VZCZCXRO7651
RR RUEHLA
DE RUEHMD #1095/01 3171607
ZNR UUUUU ZZH
R 131607Z NOV 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1438
INFO RUEHLA/AMCONSUL BARCELONA 4201
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001095 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA 
COMMERCE FOR 4212/DON CALVERT 
TREASURY FOR OAI/OEE R.JOHNSTON 
ENERGY FOR PIA:K.BALLOU 
 
E.O. 12958: N/A 
TAGS: EAIR ECON EFIN EINV KGHG SP
SUBJECT: MADRID ECONOMIC WEEKLY, NOV. 9-13 
 
REF: A. MADRID 1088 
     ¶B. MADRID 1061 
 
Contents: 
 
EFIN: EC Calls on GOS to Reduce Deficit, Extends Deadline 
ECON: Congress Approves Autonomous Community Financing Law 
ECON: Official Q3 GDP and October Inflation Figures 
KGHG: Spain to Purchase 25 million Euros of Greenhouse Gas 
Emission Permits from Poland 
EAIR/EINV: Iberia and British Airways Agree on Merger Terms 
EFIN: Insurance Firms Fined 121 Million Euros for Price-Fixing 
 
EC Calls on GOS to Reduce Deficit, Extends Deadline 
 
1.(U) European Commissioner for Economic and Monetary Affairs 
Joaquin Almunia agreed November 9 to give Spain (along with 
some other countries) until 2013 to reduce its budget deficit 
to 3% of GDP, an extension from the original deadline of 
¶2012.  Almunia cited Spain,s commitment to reducing spending 
and managing its deficit amidst the economic crisis.  The 
European Commission confirmed that beginning in 2010 Spain 
should reduce its deficit by 1.75% of GDP each year to ensure 
that the deficit is below 3% by 2013.  Second Vice President 
and Minister of Economy and Finance Elena Salgado expressed 
confidence that Spain would be able to gradually reduce the 
deficit by the extended deadline.  The EC also urged Spain to 
advance with structural reforms on health insurance and 
pension spending, called for greater support and financial 
discipline from autonomous communities and local governments, 
and cautioned against Spain,s rising public debt.  Comment: 
Meeting the 3% requirement will be a challenge for Spain. 
Its deficit for 2009 is likely to be well over 10% of GDP, 
meaning that the annual reduction will have to be even 
greater than the 1.75% called for by the EC.  (All Media, 
11/10) 
 
Congress Approves Autonomous Community Financing Law 
 
2.(U) Bringing an end to an issue that had been controversial 
for two years, the Congress barely approved on November 11 
changes to central government financing of autonomous 
community (regional) governments.  The new system will give 
the communities more funds and make several adjustments based 
on the size, population, etc. of each community.  It was 
originally motivated by Catalans' assertions that the old 
system did not give their region an appropriate share of 
total GOS revenues. The law garnered exactly the requisite 
176 votes, including the ruling PSOE and five small parties. 
The support of both small Navarra parties was crucial; 
ironically, Navarra has its own financing regime and so is 
not affected by the reform.  (El Pais, 11/12; ABC, 11/13) 
 
Official Q3 GDP and October Inflation Figures 
 
3.(U) National Statistics Institute (INE) figures showed the 
economy contracted by 0.3% in the year's third quarter, 
bringing production 4.0% below its third-quarter 2008 level. 
The INE also reported that consumer prices rose by 0.7% in 
October, bringing prices to 0.7% below their October 2008 
level.  These figures are nearly identical to preliminary 
figures announced by the Bank of Spain (GDP) and INE 
(inflation) two weeks ago.  (Europa Press, 11/12-13) 
 
Spain to Purchase 25 million Euros of Greenhouse Gas Emission 
Permits from Poland 
 
4.(U) At President Zapatero's November 9 meeting with Polish 
PM Tusk, the GOS agreed to purchase 25 million Euros of 
excess greenhouse gas emissions permits from Poland in order 
to meet its Kyoto Protocol obligations.  Tusk said the funds 
would be invested in the lowering of CO2 emissions and in the 
development of Polish energy efficiency. While this is the 
first time Poland has sold its emission rights, Spain has 
purchased from countries including Hungary, Lithuania, and 
the Czech Republic.  Comment: Although Spain's emissions are 
down because of the recession, they are expected to be well 
over its Kyoto limit, forcing such purchases of other 
countries' excess emissions credits.  (El Confidencial, 11/9) 
 
Iberia and British Airways Agree on Merger Terms 
 
5.(U) After 16 months of negotiations, Iberia and British 
Airways (BA) agreed to a merger that would create one of the 
world's largest airlines.  The merger will create the holding 
 
MADRID 00001095  002 OF 002 
 
 
company "TopCo," which will be incorporated in Spain, though 
its operating and financial headquarters will be in London. 
For the first five years of the merger the companies will 
maintain separate brands, codes, licenses and hubs.  BA 
stockholders will get 55% of the stock in TopCo, and Iberia 
stockholders will get 45%.  The new company's largest single 
stockholder, with an 11% stake, will be Caja Madrid, which 
currently owns 23% of Iberia.  The pound's devaluation during 
the economic crisis helped move the negotiations along.  In 
July 2008, when the airlines first announced their intent to 
merge, BA had a market capitalization nearly twice that of 
Iberia.  As of closing on Thursday, BA was valued at 2.761 
billion euros to Iberia's 2.115 billion euros.  Still at 
issue is BA,s pension deficit of nearly 3 billion euros. 
The agreement stipulates that neither Iberia nor TopCo will 
be liable for the pension plan and gives Iberia the option of 
backing out if BA does not resolve the situation.  The news 
of the merger comes at a challenging time for Iberia.  The 
Spanish airline reported a net loss of over 16 million euros 
during the third quarter this year and is facing difficult 
labor relations, with several strike days planned before the 
Christmas holidays.  The companies expect to close the merger 
by late 2010.  (Iberia/BA Press Release, 11/12; El Pais/WSJ 
Europe/Financial Times, 11/13) 
 
Insurance Firms Fined 121 Million Euros for Price-Fixing 
 
6.(U) The National Competition Commission (CNC) announced the 
largest fine in its history: nearly 121 million euros against 
six insurance companies -- Asefa, Swiss RE, Mapfre, Scor, 
Muchener, and Caser.  The CNC found that, from 2002 to 2007 
-- during the height of the construction boom -- the 
companies colluded to fix prices for the 10-year 
construction-insurance policies required by Spanish law.  The 
penalty is over twice that of the CNC's second largest fine, 
57 million levied against Astel and Telefonica in 2004. 
(Europa Press, 11/13) 
CHACON