VZCZCXRO8631
PP RUEHIK
DE RUEHMD #0148/01 0390742
ZNR UUUUU ZZH
P 080742Z FEB 10
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC PRIORITY 1869
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4337
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MADRID 000148 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE, EEB/IFD/OMA, EEB/TPP/IPE 
STATE PASS USTR FOR D.WEINER AND J.GROVES 
COMMERCE FOR 4212/DON CALVERT 
TREASURY FOR OIA/OEE R.JOHNSTON 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ELAB KIPR SP
SUBJECT: MADRID ECONOMIC WEEKLY, FEBRUARY 1-5 
 
REF: A. MADRID 114 
     ¶B. 09 MADRID 410 
 
MADRID 00000148  001.3 OF 002 
 
 
Sensitive but Unclassified -- Not for Internet Distribution 
 
ECON/EFIN: Markets Shaken by Concern over Deficits, Perceived 
GOS Indecisiveness 
ECON: Recession Likely Continued in 2009 Q4, According to 
Central Bank 
ELAB: Unemployment Continues to Rise 
KIPR: First Criminal Conviction for Hosting Unauthorized 
Streaming Video 
ECON: 13 Towns Seek to Host Nuclear Waste Storage Facility 
 
Markets Shaken by Concern over Deficits, Perceived GOS 
Indecisiveness 
 
1.(SBU) Interest rates on Spanish government debt rose during 
the week and the Madrid stock market's blue-chip exchange 
fell 6% on January 4, reflecting international concern over 
Spain's economic situation, particularly the GOS budget 
deficit and unemployment.  While announcing on January 29 
that the 2009 combined government budget deficit was a 
higher-than-expected 11.4% of GDP, the Council of Ministers 
approved measures to reduce spending in 2010 and to reduce 
planned spending in 2011-13.  However, the reduction of 
government stimulus is expected to prolong high rates of 
unemployment. 
 
2.(SBU) Press reports and opposition politicians also 
criticized the GOS for appearing indecisive in the face of 
economic turmoil.  A January 29 proposal to raise the 
retirement age from 65 to 67, which the GOS portrayed as a 
responsible effort to begin addressing the long-term 
demographic challenge faced by the social security system, 
prompted union opposition and was revised soon afterwards 
when the GOS said part of the proposal had been submitted in 
error.  As EC and IMF officials were quoted comparing Spain's 
deficit and other economic problems to Greece's, the spreads 
between Spanish and German debt, which had dipped briefly 
after the January 29 announcements, rose past 100 basis 
points, reaching their highest level since March 2009.  The 
high spreads will increase the interest the GOS must pay to 
finance its deficit and roll over its existing debt, putting 
further strain on the deficit. 
 
3.(SBU) Political factors contributed to the sense of 
uncertainty.  The media described the USG decision not to 
have President Obama come to Madrid for a U.S.-EU Summit 
during Spain's EU presidency as a setback that shook 
President Zapatero, and a February 4 poll showed the 
opposition PP with its greatest lead over the ruling PSOE 
since Zapatero took office in 2004.  The GOS invited union 
and business leaders to a February 5 meeting to present labor 
reforms, and the press reported the GOS had specific 
proposals ready, but the document presented was very general. 
 Economy/Finance Minister Salgado planned to travel to London 
February 8 to make Spain's case to financial market 
participants and journalists.  GOS officials insist that, 
while the budget deficit is a problem, Spain's total 
debt-to-GDP ratio remains relatively low -- it is projected 
to reach 70% this year, below the Eurozone average.  (All 
Media) 
 
Recession Likely Continued in 2009 Q4, According to Central 
Bank 
 
4.(U) The Bank of Spain's January economic bulletin estimates 
that the economy continued to contract in the fourth quarter 
of 2009, though the decline was only 0.1% from the 
third-quarter figure.  Some analysts had speculated in recent 
weeks that GDP might have been flat or even grown slightly in 
the quarter, though GOS officials had sought to avoid raising 
expectations.  It is not clear how markets will react; the 
slight decline should not be a surprise, but the news that 
Spain has been in recession for seven consecutive quarters 
could generate headlines.  The official National Statistics 
Institute figure will be released in about 10 days.  (Europa 
Press, 2/5) 
 
Unemployment Continues to Rise 
 
5.(U) The Ministry of Labor and Immigration announced that 
the number of registered unemployed rose by 125,000 in 
 
MADRID 00000148  002.3 OF 002 
 
 
January. This pushes the total number of registered 
unemployed Spaniards past 4 million, the highest recorded 
since the current series was started in 1996. Labor Minister 
Corbacho said that unemployment is expected to continue 
rising until the second half of this year.  Separately, 
Spain's December unemployment as measured by Eurostat  was 
19.5%, the second highest in the EU. (El Pais, 2/2; USEU 
Brussels 122) 
 
First Criminal Conviction for Hosting Unauthorized Streaming 
Video 
 
6.(U) A Galician judge sentenced the owner of a website 
selling streaming pirated videos to one year in prison and a 
fine of 2,000 Euros.  This is the second criminal conviction 
in Spain for websites hosting pirated works, and the first 
for a website offering streaming video.  The first conviction 
came a year ago when a La Rioja judge convicted an individual 
who facilitated Peer-to-Peer (P2P) downloading of pirated 
material for a one-time fee (Ref A).  The current conviction 
is significant because the website does not allow customers 
to download pirated works (which facilitates P2P sharing as 
in the previous case), only view the 'streaming video' in 
real time.  Currently, the Penal Code identifies profit 
motive as a required element of IPR crime, allowing 
prosecutors to pursue such IPR cases as criminal and not 
civil offenses.  Comment: Even though this is a significant 
ruling, judges in Spain are independent of each other.  While 
this may influence future cases, there will not be a binding 
decision on IPR unless the Supreme Court acts. (El Pais, 2/5) 
 
13 Towns Seek to Host Nuclear Waste Storage Facility 
 
7.(U) The Ministry of Industry, Tourism, and Commerce has 
received requests from 13 towns from 5 regions to host a 
proposed temporary nuclear waste storage facility (ATC).  The 
Ministry will make its decision based on each town's 
location, citizen sentiment, and general ability to host the 
facility.  Spain's nuclear plants are expected to run out of 
space to store waste within a few years.  Also, the contract 
under which France stores waste from the Vandellos I reactor 
closed in 1989 imposes penalties if that waste is not 
returned by 2011.  The ATC is intended to store waste for 60 
years, and the contract is valued at one billion Euros; the 
candidates are small towns hurt by the recession, and some 
are near nuclear power plants.  Many of the applications have 
been controversial, and each town faces opposition from the 
president of its region, all whom are from the ruling PSOE. 
Industry, Tourism, and Commerce Minister Sebastian recently 
emphasized that the matter was not one over which regional 
governments had any authority.  (El Economista, 2/4; El Pais, 
2/5) 
SOLOMONT