VZCZCXRO2618
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #0985/01 2590558
ZNR UUUUU ZZH
R 150558Z SEP 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5323
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3574
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000985 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA; 
COMMERCE FOR 4212/DON CALVERT 
TREASURY FOR IA/OEE:W.LINDQUIST 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ELAB SP
SUBJECT: MADRID ECONOMIC WEEKLY UPDATE, SEPT. 8-12 
 
REF: MADRID 972 
 
MADRID 00000985  001.2 OF 002 
 
 
Contents: 
 
ECON: Zapatero on Economic Woes 
ELAB: Labor Minister Backpedals on Visas for Foreign Workers 
EFIN: Mortgage Lending Down 41% 
EFIN: Savings Bank Profits Down, Mergers Expected 
EIND: Ford and GM to Lay Off 1,900 
 
Zapatero on Economic Woes 
 
¶1. (U) President Zapatero appeared before the Congress on 
September 10 to discuss the state of the economy and the 
GOS, plans for leading Spain out of its economic doldrums. 
Zapatero acknowledged that the economic situation had 
worsened since his last parliamentary appearance in July, but 
remained optimistic for the economy,s prospects.  He 
discussed the GOS, plans for addressing the downturn, 
including increased lines of credit for construction 
companies building homes for rental and increased funding to 
support unemployed workers.  Opposition PP leader Mariano 
Rajoy criticized the GOS, saying the measures taken so far by 
the government have had no effect.  Zapatero also highlighted 
his commitment to supporting workers at a Sept 7 labor event. 
 He stressed that despite the economic problems, he would 
continue his strong commitment to workers and to social 
priorities, increasing the minimum level of pensions by more 
than the inflation rate and maintaining unemployment and 
other benefits.  Zapatero also stated that he would not 
change his opposition to new nuclear power plants. 
 
¶2. (U) Comment:  Zapatero has been criticized for being slow 
to identify and react to Spain,s economic turmoil.  He is 
attempting to rally confidence in the economy.  However, 
given recent spikes in unemployment and predictions from the 
EC that Spain will enter into a recession during the last 
half of 2008, this confidence has been hard to come by. 
Zapatero,s commitment towards workers' benefits may 
ultimately restrict the flexibility of the GOS to address 
unemployment, which was estimated at 11 percent in July. 
(All Media, 9/8 and 9/10) 
 
Labor Minister Backpedals on Visas for Foreign Workers 
 
¶3. (U) Labor Minister Celestino Corbacho, who on September 3 
announced that the number of visas that the GOS would offer 
to foreign workers in 2009 would be "roughly zero," (reftel) 
is in the middle of a controversy after First Vice President 
Maria Teresa Fernandez de la Vega quickly and publicly 
rebutted his plans, which had sparked criticism from unions 
and migrant associations.  De la Vega stated that Spain will 
support "orderly immigration based on the needs of the labor 
market."  Corbacho has backpedaled to be in line with de la 
Vega,s comments, while continuing to suggest that Spain will 
try to find jobs for its 2.5 million unemployed.  Minister of 
Industry, Tourism, and Commerce Miguel Sebastian later 
announced that Fernandez de la Vega,s and Corbacho,s 
comments were not incongruent.  (Comment: This is at least 
the second time that de la Vega and Corbacho have 
contradicted each other publicly, but it is unclear whether 
this represents a growing internal rift or whether Fernandez 
de la Vega,s comments were in response to widespread 
criticisms of Corbacho,s comments) (All Media, 9/8-9) 
 
Mortgage Lending Down 41% 
 
¶4. (U) The combined value of new mortgages issued in July was 
41% below the level of July 2007.  This was the 21st 
consecutive month in which the value of new mortgages 
declined on a year-on-year basis.  Comment:  President 
Zapatero often indicates that Spain's current economic 
difficulties are the result of external factors, but the 
international credit crunch started in mid-2007, well after 
the start of trouble in the housing sector. (Expansion, 9/5) 
 
Savings Bank Profits Down, Mergers Expected 
 
¶5. (U) First-half 2008 profits by savings banks (cajas) were 
3.8% below their first-half 2007 level, the first such 
decline since 2002.  The Spanish Savings Bank Confederation 
expects 2009 results to be worse.  Delinquent loans rose in 
July to 2.5% of the total, of which half a point is due to 
the bankruptcy of the Martinsa Fadesa real estate company. 
The Confederation expects delinquencies to reach 3.3% by 
December and 5% next year; as recently as mid-2007, they were 
 
MADRID 00000985  002.2 OF 002 
 
 
below 0.7%.  Savings banks are expected to respond in 
different ways.  Some may sell their stakes in other 
companies to generate liquidity, while others are considering 
mergers.  Two Basque cajas are expected to merge before the 
end of the year, and a third may be included in the deal. 
Four cajas have successfully issued debt since June, but at 
very high spreads of around 140 basis points over reference 
rates.  (El Confidencial, 9/8 and 9/11; El Pais, 9/11) 
 
Ford and GM to Lay Off 1,900 
 
¶6. (U) Ford and General Motors announced September 9 that 
they would lay off 1,300 and 600 workers respectively to 
respond to drastically decreasing demand.  Ford plans to lay 
off its workers for two and a half months, while GM plans to 
lay off its workers for a year.  According to industry data, 
new car sales decreased by 41 percent year on year in August. 
 Both companies will be negotiating with local auto worker 
unions to define the terms of these cuts.  Ford has over 
7,000 workers with several plants located in the area of 
Valencia.  GM has two plants in Spain and also has over 7,000 
workers.  Separately, Seat announced that it was eliminating 
its night shift; it will reduce worker hours but avoid 
layoffs.  (All Media, 9/9) 
Aguirre