VZCZCXRO2584
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0859/01 2171056
ZNR UUUUU ZZH
R 041056Z AUG 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5201
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3529
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000859 
 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA, ENERGY FOR EERE 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EINV ELAB ENRG KGHG SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE, JULY 
28-AUGUST 1 
 
REF: MADRID 825 
 
MADRID 00000859  001.2 OF 002 
 
 
Table of Contents: 
 
ECON: Economic Growth Barely Positive in Second Quarter 
ECON: Inflation Rises to 5.3% in July 
ECON/ELAB: Zapatero, Unions, Employers Agree on Social 
Compact Principles 
ENRG/KGHG: Energy-Saving Measures Announced, Approved 
ENRG/EINV: Gas Natural to Buy 45% Stake in Union Fenosa 
EAIR/EINV: Iberia in Talks to Merge with British Airways 
EINV: U.S. Companies Among Best Places to Work 
 
 
ECONOMIC GROWTH BARELY POSITIVE IN SECOND QUARTER 
 
¶1. (U) The Bank of Spain announced July 30 that the economy 
grew only 0.1% from the first to the second quarter of 2008, 
down from 0.3% growth in the first quarter.  The economy has 
grown 1.8% since the second quarter of 2007.  The bank said 
the adjustment in the year,s first half -- particularly 
pronounced in private consumption and unemployment -- was 
more intense than had been expected.  June retail sales were 
8% below their level of June 2007.  (Note: Unlike U.S. 
figures, Spanish quarterly growth figures are not 
annualized.)  (All Media, 7/31) 
 
 
INFLATION RISES TO 5.3% IN JULY 
 
¶2. (U) According to an estimate by Spain,s National 
Statistics Institute (INE), inflation reached 5.3%  (year on 
year) in July.  In July of 2007, it was only 2.3%.  If the 
final rate is the same as the estimate, as it usually is, 
this will be the highest rate since 1992.  In the inflation 
section of its July 30 announcement (see above), the Bank of 
Spain noted that compensation increased 4% between June 2007 
and June 2008 and criticized the effect automatic salary 
adjustments for their inflationary impact.  (All Media, 7/31 
and 8/1) 
 
 
ZAPATERO, UNIONS, EMPLOYERS AGREE ON SOCIAL COMPACT PRINCIPLES 
 
¶3. (U)  On July 29, President Zapatero and the heads of 
Spain,s major labor unions and business associations signed 
a declaration on the guiding principles for the new social 
compact legislation to be drafted in the fall.  The social 
compact process is a longstanding tool used to reach 
consensus on key issues such as worker salaries, hiring 
guidelines, and unemployment benefits.  Although the details 
of the new legislation remain to be worked out, the July 29 
agreement establishes the guiding principles of creating 
jobs, spurring economic growth, and maintaining social 
benefits for workers.  In a concession to business 
associations CEOE and CEPYME, the compact legislation will 
also place importance on facilitating easy access to 
financing and instituting measures to improve the skill sets 
of Spanish workers.  (Note: Spain has one of the most rigid 
labor markets in Europe as well as low productivity rates. 
The social compact process was an opportunity to liberalize 
labor requirements, but Zapatero is leaning towards 
maintaining the generous benefits that Spanish workers 
enjoy).  (All Media, 7/30) 
 
 
ENERGY-SAVING MEASURES ANNOUNCED, APPROVED 
 
¶4. (U) On July 30, Industry Minister Sebastian announced 31 
energy-saving measures for 2008-2011 that were approved by 
the Council of Ministers on August 1.  The aim is to save the 
equivalent of 10% of the country's annual oil imports.  The 
GOS estimates that the measures will cost 245 million euros 
but lead to 4 billion euros in savings.  Among the measures 
were: 
 
Transportation 
- Introducing a pilot project to use electric cars; 
- Requiring 20% biofuel use by GOS vehicle fleets in 2009 and 
7% overall biofuel use by 2011; 
- Granting incentives to retire vehicles older than 15 years 
and replace them with efficient vehicles; 
- Reducing speed limits by 20% on city beltways and access 
roads (Note: we are skeptical this will work); 
- Developing by 2012 bus-only lanes on roads; 
- Starting buses to take workers from their homes to 
 
MADRID 00000859  002.2 OF 002 
 
 
government offices; 
- Encouraging use of subways by requiring mobile phone 
operators to provide coverage underground and by expanding 
weekend operating hours; 
- Promoting bicycle use in cities; 
- Allowing civilian aircraft to use military air corridors to 
reduce flying distances; 
 
Other 
- Encouraging the development of energy-saving services 
companies; 
- Increasing from 60 million to 120 million euros the Energy 
Diversification and Conservation Institute (IDAE) budget to 
support large companies' energy-saving projects; 
- Changing government procurement rules to give preference to 
energy efficiency; 
- Requiring government buildings to have minimum temperatures 
of 79 in summer and maximums of 70 in winter (26 and 21 
Centigrade); 
- Using some of a 500 million-euro-per-year tourism 
renovation fund to finance energy-saving measures at tourist 
facilities 
- Working within the EU to accelerate to 2012 the elimination 
of low-efficiency lightbulbs; 
- Giving one high-efficiency light bulb in 2009 and one in 
2010 to each household; 
- Reducing highway lighting by 50%; and 
- Requiring ministries to reduce their first-half 2009 
electricity consumption by 10% from first-half 2008 levels. 
(All Media, 7/31; Council of Ministers website, 8/1) 
 
 
GAS NATURAL TO BUY 45% STAKE IN UNION FENOSA 
 
¶5. (U)  Gas Natural, the country's largest natural gas 
distributor, announced July 30 it would purchase a 45 percent 
stake (7.6 billion euros) in electricity and gas company 
Union Fenosa in what will be one of the largest Spanish stock 
transactions in recent years.  Barcelona-based Gas Natural 
will purchase the stake from Spanish construction firm ACS, 
which will use the proceeds to pay off debt and seek a 
controlling interest in electricity company Iberdrola.  (All 
Media, 7/31) 
 
 
IBERIA IN TALKS TO MERGE WITH BRITISH AIRWAYS 
 
¶6. (U)  Spain,s largest airline, Iberia, and British Airways 
announced yesterday that that the two companies were in 
merger talks which, if successful, would create the third 
largest airline in the world.  Combined revenues of the two 
companies would total 16.5 billion euros, about 60% from BA. 
BA and Iberia said that the negotiations would take months to 
finalize, but that it was already agreed that both the BA and 
Iberia brands would be retained under a combined holding 
group.  The decision to consolidate comes amidst increasing 
energy prices and overall pressures on the airline industry 
globally.  (Financial Times, 7/30; El Pais, 7/30) 
 
 
U.S. COMPANIES AMONG BEST PLACES TO WORK 
 
¶7. (U) Coca-Cola and General Electric are the second and 
third best companies to work for in Spain, behind only Banco 
Santander, out of 142 that participated in Actualidad 
Economica magazine's annual ranking.  Coke and GE had the 
best scores for employee training and scored well in all 
facets of the survey.  Other U.S. companies ranked in the top 
10 were Kimberly-Clark, Cisco, and EMC.  (Actualidad 
Economica, 7/25 issue) 
 
Aguirre