VZCZCXRO6533
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0879/01 2211147
ZNR UUUUU ZZH
R 081147Z AUG 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5224
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3539
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000879 
 
SIPDIS 
 
STATE FOR EUR/WE AND EEB/IFD/OMA, TREASURY FOR 
IA/OEE/W.LINDQUIST 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN EINV ELAB PGOV PTER SP
SUBJECT: MADRID ECONOMIC/COMMERCIAL WEEKLY AUGUST 4-8 
 
REF: A. CARACAS 1061 
     ¶B. MADRID 859 
     ¶C. MADRID 828 
 
MADRID 00000879  001.2 OF 002 
 
 
Contents: 
 
ECON/ELAB: Production, Confidence Down, Unemployment Up 
EFIN: Negative Rating Agency Actions on 22 Banks/Cajas This 
Year 
ECPS: Telecommunications Market Commission Decision Called 
Anti-Competitive 
EFIN: Santander in Talks to Sell Venezuelan Operation to GOV 
EFIN/PTER: Crackdown on ETA Terrorism Finance Sparking 
Tensions In Basque Country 
EFIN/PGOV: No Consensus Reached Yet on Autonomous Community 
Financing Model 
 
 
Production, Confidence Down, Unemployment Up 
 
¶1. (U)  Spain,s National Institute of Statistics (INE) 
released data August 5 showing that industrial output (mining 
and manufacturing) for the month of June was down by 9 
percent from June 2007.  This data is compounded by 
additional unfavorable economic news including unemployment 
increases for the month of July and lower consumer 
confidence.  According to the Ministry of Labor and 
Immigration, the number of people registered as unemployed 
went up by 36,000 in the month of July, bringing the total to 
2,426,916.  Construction services, industry and agricultural 
sectors were most affected.  (Comment:  This seems to 
indicate an increase of about 0.1% in the overall 
unemployment rate during the month; while this may not look 
like much, unemployment usually falls in July, and 36,000 is 
the largest July increase on record.)  (All Media, 8/6; INE; 
Ministry of Labor and Immigration) 
 
 
Negative Rating Agency Actions on 22 Banks/Cajas This Year 
 
¶2. (U) Moody's and Fitch Ratings announced on August 5 
downgrades or changes in outlook for seven savings banks 
(cajas).  This brings to 22 the number of Spanish banks or 
cajas on which Standard and Poor's, Moody's or Fitch have 
taken negative actions this year.  The only significant 
banking institutions that have escaped negative rating 
actions this year are the two largest, Banco Santander and 
BBVA, which are diversified internationally.  Nearly all of 
the 22 institutions are affected by exposure to Spain's 
troubled residential real-estate market, difficulties in 
obtaining financing, and lower stock performances. 
(Expansion, 8/6) 
 
 
Telecommunications Market Commission Decision Called 
Anti-Competitive 
 
¶3. (U) In a controversial ruling July 31, Spain's 
Telecommunications Regulatory Commission, the CMT, decided 
that Telefonica would not be obligated to offer its 
competitors wholesale access to its new high-speed fiber 
optic network.  Critics of the decision contend that this 
would hamper free competition in the telecommunications 
market since Telefonica owns and operates all high speed 
telecommunications lines in Spain.  Within Spain's CMT the 
decision was strongly opposed by three of the regulatory 
agency's nine commission members.  Telefonica's main 
telecommunications competitors in Spain include Orange, 
Jazztel, and Tele2Vodaphone. (Expansion, 8/6) 
 
 
Santander in talks to Sell Venezuelan Operation to GOV 
 
¶4. (U) In an August 1 press release, Grupo Santander 
confirmed that it was in talks with the GOV to sell its 
affiliate in Venezuela, the Banco de Venezuela.  The talks 
follow a July 31 announcement by President Chavez stating 
that Venezuela was interested in purchasing the bank (ref A). 
 Prior to the Chavez announcement, Grupo Santander was 
reportedly intending to sell the bank to a private Venezuelan 
entity, with some sources saying that a driving factor was an 
imminent change in banking regulations.  According to Spanish 
media reports, President Chavez has offered $1.2 billion for 
the bank while Santander wants $1.8 billion.  Spanish 
officials have stated that they are following the transaction 
closely.  Banco de Venezuela has belonged to Grupo Santander, 
Spain's largest bank, since 1996. (All Media, 8/1-8/6) 
 
MADRID 00000879  002.2 OF 002 
 
 
 
 
Crackdown on ETA Terrorism Finance Sparking Tensions In 
Basque Country 
 
¶5. (U) A recent crackdown on businesses suspected of paying 
protection money to the terrorist group ETA is being received 
with indignation by businesses leaders who see themselves 
more as victims than as conspirators.  For years, ETA 
activities have partially been financed via extortion letters 
calling for Basque businesses to contribute "Revolutionary 
Taxes."  After the May 20 arrest of senior ETA leader 
Francisco Javier Gomez Pena (alias "Thierry"), police 
discovered information loosely linking Basque businesses to 
nearly 400,000 euros in contributions.  Based on this 
evidence Investigative Judge Baltasar Garzon (a polemic 
figure in Spain) has spearheaded efforts to uncover those 
individuals and businesses linked to these activities.  Among 
the business leaders recently detained or interrogated are 
Sabino Arrieta, the former head of steel manufacturing 
company Sidenor, and Jesus Guiber, a well-known Basque 
businessman who was kidnapped for ransom in the early 80s. 
According to the media, the investigations are being widely 
perceived as heavy-handed in the Basque community and are 
sparking tensions.  (El Pais, 8/04/08) 
 
 
No Consensus Reached Yet on Autonomous Community Financing 
Model 
 
¶6. (U) The deadline for Catalonia's statute to take effect 
will soon pass without the necessary consensus on how funds 
will be distributed among the autonomous communities.  This 
financing agreement was a key prerequisite of the statute, 
which would have provided the Catalan government more 
autonomy and control over the funds collected in its 
territories.  Catalan demands touched a raw nerve during a 
period of reduced economic growth, and other autonomous 
communities that benefit from the current system of centrally 
redistributed funds were opposed to the Catalan model.  As a 
result, the Catalan statute or constitution will not go into 
effect August 9 as planned.  (All Media, ref C) 
Aguirre