VZCZCXRO4958
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0764/01 1931326
ZNR UUUUU ZZH
R 111326Z JUL 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5073
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3494

UNCLAS SECTION 01 OF 03 MADRID 000764 
 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ENRG PGOV PTER SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JULY 7 - 
JULY 11 
 
MADRID 00000764  001.2 OF 003 
 
 
Table of Contents 
 
ECON: OECD says there is an economic crisis in Spain 
ECON/PGOV: President Zapatero talks of economic "crisis" for 
the first time 
ECON/EINV: Minister of Industry says economy will recover, 
and he says GOS to develop an energy savings plan 
ECON/EINV: Spain's central bank governor praises GOS 
initiatives but won't rule out negative growth 
ECON/EFIN: Price of housing falls again 
ECON/PTER: ETA continues to send extortion letters to 
businesses 
EINV/ENRG: Colorado Governor leads renewable energy mission 
to Madrid 
EFIN: Banesto Q2 profit up by 14 percent, but there are signs 
of loan weakness 
 
OECD SAYS THERE IS AN ECONOMIC CRISIS IN SPAIN 
 
¶1. (U) The Secretary General of the Organization for Economic 
Cooperation and Development (OECD), Angel Gurria, said there 
is an economic "crisis" in Spain on July 4.  He added that 
the economy would not be "normalized" until 2010 (Note. This 
latter points tracks with the Spanish government's view.). 
Currently, the OECD forecasts 1.6 percent economic growth for 
Spain in 2008, although this could decline further because 
this forecast is based on oil prices at USD 120 a barrel. 
Gurria did say, however, that because Spain had comparatively 
healthy public finances, it had "a little space" for some 
fiscal stimulus. (Embassy Comment: Actually we believe that 
the recent downturn in economic activity has weakened 
revenues and estimate that Spain's fiscal accounts are now in 
the red.) (Expansion, 7/5/08) 
 
PRESIDENT ZAPATERO TALKS OF ECONOMIC CRISIS FOR THE FIRST 
TIME 
 
¶2. (U) During a TV interview with Antenna 3, Zapatero said he 
would describe the economic situation as being in a "crisis" 
if the interviewer wanted to, but that he preferred to offer 
solutions.  (Comment: This was significant because, so far, 
the GOS has insisted that the Spanish economy is experiencing 
a "slowdown", not a "crisis.") (ABC, 7/9/08) 
 
MINISTER OF INDUSTRY SAYS ECONOMY WILL RECOVER, AND HE SAYS 
GOS TO DEVELOP AN ENERGY SAVINGS PLAN 
 
¶3. (U) Speaking at a telecommunications industry breakfast, 
Minister of Industry, Tourism and Trade Miguel Sebastian said 
that the Spanish economy was suffering from a credit crunch 
stemming from the U.S. subprime problem, a housing downturn, 
and increases in the price of oil.  However, he offered three 
"Cs" that would see Spain return to robust economic growth by 
2010: "confidence, courage and competitiveness." He said that 
the "automatic fiscal stabilizers" would work in Spain 
because Spain had built up a budget surplus during the good 
times that could now be spent to even out the business cycle. 
 Foreign investment in Spain during the first four months of 
2008 was euros 17 billion, twice what it was during the first 
three months of 2007, clear evidence of foreign "confidence" 
in Spain. (Note: This number is true but distorted because 
two thirds of it arose from the one off purchase of Altadis 
by British Tobacco.)  Additionally, the IMF and the BIS had 
expressed "confidence" in Spain's financial system.  With 
respect to "courage", Sebastian called the GOS's fiscal 
stimulus package  "courageous". Then he listed a number of 
programs his ministry was working on to improve Spanish 
"competitiveness."  Sebastian also announced that before the 
end of the summer, an energy savings plan designed to reduce 
the consumption of oil by 10 percent over the next two years 
would be unveiled. (Comment: Prompted by a questioner, 
Sebastian said that he was "delighted" to be working under 
the coordination of Second Vice President and Finance 
Minister Pedro Solbes.  It was notable though that he started 
his talk with a macroeconomic overview.  Many observers think 
that he is aiming to replace Solbes when he decides to 
retire.  As his talk demonstrated, besides Solbes, Sebastian 
is clearly the cabinet member most comfortable with the big 
macroeconomic issues.) (Telecommunications breakfast, 7/8/08) 
 
 
SPAIN'S CENTRAL BANK GOVERNOR PRAISES GOS ECONOMIC 
INITIATIVES; WONT RULE OUT NEGATIVE GROWTH FOR SECOND QUARTER 
 
¶4. (U) Speaking on the international economic situation at a 
lunch hosted by the American Chamber of Commerce, Bank of 
Spain Governor Miguel Angel Fernandez Ordonez discussed the 
factors leading up to the current economic slowdown including 
financial market turmoil and high primary material prices. 
 
MADRID 00000764  002.2 OF 003 
 
 
He said that Spain's housing market downturn might have 
helped activate Spain's own economic slowdown, but was not 
the primary cause.  He added that at the onset of the 
economic turbulence, Spain was in a strong economic position 
and even now is in a better standing than many of its EU 
counterparts.  He praised the government's initiatives to 
combat the slowdown, but cautioned that it might take longer 
than anticipated to recover from this "low growth phase". 
When asked about second quarter growth for Spain, Fernandez 
Ordonez said that he would not rule out "negative growth". 
(Comment: Private sector growth estimates for 2008 average at 
1.7 percent, which is actually somewhat surprisingly high.  A 
recent BBVA report indicated that growth for Spain during Q2 
2008 would be 0 percent.  Fears are increasing that Spain may 
already be in recession. (Embassy, 7/9/09; El Pais 7/10/08) 
 
 
PRICE OF HOUSING FALLS BY 2.5 PERCENT ACROSS SPAIN 
 
¶5. (U) According to recently released statistics from Spain's 
largest real estate appraisal company (TINSA), home prices 
have fallen by on average 2.5 percent across Spain (from May 
2007 to May 2008).  Cities and the areas on the Mediterranean 
coast were hit hardest with average home price drops of 3.7 
percent and 3.0 percent, respectively.  Furthermore, TINSA 
president Ildefonso Ortega has asserted that the number of 
unsold homes in 2008 is higher than anticipated and may very 
well reach up to 1 million by the end of 2008. (Note: If this 
estimate is correct, home prices will fall much further and 
will not level out until the housing stock is on par with 
demand.  This could also mean that the economic difficulties 
that Spain is facing will take longer to iron out than GOS 
officials are hoping.  Currently the GOS believes that the 
Spanish economy will begin to turn around starting the second 
half of 2009.) (el Pais, 7/10/08) 
 
 
ETA TERRORIST GROUP CONTINUES SENDING EXTORTION LETTERS 
 
¶6. (U) According to a local daily "El Correo", the ETA 
terrorist group has continued to send extortion letters to 
Basque region businesses to demand a payment of between 
70,000 and 120,000 euros.  According to the media, 
antiterrorist experts believe that the number of letters 
received is slightly larger than in recent months.  Also in 
the news is the recent detention of two prominent Basque 
business leaders who are suspected of contributing 
financially to ETA.  As the judicial process for these cases 
continues, it appears that more and more Basque region 
businesses are coming forth to alert the police of having 
received these extortion letters. (EL Pais, 7/8/08 - 7/10/08) 
 
 
COLORADO GOVERNOR LEADS RENEWABLE ENERGY MISSION TO MADRID 
 
¶7. (U) Colorado Governor Bill Ritter visited Madrid July 7-10 
on an investment mission focused on renewable energy.  The 
visit came five months after Ambassador Aguirre led a Spanish 
renewable energy mission to Washington, DC and Colorado, 
where Governor Ritter hosted the delegation for a breakfast 
discussion.  While in Madrid, Governor Ritter met with 
leaders of Spain's energy industry including the CEOs of 
Iberdrola, Iberdrola Renovables, Acciona, Abengoa Solar and 
Elecnor, and with executives from Union Fenosa and Sener. 
Although no announcements have been made, the governor 
believes that at least two Spanish energy companies are 
seriously considering new renewable energy investments in the 
state.  Today, Iberdrola owns two wind farms in Colorado and 
Abengoa Solar's U.S. business unit is based near Denver.  The 
governor also discussed renewable energy and climate change 
with GOS officials Silvia Iranzo, Secretary of State at the 
Ministry of Industry, Tourism and trade, and Teresa Ribera, 
Secretary of State at the Ministry of Environment, Rural 
Development and Marine Affairs.  During a meeting with 
researchers at the Ministry of Science and Innovation's 
Center for Energy, Environment and Technology Research, 
Ritter discussed opportunities for further collaboration on 
research and development with the National Renewable Energy 
Laboratory in Golden and research universities in the metro 
Denver area.  The governor and his delegation also met with 
leaders from several industries at a dinner hosted by the 
Charge d'Affaires, a luncheon sponsored by the American 
Chamber of Commerce in Spain and a breakfast sponsored by the 
U.S.-Spain Council. 
 
BANESTO Q2 PROFIT UP BY 14 PERCENT, BUT THERE ARE SIGNS OF 
LOAN WEAKNESS 
 
¶8. (U) Profits were up, but the percentage of non-performing 
 
MADRID 00000764  003.2 OF 003 
 
 
loans rose 0.79 percent from 0.42 percent.  While such a 
ratio is still comparatively low, it does demonstrate that 
Spanish banks are experiencing an uptick in non-performing 
loans.  At a minimum, the current environment suggests that 
banks will be conservative in their lending.  As Banesto 
Chairwoman, Ana Patricia Botin, put it, "the current 
environment does not favor growing market share." (WSJ, 
7/11/08) 
LLORENS