VZCZCXYZ0007
RR RUEHWEB

DE RUEHMD #0659/01 1831713
ZNR UUUUU ZZH
R 021713Z JUL 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0886
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS MADRID 000659 
 
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 EIND EINV ELAB ENRG KFLU SP
SUBJECT: MADRID ECONOMIC WEEKLY, JUNE 29-JULY 2 
 
REF: A. MADRID 613 
     ¶B. MADRID 571 
     ¶C. MADRID 497 
     ¶D. MADRID 469 
 
Contents: 
 
ENRG: GOS Extends Garona Nuclear Plant License by 2 Years 
ELAB: Unemployment Falls for Second Month 
ECON: Headline Inflation Rate Hits New Low Despite Apparent 
June Price Rise 
EFIN: Nation's Total Foreign Debt Reaches Record High 
EFIN: Bank Rescue Fund Spurs Caja Merger Negotiations 
EIND: Auto Sales To Individuals Rise for First Time in 31 
months 
ENRG/EINV: Reduced Solar PV Electricity Tariffs Still 
Attractive 
KFLU: First H1N1 Death in Spain 
 
GOS Extends Garona Nuclear Plant License by 2 Years 
 
1.(U) Industry Minister Sebastian announced July 2 that the 
GOS would extend the operating license of the Garona nuclear 
power plant by two years until 2013.  The Nuclear Security 
Commission had recommended in June that the license be 
extended for ten years (ref B), but President Zapatero and 
the ruling PSOE had campaigned on a promise not to extend 
nuclear plant licenses beyond plants' useful lives, generally 
assumed to mean their original 40-year licenses.  PSOE 
officials described the decision as establishing a definite 
date for closing the plant, but the extension means the plant 
will continue operating after the next national elections, 
meaning that a future government could revise the decision 
should it choose to do so. Comment: The decision may wind up 
satisfying neither side of the contentious debate.  The 
extension may have been motivated in part by concerns over 
causing more job losses -- even two years from now -- at a 
time when unemployment is over 18 percent.  (Europa Press, 
7/2). 
 
Unemployment Falls for Second Month 
 
2.(U) The number of registered unemployed fell by 55,000 in 
June, the second consecutive monthly decline after 14 
consecutive increases.  While a Labor Ministry statement 
hailed this as very good news and noted that it was the 
largest decrease registered in June since 2001, a press 
report noted that unemployment typically falls in June 
because of temporary summer hires.  The government's 
municipal infrastructure spending also was cited as 
responsible for some of the decline.  (Labor Ministry 
statement, 7/2; El Pais, 7/2; Europa Press, 7/2) 
 
Headline Inflation Rate Hits New Low Despite Apparent June 
Price Rise 
 
3.(U) Preliminary June CPI figures indicate that the 
twelve-month inflation rate (June 2009 prices compared to 
June 2008 prices) was negative 1%, the lowest rate in the 
indicator's history.  Comment:  It appears that prices rose 
by about 0.5% in June and that the year-on-year rate declined 
only because prices had risen by 0.6% in June 2006 as oil 
prices neared their peak.  There is still little evidence of 
deflation in the first six months of this year, and we expect 
the twelve-month rate to stop declining in the coming months. 
 (National Statistics Institute, 6/29) 
 
Nation's Total Foreign Debt Reaches Record High 
 
4.(U) Spain's foreign debt surpassed 1.7  trillion Euros for 
the first time in the first quarter of 2009.  Since 2005, 
Spain's foreign debt has increased by 75% and now represents 
165% of total GDP.  The majority of the debt is owed by banks 
and other financial institutions, rather than by the 
government. Comment: These Bank of Spain foreign debt figures 
include both private and public debt. (El Confidencial, 7/1) 
 
Bank Rescue Fund Spurs Caja Merger Negotiations 
 
5.(U)  Last week's approval by the Council of Ministers of 
the FROB bank rescue fund (ref A) has sparked increased 
negotiations for mergers involving troubled savings banks 
("cajas").  The Bank of Spain is meeting with officials of 
various cajas, and it seems likely that several small cajas 
in Catalonia will merge into two new ones. (El Pais, 
6/29-7/1; El Confidencial, 6/27-7/1) 
 
Auto Sales To Individuals Rise for First Time in 31 months 
 
6.(U) Automobile sales to private individuals rose in June on 
a year-to-year basis for the first time in 31 months, up  14% 
compared to June 2008 thanks to government and manufacturer 
incentives (refs C-D).  Private individuals account for 
almost two-thirds of the car market in Spain, leading to 
optimism among industry officials that the car market is 
finally beginning to turn around.  However, sales to 
businesses and rental companies have continued to decline 
significantly, and total vehicle sales for the month were 
down 16% from their level of a year ago.  This decline is 
 
still not as bad as the rates of over 40% seen in previous 
months. (El Pais, 7/2). 
 
Reduced Solar PV Electricity Tariffs Still Attractive 
 
7.(U) Despite a 25% drop in guaranteed prices since last 
September and a significant change in the registration 
system, the Ministry of Industry, Tourism and Commerce has 
received thousands of proposals for new solar photovoltaic 
(PV) power projects this year.  The previous system 
guaranteed very high prices ("feed-in tariffs") of over 40 
cents/KwH for the lifetime of any PV projects connected to 
the grid by September 29, 2008.  This resulted in nearly 
2,000 MW of new capacity -- four times the amount projected 
-- at great expense to ratepayers, over whom the cost of high 
tariffs paid to these projects is averaged.  The new system 
calls for firms to apply for registration before beginning 
their investments and provides tariffs that average around 30 
euro cents/KwH for different sizes and types of projects 
(ground-based, roof-based, etc.).  Once a certain amount of 
projects is reached, the Ministry reduces prices paid to 
future projects.  The first three sets of approvals this year 
saw a total of over 1,700 projects approved, including almost 
600 announced this week that will provide almost 130 MW of 
generating capacity.  In the next round, the Ministry will 
maintain tariffs for roof-based systems -- the quota for 
which has not been reached -- and lower them slightly. from 
29.9 cents/KwH to 29.1 cents/KwH, for ground-based systems. 
Comment:  While costs and tariffs are coming down, they are 
still far above costs for non-solar types of generation. 
(Ministry Statement, 7/1) 
 
First H1NI Death in Spain 
 
8.(U) The Spanish government has confirmed the first fatality 
in Spain from the H1N1 virus.  A 20-year-old Moroccan woman 
died June 30 from an H1N1-related respiratory virus.  The 
victim, 26 weeks pregnant, had delivered her baby by cesarean 
section the previous day; the baby is believed to be healthy, 
though doctors remain cautious.  There are currently 717 
confirmed H1N1 cases in Spain.  (Health Ministry statement, 
6/30, All media, 7/1) 
 
CHACON