VZCZCXRO4427
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0469/01 1341404
ZNR UUUUU ZZH
R 141404Z MAY 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0630
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3978
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000469 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA, EEB/TPP/IPE 
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 KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, MAY 11-14 
 
REF: A. MADRID 446 
     ¶B. MADRID 434 
     ¶C. 08 MADRID 921 
     ¶D. 08 MADRID 469 
     ¶E. 08 MADRID 443 
 
MADRID 00000469  001.2 OF 002 
 
 
Contents: 
 
ECON: Zapatero State of Nation Proposals Face Uncertain Future 
ECON: GDP Contracts by 1.8% in Q1, Down 2.9% From Q1 2008 
EFIN: Deflation Concerns Fade as Prices Rise 1% in April 
ELAB: Unemployment Benefit Costs Far Over Budget 
ENRG: 15-Million Euro Fine for Nuclear Plant Leak, Coverup 
KIPR: Software Piracy Decline Continues 
 
 
Zapatero State of Nation Proposals Face Uncertain Future 
 
1.(U)  President Zapatero announced a flood of proposals 
during the May 12-13 State of the Nation debate in Congress. 
Most of the major proposals will need Congressional approval, 
and some will need to be negotiated with regional governments 
or other bodies.  Initial reaction to several was negative, 
but their prospects will be clearer May 19 when the Congress 
votes on post-debate resolutions. The proposals include: 
 
- 20 billion euros for a public-private Sustainable Economy 
Fund for 2009 and 2010 that will be the subject of a separate 
law. 
- 5 billion euros for municipal works jobs in 2010, focusing 
on environmental sustainability, technology, and programs for 
the disabled. 
- 2,000 euros to purchasers of new cars during 2010: the GOS 
and autonomous communities will give 500 Euros each, and car 
manufacturers will give 1,000 Euros.  This will need to be 
negotiated with autonomous community governments, some of 
which reacted negatively, and car manufacturers.  Zapatero 
cited a total cost of 6 billion euros.  The initial reaction 
likely will be that potential buyers will not purchase 
vehicles until the fate of the incentive is clearer. 
- A 5% decrease in corporate tax rates for three years for 
small businesses that do not reduce staffing from 2008 levels. 
- Eliminating the tax deductibility of mortgage interest for 
individuals with incomes over 24,000 Euros, starting with 
housing purchased in 2011.  This appears to be aimed at 
reactivating the moribund housing market by encouraging 
purchases before 2011; it also would reduce the GOS, budget 
deficit in later years.  Initial reaction from other parties 
was negative. 
- Cutting public expenditures by 1 billion euros. 
- Subsidies for public transportation aimed at reducing the 
cost by 24%. 
- Eliminating airport taxes for airlines that carry more 
passengers in the second half of 2009 than they did in the 
second half of 2008.  This seems aimed at encouraging 
airlines to cut rates, which would help the tourism industry, 
but airlines, initial reaction was that it would be very 
difficult and perhaps not cost-effective to meet the target. 
- Providing laptops for all fifth-graders. 
- Funding tuition for master's studies for unemployed college 
graduates between the ages of 25 and 40. 
 
Zapatero also announced plans to resolve the longrunning 
dispute over autonomous community financing by July 15. 
 
 
GDP Contracts by 1.8% in Q1, Down 2.9% From Q1 2008 
 
2.(U) Confirming a Bank of Spain estimate reported in Ref B, 
the National Statistics Institute announced that Spain's 
economy contracted by 1.8% between the fourth quarter of 2008 
and the first quarter of 2009.  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.  (National Statistics 
Institute, 5/14) 
 
 
Deflation Concerns Fade as Prices Rise 1% in April 
 
3.(U) The consumer price index rose 1.0% from March to April, 
easing concerns about deflation.  As prices had risen even 
faster in April 2008 than they did in April 2009, the annual 
rate declined slightly, and the index was 0.2% below its 
April 2008 level.  Comment:  Although the headline annual 
 
MADRID 00000469  002.4 OF 002 
 
 
inflation rate is expected to remain negative for the next 
several months because prices are being compared to their 
level a year ago when oil prices were much higher, there does 
not appear to be much concern about future price deflation 
for now.  (National Statistics Institute, 5/13) 
 
Unemployment Benefit Costs Far Over Budget 
 
4.(U) A study by the temporary employment agency association 
predicts that the GOS will spend 33.5 billion euros on 
unemployment benefits this year, 70% above the initially 
budgeted amount.  The study also predicts that 4.3 million 
Spaniards will be unemployed by the end of the year.  A 
separate report indicated that for the first time, the GOS 
will spend more on unemployment benefits than on public 
investment.  (ABC, 5/11; El Confidencial, 5/11) 
 
 
New Secretary of State for Economy Named 
 
5.(U) The GOS named Jose Manuel Campa Secretary of State 
(deputy minister) for Economy, replacing David Vegara.  Campa 
is a 45-year-old finance professor at the IESE business 
school.  He has a PhD in economics from Harvard, was an 
associate professor at New York University from 1991-2001, 
and also taught at Columbia.  (Comment: Vegara announced his 
imminent departure for personal reasons when Elena Salgado 
replaced Pedro Solbes as Second Vice President and Minister 
of Economy and Finance in April.  He had been viewed as the 
government's key macroeconomic policymaker.)  (Europa Press, 
5/14; Presidency statement, 5/14) 
 
15-Million Euro Fine for Nuclear Plant Leak, Coverup 
 
6.(U) The Ministry of Industry, Tourism, and Commerce imposed 
a fine of 15.4 million euros on the companies that operate 
the Asco I nuclear power plant for a March 2008 radiation 
leak and for failing to report the leak for three weeks. 
Refs C-E provide more information on the leak and coverup. 
(Comment: The negative publicity surrounding the incidents 
may influence the political context of the GOS, upcoming 
decision whether or not to extend the life of the Santa Maria 
de Garona nuclear plant.)  (Ministry statement, 5/11) 
 
 
Software Piracy Decline Continues 
 
7.(U) A study conducted by consultant IDC on software piracy 
patterns in 110 countries shows that piracy in Spain declined 
to 42% last year, its lowest level since the industry began 
tracking it.   The decline is attributed in large part to a 
"100% legal software" campaign developed and implemented 
jointly by the Business Software Alliance (BSA), the Spanish 
IT industry association, and the Ministry of Industry, 
Tourism, and Commerce.  However, Spain is still 7 percentage 
points above the EU average, and BSA Spanish committee 
chairman Luis Frutos noted that while the figures offer 
reason for optimism, Spain is still not in a league with the 
most developed countries.  Frutos was also concerned that 
with the economy in recession, small and medium-sized 
enterprises may try to cut costs by using unlicensed 
software, and noted that complaints of software piracy 
received by BSA rose significantly in the first quarter of 
¶2009.  (Comment: The GOS has been able to work cooperatively 
with the software industry on combating piracy but continues 
to have an adversarial relationship with the film and music 
industries, which place Spain among world leaders in internet 
piracy of their products.  End Comment.) (El Pais, 5/12) 
 
 
Solar Thermal Electricity Plant Inaugurated 
 
8.(U) A 50-MW solar thermal electric plant, the first 
commercial plant in Europe to use cylindrical parabolic 
collectors, was inaugurated on May 8 in Puertollano, Ciudad 
Real province.  Spain has the most solar thermal generating 
capacity of any European country.  It is expected to have 233 
MW installed by the end of this year and 730 MW by the end of 
¶2010.  The plant is 90% owned by Iberdrola Renovables and 10% 
by the GOS' Institute for Energy Diversification and Savings 
(IDAE). (Ministry of Industry, Tourism, and Commerce 
Statement, 5/8) 
CHACON