VZCZCXRO9989
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0446/01 1281529
ZNR UUUUU ZZH
R 081529Z MAY 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0599
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3973
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000446 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA 
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 ELAB ENRG SP
SUBJECT: MADRID ECONOMIC WEEKLY, MAY 2-8 
 
REF: MADRID 434 
 
MADRID 00000446  001.2 OF 002 
 
 
Contents: 
 
ECON: EC Predicts Spain Will Lag EU in Economic Recovery 
ELAB: Unemployment Rise Slows in April 
ECON: Ministers Discuss Fiscal Stimulus 
EFIN: Large Bank Profits Down Only 18% in Q1, Delinquency 
Rises 
EFIN: Caja Madrid Faces Problems 
ENRG: Government Repeals Protectionist Energy Law 
 
 
EC Predicts Spain Will Lag EU in Economic Recovery 
 
1.(U) The European Commission on May 4 issued a report 
predicting that because of the housing construction slump, 
Spain will be the last EU country still in recession at the 
end of 2010.  The report also forecast that Spain,s GDP 
would shrink by 3.2% in 2009 and 1% in 2010, when 
unemployment is expected to peak at 20.5%.  The GOS budget 
deficit is expected to reach 8.6% of GDP this year and 9.8% 
in 2010.  (El Pais, 5/5) 
 
Unemployment Rise Slows in April 
 
2.(U) The number of registered unemployed workers rose by 
39,000 in April, the 13th consecutive monthly increase.  This 
is the smallest increase in the last nine months, and less 
than a third of the 123,000 increase in March.  Comment: GOS 
officials have said that economic developments would be 
somewhat better in the year,s second quarter than in the 
first.  However, the Secretary General for Employment said in 
a statement that it was too early to talk about an inflection 
in the labor market, and some reports indicated that the 
figure would be worse if it were seasonally adjusted.  (El 
Pas, 5/5; El Confidencial, 5/5; Presidency statement 5/5) 
 
Ministers Discuss Fiscal Stimulus 
 
3.(U) A special Council of Ministers meeting on May 6 
reviewed progress in the government's fiscal stimulus 
efforts.  First Vice President Fernandez de la Vega said the 
GOS had injected over 50 billion euros, or more than 2% of 
GDP, into the economy in one of the largest stimulus effort 
of any developed country.  She said the eight-billion-euro 
municipal infrastructure project was doubling municipal 
investment spending and had created 92,000 new jobs.  Second 
Vice President and Economy/Finance Minister Salgado 
acknowledged that fewer individuals than expected had 
qualified for the government's plan to help the unemployed 
make mortgage payments and said the GOS was considering 
loosening eligibility criteria.  Referring to a less direct 
form of fiscal stimulus, a temporary employment agency group 
noted that this year for the first time the government will 
spend more on unemployment benefits than on public 
investment. (Presidency statement, 5/6; El Pais, 5/7; El 
Confidencial, 5/8) 
 
Large Bank Profits Down Only 18% in First Quarter, 
Delinquency Rises 
 
4.(U) Spain's five largest financial institutions reported 
combined first-quarter profits of 4.5 billion euros, down 
only 18% from the first quarter of 2008.  At least for this 
quarter, higher margins made up for some of the costs 
associated with an increase in loan delinquency.  However, 
sector analysts believe future quarters will be more 
difficult, and banks are concentrating on reducing costs. 
The average loan delinquency rate for the five institutions 
reached 3.6%, more than triple the level of a year ago but 
below that of other financial institutions.  As a group, the 
five largest institutions (Banco Santander, BBVA, La Caixa, 
Caja Madrid, and Banco Popular) account for a significant 
share of the banking sector's assets and are in better shape 
than many smaller institutions.  (EFE, 5/2-5/3-5/4, El Pais, 
5/3, El Confidencial, 5/4) 
 
Caja Madrid Faces Problems 
 
5.(SBU) Of the large institutions, Caja Madrid is the one 
that appears to be in the most difficulty.  It is heavily 
exposed to the construction and real estate sectors, and its 
 
MADRID 00000446  002.2 OF 002 
 
 
delinquency rate of 5.6% is one of the highest of any 
financial institution.  It also has been the subject of a 
long-running leadership battle between factions allied to 
Madrid mayor Alberto Ruiz-Gallardon and Madrid regional 
president Esperanza Aguirre, rivals within the opposition 
Partido Popular, though it is not clear to what extent the 
infighting has affected its operations.  Caja Madrid has used 
GOS guarantees to issue 4.5 billion euros of new debt this 
year at a cost of 116 million euros; stronger institutions 
have avoided seeking government guarantees because of the 
relatively costly terms.  Private sector deposits fell by 
about a billion euros (2% of the total) during the first 
quarter, possibly signaling a loss of depositor confidence, 
though public sector deposits increased.  A spokesman for the 
company confirmed on May 5 that it is considering the 
issuance of "preference shares" to increase its Tier I 
capital ratio, which stood at 7.45% at the end of March. 
Because of Caja Madrid's size, any problems it has could be 
more serious for the financial sector, the GOS budget, and 
the economy as a whole than the problems of smaller cajas. 
(EFE, 5/2; El Mundo, 5/3) 
 
Government Repeals Protectionist Energy Law 
 
6.(U) A 1999 law discouraging foreign government-owned energy 
companies from purchasing Spanish energy companies was 
repealed in the decree addressing the "energy tariff deficit" 
(reftel).  The "Rato law," named after the PP government 
economy minister who promoted it, allowed the GOS to 
authorize or reject the exercise of voting rights by any 
foreign government-owned firm that owned more than 3% of a 
Spanish energy firm.  The law had been found by the EU and 
the European Court of Justice to violate Spain's EU 
obligations, even after a 2003 revision.  The law had been 
most prominent when first approved to discourage the public 
French company from buying the electricity company 
Hidrocantabrico and during the unsuccessful 2007 effort by 
Germany's E.ON to purchase the electricity company ENDESA. 
(El Pais, 5/2) 
CHACON