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RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 MADRID 000176 
 
SIPDIS 
 
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: EAIR ECON ELAB ECPS SP
SUBJECT: MADRID ECONOMIC WEEKLY, FEBRUARY 8-12 
 
REF: MADRID 148 
 
MADRID 00000176  001.3 OF 003 
 
 
ECON: Crisis Atmosphere Over Budget Outlook, Economy Fades 
ELAB: Business, Labor Groups Agree on Salary Increases for 
Next Three Years 
ELAB: Supplemental Unemployment Aid Extended for Another 6 
Months 
ECON/ELAB: GOS Says 2010 Stimulus Plan Will Create 274,000 
Jobs 
ECON: INE Confirms Recession Continued in 2009 Q4 
ECON: Inflation at 1% in January 
EAIR/ELAB: Air Traffic Control Reforms Pass, Strike Possible 
ECPS: Telefonica Wants to Charge Content Providers, Search 
Engines for Internet Use 
ECON: Renault Plans Electric Car Production in Valladolid 
 
Crisis Atmosphere Over Budget Outlook, Economy Fades 
 
1.(U) Several factors during the week reduced the concern in 
financial markets that Spain could be forced to default or 
abandon the Euro.  The presentations Finance Minister Salgado 
and key staff gave in London on February 8 explaining the 
GOS' budget plans seem to have been well received by 
investors and journalists.  The apparent determination of 
European political leaders to support Greece in some way 
reduced concern that Greece's troubles would spread to Spain. 
 The GOS has sent regional governments a deficit reduction 
proposal that is reported to envision cuts in discretionary 
transfers, such as those for investment, if regions do not 
cut other spending sufficiently.  Moody's and Fitch 
reiterated their AAA ratings of Spanish debt, and the spread 
between Spanish and German debt, which had risen over 100 
basis points at the end of the previous week, fell below 80 
points.  That said, the GOS continues to face a difficult 
task to bring down the budget deficit, and private 
forecasters as a group do not appear to agree with its 
deficit predictions for the next few years.  Foreign press 
coverage continued to be watched closely, including a 
positive Financial Times piece about the seriousness of 
Spain's budget plans and three very critical articles in The 
Economist.  Foreign financial journalists were uniformly 
critical of remarks by Infrastructure Minister Jose Blanco 
(who is President Zapatero's number two in the ruling party) 
that the previous week's financial market turmoil was the 
result of conspiracies against the Euro, Spain, and Zapatero. 
 (Expansion, 2/11; ABC, 2/11; El Confidencial, 2/11; Council 
of Ministers, 2/12) 
 
Business, Labor Groups Agree on Salary Increases for Next 
Three Years 
 
2.(U) Agreements to loosely set salary increases for the next 
three years are being finalized between labor unions and the 
CEOE business confederation, and the news may help reduce any 
market fears of labor difficulties.  According to the 
agreement, salaries will be able to increase up to 1% in 
2010, between 1% and 2% in 2011 and 2012, and between 1.5% 
and 2.5% in 2013, depending on inflation.  In the past five 
years, salaries have increased on average about 3.7% per 
year.  Comment: While the salary increases take effect 
immediately, the agreement as a whole is not complete, as a 
special clause allowing individual businesses to lower 
salaries in times of crisis or extreme financial losses needs 
to be re-written.  The CEOE and unions have already expressed 
agreement in negotiations on this clause however, and it is 
expected to be included in the final agreement shortly.  (El 
Pais, 2/9; El Confidencial, 2/9) 
 
Supplemental Unemployment Aid Extended for Another 6 Months 
 
3.(U) The Council of Ministers approved the extension of 
supplemental unemployment aid for six more months to those 
whose other public benefits have run out.  The current 
supplemental benefit, which expires on February 15, has 
provided 420 Euros a month to over 300,000 unemployed people 
who have lost benefits since last June.  The government 
expects another 200,000 people to apply for the new benefit 
as their regular unemployment benefits expire.  President 
Zapatero initially announced on February 9 the GOS' intention 
to extend the benefit.  (All Media, 2/10; Council of 
Ministers, 2/12) 
 
GOS Says 2010 Stimulus Plan Will Create 274,000 Jobs 
 
4.(U) The government predicts that the 5-billion-Euro 2010 
stimulus program will create 274,000 new jobs in 2010. It 
 
MADRID 00000176  002.3 OF 003 
 
 
says the 8-billion-Euro 2009 stimulus plan created more than 
400,000 jobs.  Almost 70% of the 2010 plan's funds will go to 
environmental and economic sustainability investments. (El 
Pais, 2/9) 
 
INE Confirms Recession Continued in 2009 Q4 
 
5.(U) The National Statistics Institute (INE) confirmed, as 
estimated by the Bank of Spain the previous week, 
that the economy continued to contract in the fourth quarter 
of 2009, the seventh consecutive quarterly decline.  The 
decline was only 0.1% from the 
third-quarter figure, and production for 2009 as a whole was 
3.6% below the 2008 level.  Spain was the only G-20 or OECD 
member still in recession at the end of the year. 
(INE, 2/11; El Pais, 2/11) 
 
Inflation at 1% in January 
 
6.(U) The INE reported that January consumer prices were 1.0% 
over their level of January 2009.  Underlying inflation, 
which removes the volatile energy and food components, was 
0.1% over the same twelve-month period.  (INE, 2/12) 
 
Air Traffic Control Reforms Pass, Strike Possible During Busy 
Travel Period 
 
7.(U) The Congress on February 11 overwhelmingly approved a 
series of air traffic control measures proposed by the 
Council of Ministers on February 5, including expedited 
training for new controllers, new standards, and competitive 
bidding for service providers. The government proposed the 
measures after talks broke off between the airports authority 
and the air traffic controllers' union, leading to the 
possibility of a disruption in service when the current 
agreement expires on March 31.  This is in the middle of Holy 
Week, one of the year's busiest travel times.  The government 
is seeking to cut air traffic controllers' salaries by 15% 
over the next 2 years. Minister of Infrastructure Jose Blanco 
stated that salary cuts were long overdue and would lead to 
annual savings of 150 million Euros.  He added that the 
controllers' demands would have Spain spending more three 
times as much in 2012 as France or Germany.  Although public 
opinion generally sympathizes with workers, controllers' high 
wages and ability to retire at age 52 have cost them public 
support in a time of high unemployment and anticipated 
government spending cuts.  (Presidency Statements, 2/5 and 
2/11; Europa Press, 2/11; El Confidencial, 2/11) 
 
Renault Plans Electric Car Production in Valladolid 
 
8.(U) Renault plans to make Valladolid the first site in 
Spain to host an electric car production plant, which could 
ultimately become one of the largest electric car production 
plants in the world.  Renault already has conventional 
automobile production operations in Valladolid and now is 
focusing on allocating more available land to construct the 
plant as soon as possible.  The company plans to start 
production of the electric cars in the second half of 2011. 
(Europa Press, 2/10) 
 
Telefonica Wants to Charge Content Providers, Search Engines 
for Internet Use 
 
9.(U) Speaking before a Bilbao university audience February 
5, Telefonica CEO Cesar Alierta warned that the current 
Internet business model is unsustainable for telecoms, which 
are going to have to start charging major users for use of 
the network.  He stated that companies like Google, 
Microsoft, and Yahoo "use Telefonica's networks without 
paying anything, which is good luck for them but a misfortune 
for us...We put up the networks, we do the "peering," we make 
the systems, we do the customer care...we do the post-sales 
service, we do the installation service...we do it all.  What 
I mean to say is, they have algorithms and content...But 
clearly it won't be able to continue this way."  A rapid 
response came on Twitter and in various blogs: "It's as if 
(energy companies) Fenosa and Endesa charged household 
appliance manufacturers for use of the electric grid," wrote 
one commentator.  The former state-owned monopoly Telefonica, 
Spain's largest company,  remains the country's predominant 
telecom and Internet Service Provider (ISP) and has major 
investments and operations in the U.S., Latin America, and 
Asia.  Consumers in Spain pay more for Internet access than 
their counterparts elsewhere in Europe, and the notion of 
ISPs seeking more compensation from other sources is likely 
 
MADRID 00000176  003.3 OF 003 
 
 
to be controversial.  (El Pais, 2/7; El Mundo, 2/8; Cinco 
Dias, 2/12) 
SOLOMONT