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RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1025/01 2730625
ZNR UUUUU ZZH
R 290625Z SEP 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5371
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3590
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001025 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND EINV ELAB ENRG KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, SEPT. 22-26 
 
REF: MADRID 943 
 
MADRID 00001025  001.2 OF 002 
 
 
Contents: 
 
ECON/KIPR: Zapatero in New York 
ECON/EFIN: Council of Ministers Approves Draft 2009 Budget 
EIND: Housing Sales, Starts Remain Weak 
ENRG/EINV: GOS Reduces Solar PV Electricity Feed-In Tariffs 
EINV: Spain Among Top FDI Investors and Recipients 
ELAB: Spain Leads Opposition to Proposed EU Expansion of 
Allowable Labor Hours 
 
Zapatero in New York 
 
¶1. (U) While visiting New York to speak at the UN, President 
Zapatero met with business executives in a September 24 event 
organized by the American Chamber of Commerce in Spain. 
Executives from firms such as Boeing, Microsoft, IBM, Pfizer, 
and the Bank of America, as well as the MPAA, participated in 
the session.  Zapatero acknowledged challenges faced by the 
Spanish economy, including the housing downturn and the 
current account deficit, but he insisted that the economy's 
resilience and strength would allow Spain to return to its 
path of strong growth soon.  Zapatero also discussed topics 
ranging from high-speed trains to his commitment to not 
expand nuclear energy.  He said Spain would deepen its focus 
on biotechnology, nanotechnology, and renewable energies.  At 
least one questioner raised IPR piracy.  In his UNGA speech 
September 25, Zapatero called for international regulation of 
financial markets and urged developed countries to meet the 
target of providing 0.7% of GDP in development assistance by 
¶2015.  In a press conference, he expressed his support for 
the Administration's financial market rescue package, noting 
that it was the result of an "exceptional circumstance." (El 
Confidencial, 9/25; El Pais, 9/25; All Media, 9/26) 
 
Council of Ministers Approves Draft 2009 Budget 
 
¶2. (U) The Council of Ministers approved on September 26 what 
it described as an "austere" draft 2009 budget.  Spending, 
including anticipated unemployment benefits, will rise 3.3%, 
just below the rate of inflation.  Because of the economic 
slump, the GOS has had to adjust spending down from what it 
had anticipated only three months ago.  The deficit is 
anticipated at 1.5% of GDP.  The GOS emphasized the budget's 
emphasis on infrastructure, research, the administration of 
justice, education, and housing.  The GOS will submit the 
budget to the Congress next week, but it still lacks the 
votes to ensure approval.  The unresolved dispute with 
Catalonia over regional government financing makes it 
unlikely that the CiU bloc will support the budget, so the 
GOS is seeking support from the Basque Nationalist Party 
(PNV) and smaller regional parties.  The budget is expected 
to be approved, possibly after amendments, at the end of 
December.  (Expansion, 9/25; El Pais, 9/26; Council of 
Ministers, 9/26) 
 
Housing Sales, Starts Remain Weak 
 
¶3. (U) 26% fewer housing units were sold in July 2008 than in 
July 2007.  Sales of used housing were down 38%, while sales 
of new housing were down 10%. Comment: It may be that new 
housing sales fell by less because builders are forced to 
sell even if they have to accept lower prices, while owners 
of existing housing prefer to stay put rather than accept 
lower prices.  End comment.  The value of mortgages issued 
that month was 33% below the July 2007 value; the number of 
mortgages was down 28% and their average value was down 6%. 
Builders are responding by cutting back on new construction; 
in the year's second quarter, the number of housing starts 
was 43% below its 2007 second-quarter level.  (Expansion, 
9/26; Cinco Dias, 9/26) 
 
GOS Reduces Solar PV Electricity Feed-In Tariffs 
 
¶4. (U) Spain's system of incentives for different types of 
renewable electricity guarantees generous prices (feed-in 
tariffs) for up to a certain volume of projects of each 
technology.  For solar photovoltaic power projects, the 
existing 45 cents(euro)/KWh tariff applies to projects 
completed and registered by September 29.  On September 26, 
after many exchanges between the Ministry of Industry, 
Tourism, and Commerce (MITC) and industry representatives, 
the Council of Ministers approved a new tariff regime for 
projects registered after September 29.  The guaranteed 
tariff will fall to 32 cents/KWh for ground-based projects 
and rooftop projects above 20 KW.  Rooftop projects below 20 
 
MADRID 00001025  002.2 OF 002 
 
 
KW will receive 34 cents/KWh; the GOS says rooftop projects 
use less land and lose less electricity in transmission than 
ground-based projects.  MITC Minister Miguel Sebastian told 
the Congress that the new tariffs are 25% above those in 
Germany, the EU's other large solar power market.  The 
tariffs will be in force for 25 years and will include annual 
adjustments just below the rate of inflation. 
 
¶5. (U) The volume of projects eligible for the new tariffs 
has been the most contentious point (reftel).  Many more 
ground-based projects were registered before the September 29 
deadline than the GOS had expected -- at more expense to 
consumers, since the guaranteed prices are well above market 
prices -- and many projects are not yet complete.  The 2009 
limit of 367 MW of ground-based projects (and 133 MW of 
rooftop projects) may cause some firms to scrap or delay 
planned projects.  A new mechanism will allow the GOS, if the 
volume limit of projects is reached in one year, to reduce 
the next year's tariff and increase the volume limit by the 
same percentage, up to ten percent a year.  This should 
eventually lower tariffs to the minimum needed to guarantee 
provision of the volume of generation the GOS seeks. (El 
Confidencial, 9/26; Council of Ministers, 9/26; Embassy 
analysis) 
 
Spain Leads Opposition to Proposed EU Expansion of Allowable 
Labor Hours 
 
¶6. (U) Minister of Labor Celestino Corbacho announced Sept. 
25 in Parliament that the GOS would lead the opposition 
against the potential approval of a EU directive permitting 
expansion of the work week from 40 hours to 65 or 70 hours. 
Spain,s Chamber of Deputies unanimously rejected this 
proposal a week earlier, while Spain,s Corbacho formally 
voted against the proposal along with Greece at the EU level 
September 15.   The European Parliament is expected to decide 
on this directive next month.  (Cinco Dias, 9/26) 
 
Spain Among Top FDI Investors and Recipients 
 
¶7. (U) According to UNCTAD,s recently released 2008 World 
Investment Report, in 2007 Spain was the 5th largest source 
of foreign direct investment (FDI) -- with almost 120 billion 
dollars in FDI abroad -- and the 6th largest recipient of FDI 
inflows.  Spain experienced a large increase in FDI inflows 
from 2006 to 2007; in 2006 these inflows were slightly under 
30 billion dollars, while in 2007 this amount almost doubled 
to more than 50 billion.  Comment:  A large part of the 
increase was likely the result of the Italian firm Enel's 
involvement in the 2007 purchase of electric utility ENDESA. 
(UNCTAD press release, Sept 24). 
Aguirre