VZCZCXRO8084
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1050/01 2771540
ZNR UUUUU ZZH
R 031540Z OCT 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 5397
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3593
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001050 
 
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: EAID EAIR ECON EFIN EINV ELAB SP
SUBJECT: MADRID ECONOMIC WEEKLY, SEPT. 29-OCT. 3 
 
REF: A. MADRID 793 
     ¶B. MADRID 583 
 
MADRID 00001050  001.2 OF 002 
 
 
Contents: 
 
EFIN: Authorities Reassure Public That Bank Deposits Safely 
Insured 
ECON/PGOV: Zapatero-Rajoy Meeting on Economy Likely 
EFIN/EINV: Santander Buys Failed UK Bank's Deposit Business 
ECON/ELAB: Most Statistics Show Continuing Slump, but 
Inflation Drops 
EINV: Abertis Pulls Out of $12.8 Billion Pennsylvania 
Turnpike Deal 
EAIR: Spanair Reaches Agreement to Lay Off 1,000 
EAID: 2007 Foreign Aid Reached Record 0.37% of GDP 
 
 
Authorities Reassure Public That Bank Deposits Safely Insured 
 
1.(U) Media concern over the turmoil in U.S. and European 
commercial banks prompted authorities to emphasize the safety 
of deposits in Spanish banks.  Vice President and 
Economy/Finance Minister Solbes said on different occasions 
during the week that, unlike in many European countries, 
Spain's deposit guarantee fund (FGD) was fully solvent and 
depositors could rest easy.  The fund guarantees 20,000 euros 
per account, lower than in many European countries.  Solbes 
noted discussions on a common EU position on guarantees but 
said Spain would reject any steps that would change the way 
it funded the FGD.  Solbes also called for rapid approval of 
the U.S. financial market rescue package, saying that not 
having a plan in place would be worse than having this plan 
in place.  Solbes said that 2008 growth would be around 1.6% 
and 2009 growth around 1%, adding that the economy would 
bottom out in late 2009 and return to growth rates near its 
3% potential in 2010 or 2011.  He said inflation could fall 
to as low as 3.5% by the end of 2008 if oil prices remained 
at their current level. (El Pais, 9/30; Solbes speech, 10/2; 
ABC, 10/3) 
 
Zapatero-Rajoy Meeting on Economy Likely 
 
2.(U) Possibly seeking to break a pattern of name-calling in 
which opposition PP leader Rajoy has repeatedly accused 
President Zapatero of denying the severity of the economic 
situation, Zapatero has called Rajoy unpatriotic, and each 
has criticized the other for lacking effective ideas, 
Zapatero invited Rajoy to meet with him to discuss economic 
measures.  Rajoy replied that he did not want a photo op, but 
a substantive meeting after a preparatory meeting between the 
GOS and PP economic teams, led by Solbes and PP economic 
spokesman Cristobal Montoro.  The preparatory meeting is 
likely to take place in the next week or so.  (El 
Confidencial, 9/30; Solbes speech, 10/2; ABC, 10/3) 
 
Santander Buys Failed UK Bank's Deposit Business 
 
3.(U) Spain's largest bank, Banco Santander, continues to 
look for buying opportunities abroad.  It outbid Barclays and 
HSBC for the branches and savings deposits of the 
nationalized British bank Bradford and Bingley, paying 772 
million euros in cash for deposits worth 27 billion euros 
belonging to 2.5 million clients, along with 197 branches and 
141 other distribution points.  Santander had finished second 
in bidding for a German bank a few weeks ago and according to 
press reports also had been interested in Washington Mutual 
and Wachovia in recent weeks.  This interest in new loans 
comes despite the continuing problems of Santander's main 
U.S. investment.  Pennsylvania-based Sovereign Bancorp, in 
which Santander owns a 25% stake, saw its stock fall by 72% 
on September 29 before rebounding somewhat later in the week. 
(El Pais, 10/29) 
 
Most Statistics Show Continuing Slump, but Inflation Drops 
 
4.(U) 
- Mortgage delinquency rose from 1.0% in the year's first 
quarter to a still-low 1.3% in the second quarter; 
- New housing construction permits in the January-July period 
were 58% below their January-July 2007 level; 
- Unemployment rose from 11% in July to 11.3% in August, the 
highest rate in any EU country, according to Eurostat; 
- Car sales in September were 32% below their September 2007 
level and are down 22% for the year's first 9 months; 
- Year-on-year inflation in September fell 0.3% to 4.6%, 
according to a preliminary estimate. 
 
MADRID 00001050  002.2 OF 002 
 
 
 
Abertis Pulls Out of $12.8 Billion Pennsylvania Turnpike Deal 
 
5.(U) Construction company Abertis allowed its $12.8 billion 
offer to operate the Pennsylvania turnpike for 75 years 
expire September 30 given indications that the Pennsylvania 
legislature would not let the deal to go forward.  The 
project (ref B) would have been the largest 
public-private-partnership (PPP) toll road deal in the United 
States.  The Abertis-led consortium, which also included Citi 
Infrastructure Partners and Criteria, had won the bid to 
lease and operate the Turnpike as a toll road for 75 years, 
contingent upon certain state legislative approvals.  When 
the deal did not receive the necessary legislative actions by 
the September 30 deadline, Abertis decided not to further 
extend its offer.  Abertis representatives noted that the 
company was open to revisiting the project in the future 
should conditions for it become more favorable. (El Pais, 
10/02-03; Reuters, 10/01) 
 
Spanair Reaches Agreement to Lay Off 1,000 
 
6.(U) Sources at the airline indicate that Spanair has 
reached a tentative agreement with the majority of its 
workers to proceed with layoffs of about 1,000 employees 
(almost a third of its workforce) as well as obligatory 
relocation of 700 employees to other Spanair hubs.  Spanair 
had announced its intention to engage in layoffs in July (ref 
A), but labor laws required the company to first reach a 
compensation package agreement -- in this case upwards of 20 
million euros.  Spanair has been hit hard by high fuel prices 
and a slowing economy, as well as the August 20 Madrid crash 
that killed 154.  After Iberia, Spanair provided the second 
largest level of service to the Spanish domestic market. (El 
Pais, Oct. 3) 
 
2007 Foreign Aid Reached Record 0.37% of GDP 
 
7.(U) The GOS spent over $5 billion (3.8 billion euros) on 
foreign assistance in 2007, a record 0.37% of GDP but less 
than the MFA,s plan of 0.42%.   As a percent of GDP, 
Spain,s assistance has reached the same level of Germany and 
Switzerland, and is much higher than Italy and Portugal, 
which spend less than 0.2% of GDP.   The primary regions that 
received Spain,s aid in 2007 were Latin America (40% of 
total) and Sub-Saharan Africa (28%).   In 2007, President 
Zapatero announced his intention to increase Spain,s 
assistance to 0.7% of GDP by 2012, three years earlier than 
required under its commitment of UN Millennium Development 
Goals.  The GOS plans for aid to reach 0.5% of GDP this year 
and in 2009.  (GOS announcement, 10/2; ABC 10/3) 
CHACON