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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0641/01 1610159
ZNR UUUUU ZZH
R 090159Z JUN 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 4914
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3456

UNCLAS SECTION 01 OF 03 MADRID 000641 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ECON EFIN EIND EINV ELTN ENRG KIPR
SP 
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AGRICULTURAL UPDATE 
JUNE 2 - JUNE 6 
 
 
MADRID 00000641  001.2 OF 003 
 
 
Table of Contents: 
 
ECON: Zapatero defends economic prospects in congressional 
hearing 
ECON: OECD reduces 2008 growth forecast for Spain to 1.6% 
EAGR/EAID: Zapatero on food security in Rome 
ENRG: Electricity Prices to Rise, but Deficit Continues to 
Grow 
EIND: New Auto, Tourism, Regulatory Initiatives 
KIPR: Major Chinese audio-visual piracy gang disbanded 
ELTN: Department of Transportation and Staffdel Visit 
EFIN/EINV: BBVA increases stake in China investments 
 
ZAPATERO DEFENDS ECONOMIC PROSPECTS IN CONGRESSIONAL HEARING 
 
¶1. (U) During a June 4 congressional hearing, President 
Zapatero faced heavy criticism from opposition leaders 
regarding Spain's weakening economy.  During this hearing, 
opposition Partido Popular leader Rajoy highlighted a waning 
economy and loss of confidence by businesses and families, 
and he suggested that the government was failing to 
adequately address the economic downturn.  While Zapatero 
admitted that Spain was indeed suffering an economic 
de-acceleration, he asserted that Spain would be able to 
confront this difficulty and move forward.  He highlighted 
the GOS stimulus package, including the 400 euro tax rebate 
to households across the country, an increase in minimum 
pension levels, and measures to provide housing assistance. 
(Europa Press, 6/5) 
 
¶2. (SBU) Comment: Recent months have been filled with 
negative economic news such as increasing unemployment, 
higher inflation and fuel prices, and lower growth 
projections.  Zapatero and his administration have responded 
to these negative indicators with overall optimism, accusing 
naysayers of being overly pessimistic and stressing the 
beneficial effect that the stimulus package will have on the 
Spanish economy.  However, it is questionable whether these 
measures will overcome the negative economic effects of the 
construction sector bust, a sector which represented between 
10 and 20 percent of Spain's economy in recent years. 
Zapatero responses often include a reference to the broader 
global economic downturn and its effect on Spain, and he 
often avoids references to weaknesses faced by Spain's own 
economy such as its past dependence on the construction 
sector and its high current account deficit.  End Comment. 
 
OECD REDUCES 2008 GROWTH FORECAST FOR SPAIN TO 1.6% 
 
¶3. (U) The OECD recently revised its GDP growth forecasts for 
Spain, cutting its projections from 2.5 percent to 1.6 
percent for 2008 and from 2.4 percent to 1.1 percent for 
¶2009. These forecasts, which are lower than the EU average, 
are largely based on the projected effects of Spain's housing 
downturn.  On June 4, Second Vice President and Minister of 
Economy Pedro Solbes described these estimates as overly 
pessimistic and charged that the OECD analysis had not taken 
into account stimulus measures that the government is 
employing. (Comment: The GOS had reduced its own growth 
forecast for 2008 from 3.1 to 2.3 percent this past April.) 
(El Pais, 6/5) 
 
ZAPATERO ON FOOD SECURITY IN ROME 
 
¶4. (SBU) Speaking in Rome on June 3 at the FAO meeting, 
President Zapatero said Spain would provide euros 500 million 
in the next four years to deal with the food crisis, 
especially to develop production capacity in affected 
countries.  Zapatero stressed Africa especially.  He also 
offered Spain as the venue for a fall 2008 High Level Meeting 
to review the application of the food security plan approved 
by Rome FAO meeting participants and to approve an 
international Food Security Rights Letter.  The President 
also spoke strongly about the need to conclude the Doha Round 
and asked WTO members to demonstrate "flexibility" in "rising 
to the circumstances." (Comment: Zapatero does not often talk 
about Doha, so his strong support for the Round is 
noteworthy, although we are unaware of any particular 
activism on the part of the GOS to influence EU external 
trade policy in a more flexible direction.) (President,s 
Office Website, 6/4) 
 
ELECTRICITY PRICES TO RISE, BUT DEFICIT CONTINUES TO GROW 
 
¶5. (U) At a June 4 congressional hearing, Industry, Tourism 
and Commerce Minister Miguel Sebastian announced an 
electricity rate increase of 5 to 6 percent as of July 1. 
 
MADRID 00000641  002.2 OF 003 
 
 
This follows a 3.3 percent increase at the start of the year. 
 The combined increase is well above the rate of inflation 
but is not enough to prevent the GOS' obligation to the 
electric companies from continuing to grow.  Since the Aznar 
government, the GOS has not let companies charge prices that 
are determined by an agreed-upon formula; it is required to 
make up the difference to the companies.  Industry sources 
have indicated that an increase of 23 to 26 percent would be 
needed to catch up, and any smaller increase means that the 
obligation will continue to grow.  The National Electricity 
Commission had proposed an 11 percent increase, but President 
Zapatero reportedly ruled out an increase that high. 
Minister Sebastian announced that rates would be adjusted so 
that per-kilowatt costs would increase as consumption 
increases, which the GOS hopes will encourage conservation. 
Households with particularly low electricity consumption 
capacity would be exempted from one electricity charge, which 
could save them up to 10%.  (El Pais, 6/5; Metro, 6/2) 
 
NEW AUTO, TOURISM, REGULATORY INITIATIVES 
 
¶6. (U) Minister Sebastian also announced to the congress a 
series of 15 measures to stimulate economic activity.  The 
Plan VIVE (Innovative Vehicle-Ecological Vehicle) will 
subsidize consumers who buy new cars and scrap cars older 
than fifteen years; a similar program expired recently. 
Interestingly, Sebastian's ministry had to open a 1.5 billion 
euro line of credit with the Official Credit Institute 
because the expenditure would not fit in the general budget. 
He also proposed a tourism program to encourage retirees from 
other European countries to visit Spain for three months or 
more during the low season.  He announced he would negotiate 
with autonomous community governments a reform of laws 
affecting retail shops in order to comply with an EC services 
directive (the Bolkenstein Directive), and he announced that 
his ministry would open five new Spanish commercial offices 
overseas.  (ABC, 6/4; Confidencial, 6/6; El Pais, 6/5, 6/6) 
 
MAJOR CHINESE AUDIO-VISUAL PIRACY GANG DISBANDED 
 
¶7. (SBU) The Spanish National Police,s Intellectual Property 
Rights Group has arrested 32 Chinese nationals involved in 
the "screening" of movies (illicit use of videocameras to 
record films at movie theaters); copying of DVDs and CDs; and 
distribution of such products.  The police also confiscated 
more than 300,000 CDs and DVDs, which were found in 
factory-like centers in Getafe, Parla and Leganes, as well as 
large warehouses in Leganes and Alcala de Henares.  These 
sites are all in the greater Madrid area, but the gang also 
had links with piracy operations in Cordoba, Avila, 
Guadalajara, Segovia, Burgos, Soria, Aranda de Duero, Irun 
and Seville.  On June 4, the Minister of Culture, Cesar 
Antonio Molina, and Ministry of Interior Secretary of State 
for Security, Antonio Camacho, held a joint press conference 
congratulating the police on the arrests.  The Culture 
Minister said that "citizens should be told not to buy these 
products because they harm culture," which he said represents 
5 percent of the country,s GDP.  (Comment: Once again, the 
Spanish police appear to have conducted an exemplary 
anti-piracy operation.  The question is, what happens next? 
Rights-holders typically praise Spanish police efforts, but 
say that the judiciary does not issue deterrent-level 
sentences.  The sheer scale of this particular Chinese 
gang,s activities, however, should permit Spanish courts to 
impose stiffer than normal sentences.) (El Pais, 6/5) 
 
DEPARTMENT OF TRANSPORTATION AND STAFFDEL VISIT 
 
¶8. (U) Department of Transportation officials and House and 
Senate staff met with prominent Spanish construction 
companies, Ministry of Infrastructure railroad officials and 
Madrid city officials during their visit to Spain May 28 to 
June 2.  Included in the visit were Acting Federal Highway 
Administrator James Ray, Acting Assistant Secretary of 
Governmental Affairs Simon Gros, and four Senate and House 
staffers.  GOS officials discussed Spain,s focus on 
expanding its high-speed rail system, particularly as a way 
of reducing traffic congestion and CO2 emissions in the 
coming years.  In subsequent meetings, Spanish infrastructure 
companies such as Abertis and Cintra explained public private 
partnership (P3) agreements to develop toll roads and other 
infrastructure projects.  Spain,s experience in P3 
partnerships is extensive, and as a result various Spanish 
companies have become leaders in the P3 arena.  The U.S. 
connection with P3 projects and Spanish companies is growing. 
 Last month Spanish company Abertis was awarded concession 
rights to the Pennsylvania turnpike for $12.8 billion.  Other 
 
MADRID 00000641  003.2 OF 003 
 
 
Spanish companies, such as Cintra, are also involved in 
high-profile multi-billion-dollar concessions in the U.S., 
including the Indiana toll road, Chicago,s skyway toll 
bridge, and other projects in Texas.  This is the sixth 
official visit post has received in the past 14 months that 
has focused on road and/or rail transportation. 
 
BBVA INCREASES STAKE IN CHINA INVESTMENTS 
 
¶9. (U) There are actually two transactions involving the 
expenditure of euros 800 million.  BBVA will increase its 
stake in the Hong Kong-listed Citic International Financial 
Holdings Ltd. from 15% to 30%.  The Spanish bank will also 
increase it presence in China Citic Bank Corp. from 5 percent 
to 10 percent.  BBVA and China Citic Bank Corp. (the Chinese 
government controls China Citic Bank Corp, which in turn 
controls Citic International Financial Holdings Ltd.) plan to 
take Citic International Financial Holdings Ltd. private. 
(Comment: It is interesting that BBVA would agree to purchase 
a minority stake in a government-controlled bank.  This 
suggests that BBVA views its investment as a long-term 
strategic play.) (WSJ, 6/4) 
Aguirre