VZCZCXRO2236
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0154/01 0441832
ZNR UUUUU ZZH
P 131832Z FEB 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 0207
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3806
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000154 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA, EEB/TPP/IPE:URBAN 
TREASURY FOR OIA/OEE/D.WRIGHT 
COMMERCE FOR 4212/DON CALVERT 
STATE PASS USTR FOR D.WEINER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ELAB KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, FEB. 9-13 
 
REF: A. MADRID 109 
     ¶B. MADRID 79 
 
MADRID 00000154  001.2 OF 002 
 
 
Contents: 
 
ECON: GOS Confirms Recession 
EIND: December Industrial Production Down Nearly 20 Percent, 
Worst in Eurozone 
EFIN: Moody's Designates GOS Debt as "Vulnerable" 
ECON: Zapatero Announces Plan to Cut Ministry Spending 
ELAB: Central Bank Head Says Labor Reforms Necessary; 
Zapatero, Minister Disagree 
KIPR: Police Seize Unauthorized Video Game Copying Devices 
KIPR: Movie Ticket Sales Down, Industry Blames Piracy 
 
GOS Confirms Recession 
 
1.(U) The National Statistics Institute confirmed on February 
12 that the Spanish economy contracted by 1.0 percent from 
the third to the fourth quarter of 2008.  This marked the 
second consecutive quarter of negative growth, officially 
placing Spain in a recession for the first time since the 
first quarter of 1993.  Fourth quarter GDP was 0.7 percent 
below its fourth-quarter 2007 level.  GDP for 2008 as a whole 
was 1.2 percent above the 2007 total. (All Media, 2/12) 
 
December Industrial Production Down Nearly 20 Percent, Worst 
in Eurozone 
 
2.(U) According to Eurostat data, industrial production in 
December 2008 was 19.6 percent below its December 2007 level. 
 This was the largest decline in the eurozone.  Among all EU 
members, only Estonia had a greater decline.  (ABC, 12/2) 
 
Moody's Designates GOS Debt as "Vulnerable" 
 
3.(U) In a report released February 12, Moody's Investor 
Service designated Spain's sovereign debt as AAA "vulnerable" 
based on risks related to the deteriorating public finance 
situation.  Spain and Ireland were the only AAA-rated 
countries labeled as "vulnerable."  Although this designation 
is not considered to be a downgrade, it is consistent with 
concerns regarding the government's diminishing receipts and 
ballooning deficit, which will likely reach 6 percent of GDP 
in 2009.  This report comes on the heels of Standard and 
Poor's recent downgrade (ref B) of Spain's sovereign debt 
rating from AAA to AA .  (El Pais, 2/12) 
 
Zapatero Announces Plan to Cut Ministry Spending 
 
4.(U) President Zapatero on February 10 announced his intent 
to cut 1.5 billion euros in ministry spending from the 2009 
budget to pay for rising unemployment benefits.  He did not 
specify how much each ministry's budget would be cut.  The 
Congress must first approve the cuts.  Comment:  This move is 
another sign of the seriousness of both unemployment and the 
GOS' growing deficit.  The 2009 budget passed last December 
was considered to be austere with a 3.3 percent nominal 
increase in programmed spending.  Unemployment reached 13.9 
percent in the fourth quarter and is expected to continue 
surging, putting further strain on the budget.  (Expansion, 
2/10) 
 
Central Bank Head Says Labor Reforms Necessary; Zapatero, 
Minister DisagrQ 
 
5.(U) At aQebruary 11 conference, Bank of Spain Governor 
Miguel Angel Fernandez Ordonez reiterated his belief that 
reforms of Spain's rigid labor market are necessary in order 
to better promote investment and employment creation, and 
hence aid in recovery from the crisis.  In an event organized 
by the European press writers association the following day, 
President Zapatero expressed his disagreement with Fernandez 
Ordonez' remarks, asserting instead that Spain would not 
"follow the path" suggested by the Bank of Spain Governor. 
Labor Minister Corbacho also criticized Fernandez Ordonez' 
remarks.  Comment:  Spain has one of the most rigid labor 
markets in Europe, with generous layoff payouts and other 
substantial benefits.  This rigidity has long been a source 
of contention with businesses, many of which prefer to hire 
temporary workers as a means of avoiding the obligations of 
permanent ones.  (ABC 2/11, 2/12; El Confidencial, 2/12) 
 
Police Seize Unauthorized Video Game Copying Devices 
 
 
MADRID 00000154  002.2 OF 002 
 
 
6.(U) Spanish National Police seized 1,150 unauthorized 
copying and modification devices that enable video games to 
be uploaded to portable Nintendo consoles.  Acting on a 
complaint from Nintendo, police forces in five regions raided 
stores belonging to an unnamed game distributor in eight 
cities.  According to the company, this is the first major 
operation by Spanish law enforcement against this type of 
device for video game piracy.  Comment: Over the past year, 
law enforcement has conducted a number of successful 
operations against street vendors of pirated and counterfeit 
merchandise, and rights-holders have recognized and praised 
increased police activity in this area.  (El Pais, 2/13) 
 
Movie Ticket Sales Down, Industry Blames Piracy 
 
7.(U) The European Audiovisual Observatory released 
preliminary figures this week showing that sales of movie 
tickets in Spain fell by 7.6 percent in 2008, the 
second-largest decline in the European Union after Hungary. 
Fernando Lara, director of Spain's Institute of Audiovisual 
Arts and Sciences, placed the blame on piracy, saying, "The 
amount of piracy that we see here is way above that of other 
countries, particularly in terms of internet 
downloads...which is having an alarming effect on cinemas." 
Comment: Rights-holder representatives are unanimous in the 
belief that internet piracy in Spain continues to grow 
rapidly and is causing serious damage.  Negotiations between 
Internet Service Providers and rights-holders towards an 
agreement on how best to combat the phenomenon are advancing 
slowly. (El Pais English, 2/10) 
CHACON