VZCZCXRO9490
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0739/01 1851521
ZNR UUUUU ZZH
R 031521Z JUL 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5041
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3487

UNCLAS SECTION 01 OF 02 MADRID 000739 
 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON ELAB ENRG PGOV SENV TBIO SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JUNE 30 - 
JULY 3 
 
MADRID 00000739  001.2 OF 002 
 
 
Table of Contents 
 
ECON/PGOV: President Zapatero defends economic policies 
ECON/PGOV: Solbes says Spain to grow again at 3 percent a 
year by 2010 
ECON/PGOV: PSOE AND PP approaches to dealing with the economy 
revealed 
TBIO: New Science and Innovation Minister says she would eat 
biotech foods 
ECON/ELAB: Spain leads EU with second highest unemployment 
rate 
ENRG: Spain moves to increase electricity and gas 
connectivity with France 
SENV: Spain furthest from meeting Kyoto goals, mostly because 
of emissions from major cities 
 
PRESIDENT ZAPATERO DEFENDS ECONOMIC POLICIES 
 
¶1. (U) President Zapatero argued on July 2 before parliament 
that although Spain was confronting economic difficulties, 
the economy was well equipped to overcome what he 
characterized as the effects of the international slowdown. 
Zapatero's comments seemed to gloss over the seriousness of 
the housing bust, appeared to be inconsistent with new data 
showing that Spain had the second highest unemployment rate 
in the EU (9.9 percent in May), higher than average EU 
inflation, and second quarter growth of just 0.3 percent. 
Opposition Partido Popular leader Mariano Rajoy accused the 
President of lying to Spaniards, a theme that was echoed by 
other parties' representatives as well during the lenghthy 
July 2 parliamentary debate.  Fears that a recession will 
occur are growing.  Meanwhile, a recent Cadena Sur opinion 
poll shows that the President's popularity rating decreased 
by two points to 41 percent while Mariano Rajoy's popularity 
increased to 43 percent, making Zapatero less popular than 
Rajoy for the first time since Zapatero became President in 
¶2004.  (ALL MEDIA, 7/3/08) 
 
SOLBES SAYS SPAIN TO GROW AGAIN AT 3 PERCENT A YEAR BY 2010 
 
¶2. (U) Second Vice President and Finance Minister Pedro 
Solbes spoke at a EuropaPress breakfast on July 1 about 
economic prospects.  He said that second quarter growth would 
probably be 0.3 percent and that growth for 2008 would be 
"somewhat lower" than 2 percent.  However, the minister said 
he thought that by 2010, Spain would be growing at its 
capacity growth rate, which he estimated as 3 percent a year. 
 Solbes was adamant that the government would not do anything 
to shield businesses and consumers from the effects of higher 
oil prices.  He insisted that economic agents had to modify 
their behavior - anthing less would just lead to "second 
order" inflationary pressures which would be very bad for the 
economy.  With respect to deeper structural reforms many 
economists think are necessary, Solbes had mixed messages. 
Labor market reform had to be done through President 
Zapatero's "social dialogue" - reforms in this area that were 
not consensual would not stick.  Solbes was not opposed to 
deeper cuts in corporate taxes but only when the budget 
permitted.  He thought the government had done about what it 
could with respect to relieving the credit crunch for 
businesses. (Comment: Solbes makes a strong case that the 
downturn is caused by factors beyond Spain's control, and 
that there may even be some positive fallout from the 
"slowdown", the Spanish government's preferred term for 
describing the current state of the economy.  However, it is 
questionable whether Spain's capacity growth rate really is 3 
percent a year.  That would be higher than Germany's or 
France's rates.  Clearly though, the Zapatero government is 
betting that Solbes is right and that Spain will once again 
enjoy strong growth in time for 2012 parliamentary 
elections.) (EuropaPress July 2 breakfast) 
 
PSOE AND PP APPROACHES TO DEALING WITH THE ECONOMY REVEALED 
 
¶3. (U) The Zapatero government is offering a fiscal stimulus 
to the economy on the order of 1 percent in 2008 and 0.8% in 
2009 (maybe more for both years despite politically symbolic 
austerity measures such as capping salaries for high 
officials).  The opposition conservatives say they want to 
cut spending by 2 percent, although they have not said what 
they would cut. (El Pais, 6/30/08) 
 
NEW SCIENCE AND INNOVATION MINISTER SAYS SHE WOULD EAT 
BIOTECH FOODS 
 
¶4. (U) Minister Cristina Garmendia told a leading daily (El 
Mundo) that she would eat biotech foods.  She added that 
there was a lot of misinformation about biotechnology. 
(Comment: The departure from the government of the former 
 
MADRID 00000739  002.2 OF 002 
 
 
Minister of Environment, Cristina Narbona, a hard-line 
anti-biotech proponent, the takeover of the Ministry of 
Environment by former Minister of Agriculture Elena Espinosa 
(Agriculture and Environment have been merged into a 
super-ministry), and the Science Minister's pro-biotech 
stance, bodes well for the future of agricultural 
biotechnology in Spain.) (El Mundo, 6/29/08) 
 
SPAIN LEADS EU WITH SECOND HIGHEST UNEMPLOYMENT RATE 
 
¶5. (U) According to the EU,s statistics agency, Eurostat, 
Spain,s unemployment rate reached 9.9 percent this past May, 
a large jump from the 8.1 percent Eurostat calculated for 
May, 2007.  As such, Spain was the EU country with the 
largest increase in its unemployment rate, and the second 
highest in its actual rate (after Slovakia).  The average EU 
unemployment rate was 6.8 percent.  (Comment:  Spain,s own 
statistics vary slightly from Eurostat, but nonetheless it is 
clear that Spain,s unemployment level is increasing rapidly 
primarily because of Spain,s housing construction bust. 
Spain,s continued high unemployment is also telling in that 
it shows that, despite million of workers in "temporary" 
contracts, more flexible Spanish labor laws should really 
help alleviate unemployment.) (El Pais, 7/1/08) 
 
SPAIN MOVES TO INCREASE ELECTRICITY AND GAS CONNECTIVITY WITH 
FRANCE 
 
¶6. (U) During high level meetings in Zaragoza on July 27, 
President Zapatero and French Foreign Minister Francois 
Fillon committed to increased electricity and gas 
connectivity.  The two officials agreed to create a company 
by October 1, 2008 that would take charge of establishing the 
long awaited cross-border electricity lines.  This 
connection, which has been blocked for several years due to 
local community concerns, would pave the way for a high-speed 
train link between the two countries.  Spain and France also 
agreed during the meetings to study the feasibility of a new 
gas line connection with a capacity of 7 billion cubic 
meters/year to be built by 2015.  This new gas line would 
further connect Spain to the rest of Europe, and according to 
the agreement, would improve "security of supply and trade 
between the two countries."  (EFE, June 28) 
 
SPAIN FURTHEST FROM MEETING KYOTA GOALS DUE TO EMISSISION 
FROM MAJOR CITIES 
 
¶7. (U)  In regional data just published by the Ministry of 
Environment, Rural Development and Marine Affairs, the growth 
of CO2 emissions in several regions including Madrid, 
Andalusia, Valencia, Murcia, the Balearics and Canaries have 
increased more than 75 percent above 1990 levels.  Spain,s 
national objective determined by the Kyoto Protocol was to 
increase emissions by only 15 percent over 1990 levels.  As 
expected, the regions that have experienced the most 
economic, population and urban growth have generated the 
largest increases in emissions.  For example, since 1990 the 
region of Madrid has increased its population by 19.5 
percent, but its emissions have grown nearly 76 percent.  In 
the article, El Pais says the GOS is responsible and 
criticized the region of Madrid for making one of the best 
metro subway networks in Europe "insufficient" due to housing 
sprawl and the population,s reliance on the automobile.  In 
spite of being a leader in the development of renewable 
energy, the article says Spain remains further away from 
fulfilling its Kyoto obligation than all other industrialized 
countries, and says the GOS assumes it will not be able to 
meet its goal.  As a result, Spain will be required to pay 
more than 3 billion euros in emission quotas and clean energy 
investments in developing countries.  (El Pais, 6/30/08) 
AGUIRRE