VZCZCXRO1426
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0014/01 0071512
ZNR UUUUU ZZH
P 071512Z JAN 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 0031
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3734
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000014 
 
SIPDIS 
 
STATE FOR EUR/WE:SAMSON,ZERDECKI, EEB/IFD/OMA, OES, G 
TREASURY FOR OIA/OEE/W.LINDQUIST 
COMMERCE FOR 4212/DON CALVERT 
DOE FOR EERE 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EFIN EINV ENRG KGHG KIPR SP
SUBJECT: MADRID ECONOMIC BIWEEKLY, DEC 22-JAN 2 
 
REF: 2008 MADRID 1339 
 
MADRID 00000014  001.2 OF 002 
 
 
Contents: 
 
ECON: Spain Likely in Recession; 2009 GDP Forecasts Continue 
to Decline 
EFIN: Treasury Notifies Banks and Cajas of Debt Guarantees 
EFIN: GOS Announces Proposed Regional Financing Plan 
ECON: Tourism Down 11 Percent in November 
EFIN/EINV: Stocks End 2008 Down Almost 40 Percent 
KIPR: Legal Music Downloads Almost Double in 2008, Still Far 
Below Illicit Total 
KGHG: GOS Buying Kyoto CO2 Emission Credits to Compensate for 
Excess Emissions 
ENRG: Acciona Opens 46 MW Solar Power Plant in Portugal 
EAIR: Iberia Pilots' Slowdown Inconveniences Travelers 
 
 
Spain Likely in Recession; 2009 GDP Forecasts Continue to 
Decline 
 
1.(U) Second Vice President and Finance Minister Solbes 
acknowledged that it appeared likely that the economy was 
contracting in the fourth quarter of 2008, which would put 
Spain in a recession as the second consecutive quarter of 
contraction.  As the outlook for 2009 continues to worsen, 
forecasters are beginning to predict that GDP will shrink by 
more than the 1 percent that the IMF had predicted several 
weeks ago, which was previously the most pessimistic 
prediction.  The FUNCAS savings bank association predicted 
that GDP would fall by 1.5 percent in 2009 and that 
unemployment would peak at 18 percent in 2010. Deutsche Bank 
predicted a 2.6 percent GDP decline in 2009.  (Expansion, 
12/30; ABC, 12/22; El Confidencial, 12/29) 
 
Treasury Notifies Banks and Cajas of Debt Guarantees 
 
2.(U) During the week, the Treasury notified 53 banks and 
cajas (savings banks) that the GOS would guarantee almost 100 
billion euros of their new debt issues in the first half of 
¶2009.  As part of a series of measures to spur lending and 
liquidity, the GOS had announced in October that it would be 
willing to guarantee up to 100 billion euros of new debt 
issued by major financial institutions in Spain.  Fifty-four 
major institutions out of a possible 56 had applied by the 
December 3 deadline.  (Expansion, 12/31/08) 
 
GOS Announces Proposed Regional Financing Plan 
 
3.(U) The GOS unveiled the outlines of its regional financing 
proposal December 30, announcing that it would grant 
Autonomous Community (regional) governments more control over 
taxes collected within their borders and would supplement 
regional government funding on population, health care, 
education and social services needs.  Second Vice President 
Solbes hopes for an agreement by the end of January. 
Opposition Partido Popular leader Mariano Rajoy continues to 
voice concern over the possible tax and budget implications, 
but some key PP and PSOE regional presidents (the equivalent 
of governors) appear cautiously satisfied with the proposed 
plan.  Under the old model, the central government received a 
greater share of taxes, redistributing a portion of these 
funds to poorer communities.  Under the new model, the 
central government would spend more overall while ceding more 
fiscal autonomy to the regions themselves.  (All media 
12/31/08) 
 
Tourism Down 11 Percent in November 
 
4.(U) The Ministry of Industry, Tourism, and Commerce 
reported on December 22 that 11.6 percent fewer international 
tourists arrived in November 2008 than had arrived in 
November 2007.  This double-digit decline is one of the 
largest over the past several years, a blow to an industry 
which represents over 10 percent of Spain's GDP.  For the 
year through November, arrivals were down 2 percent from the 
same period in 2007.  Despite this decline, Spain remains the 
world's second largest destination country for international 
tourists.  (El Pais, 12/22/08; Ministry statement 12/22/08) 
 
Stocks End 2008 Down Almost 40 Percent 
 
5.(U) The Ibex-35 blue-chip index ended 2008 down 39.4 
percent from its end-2007 level, a slightly better 
 
MADRID 00000014  002.2 OF 002 
 
 
performance than other major Euro zone indices.  The broader 
market suffered a similar decline.  Spain's market remains 
very concentrated, with four companies (Telefonica, Banco 
Santander, Iberdrola, and BBVA) accounting for 60 percent of 
the IBEX-35's market capitalization.  (All media, 12/31/08) 
 
Legal Music Downloads Almost Double in 2008, Still Far Below 
Illicit Total 
 
6.(U) According to the Music Producers of Spain (PROMUSICAE), 
legal downloads of copyrighted music almost doubled in 2008, 
reaching a total of 32 million compared to 17 million in 
¶2007.  Marketers of digital music, such as iTunes Spain, hail 
the increase as proof that the industry is responding to 
demand by making more music legally available on the 
internet.  However, they note that illicit peer-to-peer 
downloads continue to far surpass the number of legal 
downloads.  PROMUSICAE estimates that there were 1.2 billion 
illicit downloads of music in Spain in 2007 and probably more 
in 2008.  Rights-holders continue to complain that unchecked 
digital piracy is inhibiting the development of the legal 
market.  While the music industry has made considerably more 
digital content legally available over the past few years, 
telecommunications companies note that movie distributors 
have lagged behind in this area, and they blame the lack of 
legal supply for the high piracy rates for films. (El Pais, 
12/30/08) 
 
GOS Buying Kyoto CO2 Emission Credits to Compensate for 
Excess Emissions 
 
7.(U) The Environment, Rural, and Marine Affairs Ministry has 
purchased 6 million tons of CO2 emissions credits from 
Hungary, making the GOS one of the first governments to 
purchase credits from eastern Europe, and is negotiating with 
several other eastern European governments to help compensate 
for its excess emissions above its Kyoto Protocol commitment. 
 The GOS also has obtained 60 million tons of credits through 
clean energy projects, mainly in Latin America and Asia. 
Spain's emissions in 2007 were 50 percent above its 1990 
level, and its Kyoto target is to be 15 percent above its 
1990 level in 2012.  The GOS says that emissions will decline 
between 2008 and 2012, reaching in 2012 a level 37 percent 
above the 1990 level.  GOS officials have said that they 
expect to make up the difference by purchasing 159 million 
tons for the excess of emissions from transportation and 
households.  If prices do not change, this would cost around 
1.2 billion euros.  The GOS also expects that industry will 
need to buy 130 million tons to compensate for its excess. 
(El Pais, 1/2/09) 
 
Acciona Opens 46 MW Solar Power Plant in Portugal 
 
8.(U) Spanish energy and construction company Acciona 
inaugurated the solar photovoltaic plant, which it says is 
the largest of its kind in the world, on December 29. 
Located in Amareleja, Portugal, near the Spanish border, the 
plant was built at a cost of 261 million euros ($367 million) 
and meets 30 percent of the Portuguese government's goal to 
install 150 MW of solar PV.  (Cinco Dias, 12/30/08) 
 
Iberia Pilots' Slowdown Inconveniences Travelers 
 
9.(U) Spain's largest airline, Iberia, has suffered a 
heightened level of delays and cancellations since early 
December, when talks with pilots over contract changes broke 
down.  Delays have reportedly increased from 20 percent of 
flights to 70 percent, and over 400 flights have been 
cancelled.  Iberia has accused the SEPLA pilots association 
of illegally instigating a strike, and has filed a court 
petition to review SEPLA meeting notes.  SEPLA says its 
pilots are merely complying with the letter of their 
obligations and that flight delays and cancellations are due 
completely to staffing and administrative issues.  Estimates 
suggest that over 700,000 passengers have been affected by 
the delays and cancellations.  (El Pais, 12/22-31/08) 
AGUIRRE