declined, inflation would be unlikely to fall to 3% by 
the end of 2008 as the GOS had earlier predicted.  (Europa 
Press, 4/29; El Pais, 5/7) 
 
Solbes Rejects Tax Incentives for Construction Sector 
 
¶3. (SBU) Second Vice President and Finance Minister Pedro 
Solbes rejected on May 8 Minister of Housing Beatriz 
Corredor's proposal to permit homeowners to deduct from their 
income taxes 20 percent, as opposed to the current 15 
percent, of the costs of improvements to their residences. 
Solbes said the GOS should not try to impede "artificially" 
the necessary adjustment in the construction sector.  The 
Finance Minister has also said that the adjustment in the 
sector should be finished by around 2010, at which time 
overall Spanish GDP growth should rise again to about 3 
percent a year.  (Comment: The assumption that the Spanish 
economy will once again enjoy growth rates of 3 percent or 
more so soon without deeper structural reform may prove to be 
overly optimistic.  Solbes also has called for social 
security and labor reforms during the current government.) 
(El Pais, 5/9; Television Espanola 5/8; Expansion, 5/9) 
 
Big Banks Report Strong 1Q Profit Growth 
 
¶4. (U) Spain's three largest financial institutions reported 
strong profit growth in the first quarter of 2008. 
Santander's profit rose 22% from the first quarter of 2007, 
to 2.2 billion euros.  Although results were helped by growth 
in Santander's Latin American markets, its Spanish business 
did well also.  BBVA's profit rose 15% to 1.4 billion euros. 
Earlier, the La Caixa savings bank had reported a 13% 
increase to 625 million euros.  (Comment:  The positive 
results have been welcomed by members of the Spanish 
financial sector as a sign of the sector's health despite the 
overall economic difficulties.  GOS and sector 
representatives have lamented what they describe as 
simplistic and overly negative reporting on the sector by the 
English-language press, especially the Financial Times.) 
(Press releases - Santander, 4/29; BBVA, 4/28; La Caixa, 4/24) 
 
GOS Delays Taguas Conflict of Interest Report 
 
¶5. (SBU) David Taguas, the outgoing director of the 
Presidency Economic Office (with rank just below minister and 
the equivalent of the Chairman of the U.S. Council of 
Economic Advisors), announced after Zapatero's new cabinet 
was named that he would leave government to work for the 
Seopan construction industry lobby.  This has raised conflict 
of interest issues, because Taguas participated in meetings 
involving government contracts with Seopan member companies. 
 
MADRID 00000525  002.2 OF 002 
 
 
A GOS Office of Conflict of Interests has delayed its ruling 
on whether Taguas, planned departure for Seopan is 
consistent with the Law on the Conflict of Interests.  Should 
the Office rule that Taguas is in violation of the law, he 
would be barred from taking another government job for a 
period between five to ten years, and he would not be 
eligible to receive a pension from the government.  (Comment: 
From a strictly financial perspective, Taguas might want to 
take the Seopan job no matter what the Office of Conflict of 
Interests says.  He would reportedly earn one million euros a 
year, while the government pension only runs for 18 months 
and is much lower than the Seopan salary.  On the other hand, 
one wonders whether Seopan might now consider Taguas to be 
damaged goods, as President Zapatero's indication that he 
disapproves of Taguas, planned move may affect Taguas' 
access to GOS officials) (El Pais 5/9) 
 
Iberdrola Renewables Orders 200 Windmills from GE for 430 
Million Euros 
 
¶6. (U) The windmills, which will have a total production 
capacity of around 300 megawatts, will be delivered to 
Iberdrola Renewables in 2010 and will be used to support some 
of the company's planned investment in the U.S.  Iberdrola 
Renewables selected General Electric despite its parent 
company's ownership of a 24% stake in competing Spanish 
windmill manufacturer Gamesa. (Expansion, 5/9) 
Llorens