VZCZCXRO5950
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1189/01 3121629
ZNR UUUUU ZZH
P 071629Z NOV 08
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 5561
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 4024
RUEHBU/AMEMBASSY BUENOS AIRES 0392
RUEHRB/AMEMBASSY RABAT 6122
RUEHLA/AMCONSUL BARCELONA 3646
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001189 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA, EEB/ESC/IEC 
TREASURY FOR OIA/OEE/W.LINDQUIST 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND EINV ELAB ENRG KIPR SP EPET
SUBJECT: MADRID WEEKLY ECONOMIC UPDATE - NOV 1-7 
 
MADRID 00001189  001.2 OF 002 
 
 
Contents 
 
ELAB: Unemployment Continues to Soar 
ECON: President Zapatero Announces New Economic Emergency 
Measures 
EFIN: Delinquency Rate on the Rise, but Banks Expected to 
Weather the Storm 
EPET: Repsol Given Reprieve to Operate in Ecuador 
ECON: Spain to Enter into a Recession? 
 
Unemployment Continues to Soar 
 
¶1. (U) On November 4, the Ministry of Labor released 
statistics showing an increase of 192,658 registered 
unemployed workers for the month of October, the sharpest 
month-to-month increase ever recorded.  This brings the total 
of unemployed to over 2.8 million, with immigrants especially 
affected.  The third quarter unemployment rate was 11.3%, but 
the EU and prominent business association CEOE project that 
this level may reach up to 15 and 17 percent within the next 
two years, respectively.  At an EU event November 4, Second 
Vice President and Minister of Economy Pedro Solbes stated 
that unemployment had become Spain's principal concern.  (All 
media, 11/4/08 and 11/5/08) 
 
President Zapatero Announces New Economic Emergency Measures 
 
¶2. (U) In a move to address the unemployment crisis, 
President Zapatero announced on November 3 a new set of 
economic measures to allow those unemployed with mortgages of 
less than 170,000 euros to postpone half their monthly 
payments for the next two years (an estimated beneficiary 
group of about 500,000).  Additionally, the plan would 
provide a 1500 euro subsidy to companies that hire unemployed 
workers with families to support, and would provide tax cuts 
for workers earning less than 33k euros annually while paying 
mortgages.  The measure is expected to be approved by the 
Council of Ministers on November 7, and has a total estimated 
cost of between 100-400 million euros.  Zapatero has 
indicated that his priority is assisting families affected by 
the economic crisis, even if it means pushing Spain's budget 
deficit above the EU ceiling of 3%.  (All media, 11/4/08 and 
11/25/08) 
 
Delinquency Rate on the Rise, but Banks Expected to Weather 
the Storm 
 
¶3. (U) The Bank of Spain released a financial stability 
report November 5 showing that the rate of loan delinquency 
by families and business had increased to 2.54% in October 
from 0.75 percent the year before.  The report projected that 
the rate of delinquency would continue to rise over the next 
few quarters.  Despite this, the report determined that banks 
extended very few loans over the past 3 years, and that 
Spanish banks would be able to sustain up to a 9 percent 
delinquency rate before experiencing extreme difficulty. 
Comment: Smaller banks with higher exposure to Spain's 
flailing residential real estate market are beginning to 
consolidate, but no major bank closings are expected in the 
near term.  Spanish banks and "cajas" (savings banks) are 
subject to conservative banking regulations that require high 
provisions for losses and strict accounting practices, and as 
a result have weathered the financial storm better than their 
counterparts elsewhere in Europe.  (El Pais, Cinco Dias, 
11/6/08, Embassy) 
 
Repsol Given Reprieve to Operate in Ecuador 
 
¶4. (U) Repsol reached an agreement November 6 with the GOE to 
continue its operations for at least one more year in 
Ecuador.  This agreement comes after the GOE announced the 
week before that Repsol's license would not be renewed 
because of failed talks regarding a new operating contract. 
The media reports that during this year-long extension, 
Repsol's tax burden will remain at 70 percent, significantly 
below the 99 percent level sought by the GOE.  (All Media 
11/7/08) 
 
Spain to Enter into a Recession? 
 
¶5. (U) Recent IMF predictions are that Spain will suffer a 
contraction of 0.7 percent in 2009.  This prediction comes on 
 
MADRID 00001189  002.2 OF 002 
 
 
the heals of recent Bank of Spain data showing that third 
quarter GDP fell by 0.2 percent from the previous quarter. 
However, on a year-on-year basis, GDP increased by 0.9 
percent.  (All Media 11/1/08, 11/6/08) 
AGUIRRE