VZCZCXRO8683
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0576 1661023
ZNR UUUUU ZZH
R 151023Z JUN 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0782
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4026
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS MADRID 000576 
 
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 SP
SUBJECT: MADRID ECONOMIC WEEKLY, JUNE 8-12 
 
REF: MADRID 542 
 
Contents: 
 
EFIN: Prices Unchanged in May, Down 0.9% from May 2008 
EFIN: Salgado Calls for Sharply Reduced GOS Spending in 2010 
EFIN: Savings Bank Support Package Could be Ready This Month 
ECON: GOS Submits to Congress Bill Implementing EU Services 
Directive 
 
Prices Unchanged in May, Down 0.9% from May 2008 
 
1.(U) May CPI figures indicate that prices were unchanged 
from April, but were down 0.9% compared to May 2008.  The 
decline represents the largest single-year price decrease in 
the CPI,s history.  The decline in the price level from a 
year ago, however, does not necessarily indicate deflation, 
because prices have been relatively flat over the last few 
months.  Comment: The annual rate is expected to become even 
more negative in the next few months as prices are compared 
with their level in summer 2008, when oil prices peaked. 
(National Statistics Institute, 6/10) 
 
Salgado Calls For Sharply Reduced GOS Spending in 2010 
 
2.(U) Second Vice President Elena Salgado informed the 
Council of Ministers that the GOS will need to reduce central 
government nonfinancial spending by 4.5% between 2009 and 
¶2010.  If revenue and financing projections are accurate, 
this reduction would lead to a central government deficit of 
5.7% of GDP and a total public sector deficit of 7.9%. 
According to Salgado, these deficits would put Spain on track 
to reduce the total public sector budget deficit to the 3% of 
GDP required by the EU by 2012.  The revenue projections are 
based on the GOS' expectation that GDP will shrink by 3.6% in 
2009 and 0.3% in 2010.  (Presidency, 6/12) 
 
Savings Bank Support Package Could be Ready This Month 
 
3.(U) A nine-billion-euro savings bank ("caja") rescue fund 
that the GOS could leverage tenfold through borrowing 
guarantees could be ready this month, according to Second 
Vice President Salgado.  The fund would finance 
recapitalizations and mergers and allow the Bank of Spain to 
take over cajas if necessary.  The government has been 
discussing its plans with the opposition PP for several 
weeks, and the two sides are in agreement on several aspects, 
though differences remain.  Salgado told the Financial Times 
she expects Spain to come out of the crisis with fewer but 
more solid banks and savings banks, and most observers assume 
that there will be several mergers of weak cajas in the 
coming year or two.  Although the nonperforming loan ratio of 
the cajas fell slightly in March to 4.78% of assets, this may 
be the result of cajas taking unsold real estate in order to 
avoid recognizing as nonperforming their loans to troubled 
construction companies and developers.  Even the two largest 
banks, Santander and BBVA, which are expected to gain market 
share, are reducing staff and branches.  (El Mundo, 6/8; 
Financial Times, 6/11-12) 
 
GOS Submits to Congress Bill Implementing EU Services 
Directive 
 
4.(U) The Council of Ministers approved on June 12 for 
submission to Congress a proposed "Omnibus Law" that would 
partially implement the EU services directive.  The law, 
which would modify 47 laws, will be treated with urgency, as 
the EU requires that the directive be implemented by the end 
of the year.  It would liberalize many activities, make it 
easier to start businesses, and remove requirements for 
previous registration/authorization by the government in a 
wide range of services.  A Ministry of Economy and Finance 
study estimated implementation would increase competition, 
boosting GDP by 1.2% and creating 150,000 to 200,000 jobs. 
The service sector currently accounts for two-thirds of 
Spain's jobs and GDP.  A framework law for the directive is 
already in Congress.  For the directive to be fully 
implemented, the Congress also will need to implement a 
controversial commerce reform, not yet proposed by the GOS, 
that would include reductions in restrictions on store hours 
of operation.  (El Pais, 6/12; Expansion, 6/12; Presidency, 
6/12) 
 
CHACON