VZCZCXRO3578
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0397/01 1091341
ZNR UUUUU ZZH
R 191341Z APR 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0533
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000397 
 
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, APRIL 6-17 
 
REF: MADRID 129 
 
Contents: 
ECON: Inflation Negative, but No Sustained Deflation 
ECON: Economy Vice Minister Vegara to Resign 
ECON: Number of Foreclosures Rising, Rate Still Low 
ELAB/EFIN: Central Bank Head's Social Security Statements 
Controversial 
KIPR: Internet Users Group Criticizes New Culture Minister 
 
 
Inflation Negative, but No Sustained Deflation 
 
1.(U) Confirming previous estimates, the consumer price index 
in March was 0.1% below its level of March 2008, the first 
negative year-on-year inflation in the index,s 48-year 
history.  COMMENT:  This should not necessarily increase 
concern about deflation.  Prices actually rose 0.2% between 
February and March; the year-on-year rate only turned 
negative because prices had risen even faster between 
February and March 2008.  The underlying inflation rate 
(without energy or food prices) is declining but positive at 
1.3%.  Year-on-year inflation rates are expected to remain 
negative at least through the summer, as 2009 prices are 
compared with 2008 prices when oil was much higher.  The 
question will be whether, despite now-steady oil prices, the 
reduction in consumption and activity will push overall 
prices down from one month to the next over a period of 
months.  (National Statistics Institute, 4/15) 
 
Economy Vice Minister Vegara to Resign 
 
2.(U) Secretary of State for Economy David Vegara has 
informed new 2nd Vice President and Economy/Finance Minister 
Salgado that he will resign within a month.  Some reports 
suggest that Vegara,s departure is related to the 
expectation that Salgado, responding to President Zapatero's 
wishes, will increase government spending even more.  Vegara 
was the Ministry,s key economic policymaker under Salgado,s 
predecessor, Pedro Solbes, who often said that the already 
high budget deficit (likely to surpass 6% of GDP this year) 
left little room for additional spending.  (Comment: 
Statements by Central Bank officials also suggest objections 
to further spending increases.)  Other articles speculate 
that Vegara may have hoped to replace Solbes or receive 
another ministerial position in last week,s cabinet shuffle. 
 Before leaving, Vegara will accompany Salgado to the 
upcoming IMF/World Bank spring meetings and to the May EU 
Economy/Finance ministerial.  No successor has been named. 
(El Confidencial, 4/9, 4/14; Expansion, 4/9) 
 
Number of Foreclosures Rising, Rate Still Low 
 
3.(U) Residential foreclosures more than doubled in 2008, 
surging in the fourth quarter.  In all of 2007, there were 
fewer than 26,000 foreclosures; in 2008, there were over 
58,000, with over 21,000 coming in the year's fourth quarter. 
 (Comment: As a percentage of the number of households, 
Spain's rate is still far below that of the U.S., despite 
high and rising unemployment.  Possible reasons for the 
difference may include Spain's relatively generous 
unemployment benefits and the fact that Spaniards are liable 
for the full value of their mortgages, even if the property's 
value has fallen below that of the mortgage.  However, with 
unemployment expected to continue its rise, the rate of 
foreclosures is likely to continue growing.  End Comment.) 
(El Pais, 4/14) 
 
Central Bank Head's Social Security Statements Controversial 
 
4.(U) Central Bank Governor Miguel Angel Fernandez Ordonez 
urged a Congressional committee to quickly reform the social 
security system to head off future solvency problems, saying 
the economic crisis could cause the system's receipts to fall 
below expenditures this year.  Fernandez Ordonez said 
increasing retirement ages was one of many possibilities that 
should be considered, and he noted that other European 
governments had increased the number of years of 
contributions used to calculate benefits (effectively 
lowering pension amounts).  Labor Minister Celestino Corbacho 
joined labor leaders in disputing Fernandez Ordonez' 
prediction and criticizing him for scaring pensioners.  Other 
PSOE members and GOS officials were less critical.  The 
Congressional committee is starting to look at reforming the 
1995 Toledo Pact on social security.  (El Pais, 4/16-17) 
 
Internet Users Group Criticizes New Culture Minister 
 
MADRID 00000397  002 OF 002 
 
 
 
5.(U) The April 7 appointment of Angeles Gonzalez Sinde as 
Culture Minister has sparked a backlash by the Internet 
Users' (Internautas) Association.  As president of the 
Spanish Academy of Film Arts and Sciences, Gonzalez Sinde 
made public statements, including at February's annual film 
industry awards ceremony (reftel), decrying the harm that 
illicit, unauthorized downloads are causing Spain's movie 
industry.  In the view of the Internautas, her appointment is 
"almost a declaration of war and a real provocation."  They 
claim she lacks the "aptitude, impartiality, and neutrality" 
required of a senior government official and should be 
rejected on conflict of interest grounds because she is a 
partner and administrator of several film production and 
distribution companies.  For her part, Gonzalez Sinde has 
said she will listen to everyone's views and that internet 
users "should not be afraid, the web is unstoppable." 
(Comment: The very vocal, populist Internautas' Association 
promotes unlimited file-sharing and targets anyone who 
advocates any restriction on internet activity.  It is 
unlikely Zapatero will remove her.  End Comment.)  (El Pais, 
ABC 4/14-15) 
CHACON