MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -

UNCLAS SECTION 01 OF 02 MADRID 001075

SIPDIS

SIPDIS

EUR/WE

E.O. 12958: N/A
TAGS: BEXP EAGR EAIR ECON EFIN EIND ETRD TBIO SP
EINV, UK
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
MAY 28

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SENV: Prestige's disaster continues
EINV/ETRD: Spanish Economy slowing down
EFIN:PTER: Real estate boom linked to Money Laundering
EFIN/ETRD: UK's Permira set to buy Caprabo
KIPR: Pharmaceutical patents may benefit from patent
protecion
EAGR: French President looking for allies on agriculture and
DOHA
EINV/ECON: Housing prices to drop sooner than expected

PRESTIGE OIL SPILL LASTING EFFECT ON CLEAN-UP CREWS?


1. (U) A recent study on over 6,000 crewmembers who worked
in 2002 to clean up the Prestige tanker oil spill off the
cost of Galicia shows that thousands of the original clean-up
crew are now suffering health problems that include breathing
difficulties and chronic coughs. The study, is expected to be
formally published in the next edition of the American
Journal of Respiratory and Critical Care Medicine and was
based on surveys of 6,869 clean up crew workers.

LOWER GROWTH RATE PREDICTED FOR 2008 AT 3.2%


2. (U) According to a general consensus among Spain's leading
institutes, the Spanish economy is expected to grow by 3.2%
in 2008, down .5 percentage points from an estimated 2007
growth rate of 3.7%. The studies anticipate that decreased
construction will play a role in this slowdown, but say that
the economy will be able to absorb this due to strong
investment in public works and the positive influence of
growing economies of other European countries. Continued
immigration is expected to offset the slowdown in the real
estate market somewhat although anticipated higher interest
rates will cause a slowdown in consumer spending in general.
The 3.2 percent rate for 2008 is higher than the 2.7 percent
growth rate predicted by OECD.

FINANCIAL NOTIFICATION NUMBERS DISPARATE WITH INVESTIGATIONS


3. (U) Financial Intelligence Unit (SEPBLAC) receives 78 %
more notifications in 2006 than in 2005. There were fewer
SEPBLAC investigations in 2006, however, causing criticism by
the OECD. (Comment: It appears that banks and other financial
institutions are taking their reporting requirements more
seriously. Given the widespread public assumption in Spain
that the country's real estate boom is being accompanied by
massive money laundering, Spanish authorities are under more
pressure to pursue more cases. This piece is based on a
newspaper article that did not discuss terrorism finance.)
(Expansion, May 25, 2007)

UK INVESTING HEAVILY IN SPAIN


4. (U) UK-based private equity firm Permira front-runner to
buy Spanish supermarket chain Caprabo. Caprabo is in trouble
as a result of competition from a Spanish low-cost equivalent
of Wal-Mart, Mercadona. Permira is quite active in Spain.
Recently it purchased the pizza delivery company Telepizza
for Euros 850 million. (Financial Times, May 30, 2007)

PRODUCT PATENT PROTECTION FOR PHARMACEUTICAL PATENT HOLDERS


5. (U) European Patent Office issues recommendation
suggesting that pharmaceutical process patent holders can
also benefit from product patent protection: The issue arises
because prior to 1992, drug companies could only get process
patent protection. The R&D-based companies, among them major
U.S. firms, would like to have product patent protection for
a number of their blockbuster drugs patented prior to 1992,
thereby effectively benefiting from patent protection for a
few more years. In order to achieve this goal, the R&D-based
firms have filed lawsuits in Spain, a few of which they have
won. The companies have also offered Euros 300 million to
the Spanish government to co-finance a research consortium if
the Spanish government agrees to provide retroactive product
patent protection. The government has told the Embassy that
while it is sympathetic to the R&D-based industry, it would
be very difficult to extend product patent protection
retroactively, among other reasons because it might face
lawsuits from generics manufacturers. (Expansion, May 29,
2007)

FRENCH PRESIDENT, SARKOZY TO DISCUSS DOHA AND AGRICULTURE
WITH ZAPATERO


6. (U) The newly elected President of France, Nicolas
Sarkozy, paid a visit to President Zapatero on May 31, 2007.
It was his first visit as President of France, and he was

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reported to be interested in addressing several important
political interests shared by both countries. We suspect
that among the issues, he addressed the topic of the Doha
Development Agenda negotiations, in particular their shared
interests in the agriculture chapter. In the north of France
President Sarkozy is reported to have told his audience
"Europe needs to remain a strong agricultural power, and a
place where the young can become farmers if they so choose."
Within this context he is also reported to have said: "This
is an essential question for us and if they do not understand
that at the WTO table, France will use its veto."


7. (U) The Zapatero Government has been consistent in its
support for a Doha deal. Spain does have major market
interests in the negotiations on agriculture, including the
export of olives, olive oil, wine, vegetable and fruit
products, etc. However, their interest in protecting
sensitive agricultural activities far outweigh their market
access objectives. In this sense, we expect that the two
presidents will be of one mind regarding the "not so likely
possibility" of EC Member States offering greater negotiating
flexibility on agriculture tariffs to the European
Commission's lead negotiator (Peter Mandelson) in the Doha
Development Agenda negotiations. It has been reported from
Geneva that without the additional EC negotiating flexibility
on agriculture tariffs, negotiators from the 148 WTO members
will be hard pressed to come to an agreement.

BBVA STUDY CONFIRMS THE RUMORS


8. (U) A BBVA study has confirmed the projections of dropping
real estate prices beginning as early as next year. Jose
Luis Escriva, BBVA Director of Economic Studies, predicts a
significant decrease in housing prices next year. The drop
will be slow in coming unlike more rapid drops of 15%
experienced in the early 1990's. Nonetheless, Spain is
expected to experience a gradual adjustment in the coming
months in the real estate sector as the prices will continue
to rise above the inflation rate. One study indicates a
rhythm of a 4% increase this year and just 1% next year.
AGUIRRE