VZCZCXRO5113
RR RUEHIK
DE RUEHMD #1214/01 3581158
ZNR UUUUU ZZH
R 241158Z DEC 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1601
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4282
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MADRID 001214 
 
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: EAIR ECON EFIN EINV ENRG SP
SUBJECT: SPAIN ECONOMIC ROUNDUP, DEC. 7-24 
 
REF: MADRID 1162 
 
MADRID 00001214  001.3 OF 002 
 
 
Contents: 
 
ECON/EFIN: Zapatero Defends Policies in Response to S&P 
Warning 
EAIR: Air Comet Collapse Complicates Business Leader's 
Position 
ENRG: Nuclear Reforms Approved 
ECON: GOS 2010 Budget Approved As Expected 
ENRG: Electricity Bills to Rise by 2% 
EFIN/EINV: Savings Banks Agree to Merge 
ECON: November Inflation 0.3% 
 
Zapatero Defends Policies in Response to S&P Warning 
 
1.(U) Standard & Poor's warning of a possible rating 
downgrade for Spain,s public debt overshadowed President 
Zapatero's December 10 presentation of his annual report on 
the economy.  While S&P did not change Spain's AA  rating, it 
lowered its outlook from stable to negative and warned of a 
rating downgrade if the GOS fails to reduce significantly its 
budget deficit.  S&P's announcement could make it more 
expensive for Spain to service its debt.  Now at 66% of GDP, 
Spain,s public debt is well below the EU average (84%), but 
its deficit is currently at 11% of GDP, one of the highest in 
the Eurozone.  Zapatero emphasized that the other two main 
rating agencies, Fitch and Moody's, have confirmed their 
highest ratings for Spain.  He defended his economic 
policies, saying that government spending was needed to 
confront the crisis and held that recovery and renewed job 
growth were just around the corner.  He also said the GOS was 
on track to reduce its deficit to 3% of GDP by 2013, as 
required by Brussels. (El Pais, 12/11) 
 
Air Comet Collapse Complicates Business Leader's Position 
 
2.(U) The December 22 bankruptcy of Air Comet airline left 
some 7,000 holiday travelers stranded and 640 workers 
unemployed.  The GOS promised to fund replacement flights to 
Buenos Aires, Lima, and Bogota for stranded passengers.  The 
bankruptcy, triggered by a British judge's December 18 
embargo on the company's airplanes for nonpayment of a debt, 
has generated widespread criticism of principal owner Gerardo 
Diaz Ferran, a travel agency group owner who heads Spain,s 
CEOE umbrella business chamber.  Chamber members have 
speculated that Diaz Ferran may not be able to devote 
sufficient time to dealing with the bankruptcy and its impact 
on his group's operations while at the same time heading the 
CEOE when its wage negotiations with labor and the GOS are 
expected to resume.  Ironically, several employees of the 
travel agency group were among those sharing the 
585-million-euro top prize in Spain,s December 22 Christmas 
lottery. (El Pais, 12/22; Expansion, 12/23; ABC, 12/23; 20 
Minutos, 12/24) 
 
Nuclear Reforms Approved 
 
3.(U)  The Council of Ministers approved on December 23 
reforms affecting the nuclear power industry.  One formalized 
the possibility that a future Council of Ministers could 
decide to extend the life of nuclear plants beyond the 
customary 40-year limit.  Another approved the construction 
of a temporary storage site for nuclear residue; at present 
each plant stores its own residue, but this is not a 
long-term solution.  In 2004, the Congress called for 
construction of a single storage facility, but the project 
had been paralyzed since 2006.  (Europa Press, 12/23; El 
Pais, 12/24) 
 
GOS 2010 Budget Approved As Expected 
 
4.(U) On December 21, the Congress approved the government's 
2010 budget as expected.  Despite the ruling PSOE's lack of a 
legislative majority and the tension between the two leading 
parties, the GOS was able to negotiate amendments 
successfully with enough parties so that for the first time 
in three years, the (less important) Senate did not vote down 
the proposal.  Among the over 200 changes to the GOS' 
original proposal were modifications to the "Beckham law" 
that reduced tax breaks for foreign football stars and other 
highly paid foreigners as well as changes to maintain the 
400-euro tax deduction for lower-income taxpayers.  (Europa 
 
MADRID 00001214  002.3 OF 002 
 
 
Press, 12/22) 
 
Electricity Bills to Rise by 2% 
 
5.(U) The Council of Ministers agreed on December 23 that 
electricity rates for most households and small businesses 
would rise by 2.64% on January 1.  Comment: By itself, this 
increase will not do much to close the continuing gap between 
what consumers pay and what the government owes the 
electricity generating companies.  However, the GOS has been 
raising rates above the rate of inflation for the last few 
years, and another increase is possible in July.  (20 
Minutos, 12/24; El Pais, 12/24) 
 
Savings Banks Agree to Merge 
 
6.(U) Four small savings banks ("cajas"), Caja de Burgos, 
Caja Navarra, CajaCanarias, and Sa Nostra, announced that 
they would merge.  The new entity, to be named Banca Civica, 
would be the sixth largest caja in terms of assets.  Final 
approvals by boards, shareholders and GOS authorities are 
expected to be completed by the end of February.  (Europa 
Press, 12/18) 
 
November Inflation 0.3% 
 
7.(U) Twelve-month consumer price inflation in November was 
0.3% after a month-on-month increase in November of 0.5%. 
Both figures were 0.1% below the preliminary estimate 
reported in reftel. (National Statistics Institute, 12/15) 
CHACON