VZCZCXRO9311
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0360/01 0931657
ZNR UUUUU ZZH
R 031657Z APR 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0483
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAD/AMEMBASSY ABU DHABI 0138
RUEHLA/AMCONSUL BARCELONA 3935
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000360 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA, EEB/CIP/BA 
TREASURY FOR OIA/OEE/T.O'KEEFFE,D.WRIGHT 
COMMERCE FOR 4212/D.CALVERT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB EPET KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, MARCH 30-APRIL 3 
 
REF: A. MADRID 336 
     ¶B. MADRID 323 
 
MADRID 00000360  001.2 OF 002 
 
 
Contents: 
 
ECON: Zapatero Praises G-20 Summit Outcome, Expresses 
Optimism About Economy 
EFIN: CCM Savings Bank Takeover Sparks Concern About Banking 
System 
ELAB: Unemployment Continues to Rise 
ECON/ELAB: Central Bank Predicts 3% GDP Drop in 2009, 19% 
Unemployment in 2010 
ECON: Annual Inflation Rate Falls Below Zero 
EPET: Abu Dhabi-Owned Company to Increase Stake in Spanish 
Oil Company to 47 Percent 
KIPR: GOS Launches Second Legal Software Campaign 
 
 
Zapatero Praises G-20 Summit Outcome, Expresses Optimism 
About Economy 
 
1.(U) President Zapatero left the G-20 summit in London 
yesterday with a message of confidence and optimism, 
highlighting to the press that the participants were in 
concordance on a way forward and downplaying differences 
between U.S. and Europe over stimulus efforts and financial 
regulation.  He noted that there was still much work to be 
done but suggested that the right conditions existed for the 
recession to touch bottom and recovery to begin in the second 
half of 2009.  As part of the outcome of the summit, Spain 
will contribute 4 billion euros out of the EU's 75 billion 
towards the IMF.  (All Media 4/3) 
 
CCM Savings Bank Takeover Sparks Concern About Banking System 
 
2.(U) The Bank of Spain,s March 29 takeover of the Caja 
Castilla La Mancha (CCM) savings bank (Ref A) has sparked 
concern about the cost to the GOS, especially if other cajas 
need help.  The GOS provided on April 1 a guarantee for 3 
billion euros to support the central bank,s intervention. 
While the Council of Ministers had authorized up to 9 billion 
euros in guarantees if necessary, Second Vice President and 
Economy/Finance Minister Solbes said he expected that the 
cost of cleaning up CCM would not surpass 3 billion euros. 
Solbes continued to insist that CCM, which had been run by a 
former ruling party legislator, was solvent and merely faced 
a liquidity problem, which Castilla-La Mancha's regional 
governor claimed was the result of a smear campaign by the 
opposition PP party.  However, press reports citing internal 
Central Bank documents indicated that CCM had resisted BOS 
instructions to revise its books to reflect the true value of 
its troubled loans to property developers and was in fact 
insolvent. 
 
3.(SBU) Solbes announced on March 30 that the GOS would seek 
legislation to reduce politicization of the management of 
cajas, most of which are controlled by provincial or regional 
governments or their allies.  The sums involved in the 
intervention of CCM -- which has only 1% of the financial 
system,s assets -- have made it clear that the three deposit 
guarantee funds, which have a total of 7 billion euros in 
resources, will not be sufficient to handle trouble at more 
than a few institutions.  The GOS is reported to be planning 
a fund that would provide capital to financial institutions. 
Comment:  In addition to its economic cost, the takeover has 
been a political black eye for the GOS because of the 
apparent influence of political considerations on GOS and 
Bank of Spain efforts to broker a merger with the 
also-PSOE-linked Unicaja.  (El Pais, 3/30-4/3; El 
Confidencial, 3/30-4/3) 
 
Unemployment Continues to Rise 
 
4.(U) According to the Ministry of Labor and Immigration, the 
number of unemployed jumped by 120,000 in March to a total of 
3.6 million - the 12th consecutive monthly increase and the 
first increase in March in 16 years.  Although the official 
GOS unemployment rate for the year's first quarter is not yet 
available, February's rate was 15.5 percent, according to the 
EU's data agency Eurostat.  Spain has the highest level of 
unemployment in the EU.  (All Media, 4/2) 
 
Central Bank Predicts 3% GDP Drop in 2009, 19% Unemployment 
in 2010 
 
MADRID 00000360  002.2 OF 002 
 
 
 
5.(U) The Bank of Spain was considerably less optimistic than 
Zapatero, predicting on April 3 that Spain will suffer a 
"deep recession" this year in which GDP will fall by 3%.  It 
expects GDP to fall by another 1% in 2010 but for growth to 
resume in the year's second half.  It predicts that 
unemployment will hit 17% this year and 19% in 2010 if no new 
measures are taken.  The shrinking economy and rising 
unemployment will lead to budget deficits of over 8% of GDP 
in both 2009 and 2010.  All of these predictions are worse 
than the most recent GOS predictions.  (Expansion, 4/3; AFP, 
4/3) 
 
Annual Inflation Rate Falls Below Zero 
 
6.(U) Consumer prices in March are estimated to have been 
0.1% below their March 2008 level, according to the National 
Statistics Institute's EU-harmonized index.  This makes Spain 
the first eurozone member with a negative annual inflation 
rate since the monetary union,s founding.  Second Vice 
President and Economy/Finance Minister Solbes dismissed 
concerns of deflation, noting that the lower price level was 
in part a result of petroleum prices being much lower than 
they were a year ago.  Comment: The concern over deflation is 
not so much because prices are lower than they were a year 
ago, but because prices have fallen in four of the last five 
months, even after the oil price has leveled off.  GOS 
officials expect the annual inflation rate to remain negative 
through the summer, as current prices will be compared to 
prices when oil was at its most expensive.  (All Media) 
 
Abu Dhabi-Owned Company to Increase Stake in Spanish Oil 
Company to 47 Percent 
 
7.(U) Banco Santander and Union Fenosa have agreed to sell 
their 32.5% and 5% stakes in Spanish oil company CEPSA to Abu 
Dhabi's International Petroleum Investment Company (IPIC). 
The sale will raise IPIC's share in the company to 47%.  Once 
the agreement receives approval from the appropriate 
regulatory bodies, IPIC will become the second largest 
shareholder of CEPSA after the French company TOTAL.  CEPSA 
is a petrochemical and refinery company with a large service 
station network in Spain and Portugal.  (All Media, 3/31; 
IPIC Press Release, 3/31) 
 
GOS Launches Second Legal Software Campaign 
 
8.(U) The Secretariat of State for Telecommunications 
launched March 31 the second phase of its campaign to promote 
use of legal software, which is part of the GOS,s "Plan 
Avanza" for development of the information society.  The 
campaign will be implemented in coordination with the Spanish 
Electronic, Information Technology and Telecommunications 
Industry Association (AETIC) and the Business Software 
Alliance (BSA).  The 2007 campaign is credited with a 
reduction in software piracy levels, and BSA  is the only 
major copyright-dependent organization to express 
satisfaction with GOS anti-piracy efforts.  Comment: Spain 
has achieved some success combating software piracy but 
continues to face significant challenges with illicit 
Internet downloads of music, films, and video games.  End 
Comment.  (Ministry of Industry, Tourism, and Commerce, 4/1) 
CHACON