VZCZCXRO5224
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0434/01 1240639
ZNR UUUUU ZZH
R 040639Z MAY 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0584
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3969
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000434 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA, EEB/CIP/BA 
COMMERCE FOR 4212/D.CALVERT 
ENERGY FOR PIA/K.BALLOU 
TREASURY FOR OIA/OEE/T.O'KEEFFE,D.WRIGHT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG SP
SUBJECT: MADRID ECONOMIC WEEKLY, APRIL 27-30 
 
REF: MADRID 414 
 
MADRID 00000434  001.2 OF 002 
 
 
Contents: 
 
ECON: Economy Contracted Sharply in First Quarter 
EFIN: EU Foreign Ministers Approve Deficit Sanctioning 
Procedure 
EFIN: GOS Presses for G-20 Membership with Treasury Secretary 
Geithner, Others 
ENRG: GOS, Companies Address Electricity Tariff Deficit 
 
Economy Contracted Sharply in First Quarter 
 
1.(U) Spain's economy contracted by 1.8% between the fourth 
quarter of 2008 and the first quarter of 2009, according to 
Bank of Spain estimates.  This was the worst quarterly 
decline in 50 years, and it brought GDP to a level 2.9% below 
that of the first quarter of 2008.  These are preliminary 
estimates, but the official figures that will be released by 
the National Statistics Institute in a few weeks are expected 
to show a similar contraction.  (Europa Press, 4/29) 
 
EU Foreign Ministers Approve Deficit Sanctioning Procedure 
 
2.(U) On April 27, EU Foreign Ministers formally approved the 
Commission,s proposal to open a sanctioning procedure 
against Spain (and France, Greece and Ireland) for surpassing 
budget deficit limits.  The Ministers have given the GOS 
until 2012 to reduce its deficit below 3% of GDP.  Spanish 
authorities now have six months to inform Brussels about the 
steps they will take to reduce the deficit.  Separately, the 
EC reportedly predicts that Spain's deficit this year will 
reach 8.6% of GDP, well above the most recent GOS prediction 
of 5.9%. (EFE, 4/28; El Pais, 4/30) 
 
GOS Presses for G-20 Membership with Treasury Secretary 
Geithner, Others 
 
3.(U) Spain's aspirations to join the G-20 made headlines 
again this week after the press reported that it had not been 
invited to an April 24 G-20 finance ministers' meeting in 
Washington on the margins of the IMF/World Bank spring 
meetings.  Economy/Finance Minister and Second Vice President 
Elena Salgado told reporters in Washington that Spain would 
seek formal G-20 membership, citing Spain,s economic 
statistics, support from G-20 members, and excellent 
relations with the United States.  When asked about not 
having been invited to the April 24 ministerial, she said, 
"Spain would,ve liked to be invited, but I,m sure we,ll be 
in New York" for the September G-20 summit.  She added that 
the GOS also sought to attend the G-20 May vice-ministers, 
and July ministers, meetings.  Salgado said she had 
explained to Treasury Secretary Geithner in a fifteen-minute 
meeting the importance of Spanish participation in the New 
York summit.  She said Geithner had not promised her anything 
but understood her arguments and would take them into 
consideration.  Salgado and President Zapatero made this a 
key issue in their meetings during the week, with Salgado 
picking up supportive statements from Brazil,s finance 
minister (who had initially said that the U.S. had acted 
correctly in not inviting Spain to the ministerial) and 
Mexico,s finance minister, and Zapatero gaining public 
support from French President Sarkozy and EC President Durao 
Barroso. (El Pais and ABC, 4/27; Europa Press, 4/29; El Pais, 
4/30) 
 
GOS, Companies Address Electricity Tariff Deficit 
 
4.(U) The Council of Ministers approved on April 30 the 
issuance of guarantees that will allow electric utilities to 
securitize and sell on financial markets up to ten billion 
euros of the debt owed them by the GOS.  Since the early part 
of the decade, the GOS has accumulated some 16 billion euros 
in this "electricity tariff deficit" debt, which covers the 
difference between firms' costs and the prices they are 
allowed to charge consumers.  In another key aspect of a deal 
worked out between the GOS and the companies, the GOS will 
allow companies to increase prices by about 5% each year 
until prices match costs.  The GOS will also assume certain 
costs related to electricity supply in the Balearic and 
Canary Islands and the enclaves of Ceuta and Melilla.  In 
return, the companies will not raise prices for four years 
for five million households that either have low consumption, 
are retirees with low pensions, contain no employed members, 
 
MADRID 00000434  002.2 OF 002 
 
 
or are large families.  The companies also will assume the 
costs of nuclear waste management.  It is not clear what sort 
of discount the companies will have to accept to sell the 
debt, but industry association representatives expressed 
general satisfaction with the deal.  (El Confidencial, 4/30; 
El Pais, 5/1) 
CHACON