VZCZCXRO9553
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0109/01 0301703
ZNR UUUUU ZZH
P 301703Z JAN 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 0150
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAS/AMEMBASSY ALGIERS 4028
RUEHLA/AMCONSUL BARCELONA 3783
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000109 
 
SIPDIS 
 
STATE FOR EUR/WE:SAMSON,ZERDECKI, EEB/IFD/OMA 
TREASURY FOR OIA/OEE/D.WRIGHT 
COMMERCE FOR 4212/DON CALVERT 
 
E.O. 12958: N/A 
TAGS: ECON ECPS EFIN EPET SP
SUBJECT: MADRID ECONOMIC WEEKLY, JAN 26-30 
 
REF: MADRID 79 
 
MADRID 00000109  001.2 OF 002 
 
 
Contents: 
 
ECON: BOS Estimates GDP Fell 1.1 Percent in 2008 Q4 
ECON: Prices Drop for Third Straight Month 
EFIN: La Caixa Savings Bank First to Issue GOS-Backed Debt 
EFIN: Major Banks' Profits Highlight Strength of Financial 
Sector 
EFIN: Santander to Reimburse Madoff Victims 
ECPS: Telecoms Regulator Supports Telefonica Sole Use of High 
Speed Lines 
EPET: Repsol Announces New Gas Field Finds in Algeria 
 
 
BOS Estimates GDP Fell 1.1 Percent in 2008 Q4 
 
1.(U) The Bank of Spain estimated January 28 that fourth 
quarter 2008 GDP was 1.1 percent below the third quarter 
level.  If, as is expected, the National Institute of 
Statistics figures that will be released in February match 
this estimate, this will be the second consecutive 
quarter-on-quarter decline, placing Spain officially in a 
recession.  (Bank of Spain Economic Bulletin, 1/28) 
 
 
Prices Drop for Third Straight Month 
 
2.(U) The harmonized consumer price index fell by 0.7 percent 
in January, the third straight decline.  This reduces 
inflation over the last 12 months to 0.8 percent, the lowest 
figure in the twelve-year history of the index.  The general 
consumer price index figure will be released in two weeks. 
If, as is expected, it is almost identical to the harmonized 
figure, year-on-year inflation will be at its lowest level 
since June 1969.  The decline is in line with GOS predictions 
that inflation would continue declining for the first few 
months of 2009.  (Europa Press) 
 
 
La Caixa Savings Bank First to Issue GOS-Backed Debt 
 
3.(U) Spain's largest private savings bank ("caja"), "La 
Caixa," became the first to take advantage of a GOS guarantee 
of new bank debt when it issued 2 billion euros worth of 
senior 3-year bonds on January 29.  La Caixa representatives 
reassured investors that this debt issuance was part of their 
2008-2011 strategic plan.  Spanish banks have universally 
asserted the health of the domestic financial sector, saying 
that government capital infusions will not be necessary, as 
they have been elsewhere in Europe.  To encourage lending, 
the GOS has agreed to guarantee up to 100 billion euros in 
bank debt.  (El Pais, Reuters 1/29) 
 
 
Major Banks' Profits Highlight Strength of Financial Sector 
 
4.(U) Spain's major banks, including Banco Santander, BBVA, 
Banco Popular, Sabadell, and Banesto, have announced positive 
net profits for 2008, although in most cases 6-18 percent 
lower than 2007 levels.  Santander, Spain's and the 
eurozone's largest bank, was the exception, posting a 9 
percent increase in net profits, which reached 8.9 billion 
euros.  The 2008 profits of Spain's largest financial 
institutions reflect the continuing strength of its financial 
sector, which has fared well vis-a-vis those of its European 
counterparts.  However, bank share prices have plunged, 
Spanish banks have acknowledged Spain's worsening domestic 
economy, and some (such as Banco Popular) have increased 
provisioning in expectations of higher levels of 
non-performing loans in 2009.  Spain's economy has been 
greatly affected by a sharp downturn in the formerly 
overheated residential housing market.  The larger banks and 
"cajas" are expected to weather the storm, while 
regional-based and smaller "cajas" with greater exposure to 
the housing market are expected to face challenges in the 
upcoming year. (El Pais, El Confidencial, Expansion, 1/29-30) 
 
 
Santander to Reimburse Madoff Victims 
 
5.(U) Banco Santander announced January 27 that it will 
compensate its private clients affected by the Madoff fraud 
for the amount of their initial investment, provided the 
individuals agree to take no legal action against Santander 
 
MADRID 00000109  002.2 OF 002 
 
 
and maintain their accounts with the bank.  The bank will 
issue its clients low-interest bonds with a face value of 
1.38 billion euros, the total of the initial investments, at 
an estimated actual cost to the bank of 500 million euros. 
The majority of Santander,s private clients affected by the 
fraud hail from Spain and Latin America.  Separately, Latin 
American clients filed suit against Santander and other 
parties in a Florida court.  (All Media, 1/28) 
 
 
Telecoms Regulator Supports Telefonica Sole Use of High Speed 
Lines 
 
6.(U)  National telecommunications regulator CMT announced 
January 23 that it had approved final regulations 
guaranteeing telecoms giant Telefonica sole use of any 
internet high-speed lines over 30 megabytes per second (Mbps) 
that it lays down.  Under this decision, Telefonica will only 
be obligated to offer wholesale access to competitors for its 
slower lines of under 30 Mbps.  The decision was publicly 
criticized by EU Commissioner for Information Society Viviane 
Reding, who noted that competitors and consumers would suffer 
because "alternative operators can not compete effectively 
with Telefonica."  The decision to approve the regulation was 
reportedly controversial even within the CMT's board. 
However, the CMT as a whole has argued that it wants to 
reward operators who are willing to lay down high-speed 
internet lines, and forcing Telefonica to share its high 
speed fiber optic lines may inhibit the company's decision to 
invest in that infrastructure. (Cinco Dias, Reuters 1/30; El 
Pais 1/26; CMT website) 
 
 
Repsol Announces New Gas Field Finds in Algeria 
 
7.(U) Energy giant Repsol announced January 26 that it had 
discovered three gas fields in Algeria with the capacity of 
producing up to 1 million cubic meters of gas per day. 
Repsol has a significant share (34-45 percent) in the 
consortia linked to the blocks in which the new gas fields 
were discovered (Reggane basin, Ahnet basin, and Gassi 
Ghergui), and operates the actual wells.  Algeria is the 
source of more than a third of Spain's natural gas imports. 
In late 2009, the new Medgaz pipeline between Beni Saaf, 
Algeria and Almeria, Spain is expected to be in operation. 
(All Media, 1/26) 
 
 
 
 
 
 
 
CHACON