VZCZCXRO8180
RR RUEHIK
DE RUEHMD #1162/01 3381741
ZNR UUUUU ZZH
R 041741Z DEC 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1540
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4260
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001162 
 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA 
STATE PASS USTR FOR D.WEINER AND J.GROVES 
COMMERCE FOR 4212/DON CALVERT AND 6990/R.LAYTON 
TREASURY FOR OAI/OEE R.JOHNSTON 
ENERGY FOR PIA:K.BALLOU 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ELAB SP
SUBJECT: SPAIN ECONOMIC WEEKLY, NOV. 23-DEC. 4 
 
REF: MADRID 1115 
 
MADRID 00001162  001.3 OF 002 
 
 
Contents: 
 
ECON: Zapatero's Proposed Sustainable Economy Law Elicits 
Strong Criticism 
ECON/ELAB: Lower Dismissal Costs off Table in Renewed Social 
Dialogue Talks 
ELAB: Number of Registered Unemployed Up in November 
EFIN: Annual Inflation Rate Now Positive After November Price 
Rise 
EFIN/EINV: BBVA Increases Stake in Chinese Bank 
 
 
Zapatero's Proposed Sustainable Economy Law Elicits Strong 
Criticism 
 
1.(U) The GOS submitted the much anticipated draft 
Sustainable Economy Law (LES) to Congress amidst strong 
criticism from opposition leader Mariano Rajoy and minority 
parties on December 2.  The proposed legislation is a key 
component of President Zapatero's strategy to address the 
lagging economy and increasing unemployment, as well as to 
reorient the country's economic model.  It aims to spur the 
development over the long term of an economy that is 
sustainable in terms of growth, the environment, social 
programs, and public finances.  The package, with an 
estimated price tag of 20 billion euros over the next 10 
years, consists of what critics have termed a "grab bag" of 
initiatives, both new and previously announced -- among them 
several required by the EU.  Included are measures to promote 
competitiveness, energy efficiency, green technology, 
streamlined administrative procedures, and fiscal 
responsibility. Significant features of the legislation are 
proposals to: cap the life of nuclear power plants at 40 
years, address the issue of double taxation, improve IPR 
protection (septel), release analog bandwidths for mobile 
broadband service development, and require reporting of CEO 
compensation packages by publicly-held companies and savings 
banks. 
 
2.(U) While response to the LES has been largely negative, 
some economists have called it a step in the right direction. 
 Among the environmental measures are incentives to encourage 
"green building," stimulate the development of electric car 
technology, promote energy efficiency, and increase the use 
of public transit.  There are also requirements to expand 
freight rail capacity and inform consumers about the true 
cost and source of the electricity they use.  Measures to 
improve government efficiency include shortening the time 
required to open a new business, restructuring regulators 
(including telecoms, energy, and competition), shortening 
payment terms for public contracts, and establishing a group 
to analyze government efficiency and reduce costs. 
 
3.(U) Critics in the Congress called the LES a "mere 
declaration of intentions."  Opposition Popular Party leader 
Mariano Rajoy characterized it as a "joke" lacking in 
substance.  Instead of the LES, he says the GOS needs to make 
real structural reforms in public spending, the financial 
sector (pointing out that the restructuring of savings banks 
has taken much longer than expected), the judicial system, 
the energy sector, the education system, and the labor 
market.  Comment: The LES is unusual in terms of its breadth 
of focus.  However, it includes provisions and deadlines for 
passing additional legislation detailing reforms in the labor 
market and pension programs as well as the financial, energy, 
and transportation sectors.  While Spain is required by the 
EU to adopt many of provisions in the LES, given the present 
opposition in the Congress, it appears unlikely that it will 
be approved as quickly as Zapatero would like.  End Comment. 
(El Pais, 12/2 El Confidencial, 12/2, Expansion, 12/2, 
Presidency website) 
 
Lower Dismissal Costs off Table in Renewed Social Dialogue 
Talks 
 
4.(U) President Zapatero announced a restart of the stalled 
social dialogue process but shelved discussion of the labor 
reforms that international observers and the local business 
community say Spain needs most.  Zapatero said that lowering 
dismissal costs, creating a single hiring contract, and 
eliminating judicial authority for resolving labor disputes 
 
MADRID 00001162  002.3 OF 002 
 
 
were all off the table. Instead, he proposed to improve 
flexibility in the collective bargaining process and increase 
the retirement age to protect the pension system.  Rather 
than firing employees during difficult times, Zapatero said 
that the reforms would make it easier for employers to 
shorten hours and lower salaries.  The Confederation of 
Employers Organizations (CEOE) responded negatively, saying 
that the government needs to lower payroll and business taxes 
to make Spain,s businesses more competitive with their 
European counterparts. (El Pais, 12/3) 
 
Number of Registered Unemployed Up in November 
 
5.(U) The number of registered unemployed rose by 60,000 in 
November.  President Zapatero noted that after a seasonality 
adjustment, this was equivalent to a slight decrease in the 
number of unemployed -- i.e., that it was less than would 
take place in a normal November.  Other GOS officials said 
the number (one-third of the increase in November 2008) was a 
sign that Spain could hope for improvement in 2010. Comment: 
While the series are not directly comparable, this figure 
looks consistent with an increase in the unemployment rate of 
a couple of tenths of a percentage point.  End Comment. (El 
Pais 12/2, Embassy) 
 
Annual Inflation Rate Now Positive After November Price Rise 
 
6.(U) The National Statistics Institute's preliminary 
November twelve-month inflation estimate is 0.4%, the first 
positive annual rate since February.  It suggests that prices 
rose by about 0.6% during the month, after an 0.7% increase 
in October.  Comment: The return of the annual inflation rate 
to positive territory should reduce concern about the 
possibility of deflation.  End Comment. (INE Statement 11/27; 
Embassy Calculation) 
 
BBVA Increases Stake in Chinese Bank 
 
7.(U) BBVA has invested 1 billion Euros in Citic Bank, 
acquiring an additional 5% to increase its total stake to 15% 
of the Chinese bank. The company noted that its strong 
presence in Latin America offered a competitive advantage 
given the increasingly fluid commercial relations between 
Asia and Latin America. BBVA also has a 30% stake in Hong 
Kong-based Citic International Financial Holdings. (El Pais, 
12/4; BBVA Statement, 12/3) 
CHACON