MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -

UNCLAS SECTION 01 OF 02 MADRID 001942 SIPDIS SIPDIS EUR/WE, EEB/EFD/OMA E.O. 12958: N/A TAGS: ECON EFIN EIND ENRG ETRD SP EINV EAGR SOCI ELAB SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT - OCTOBER 1-5 MADRID 00001942 001.2 OF 002 Table of Contents: ECON/EFIN: Economists speculate weak dollar might not be such a bad thing ECON: BBVA President considers U.S.- European dialogue "crucial" EFIN: Government Research & Development spending set to increase by 17.4% in 2008 EFIN/EIND: EU Competition Commissioner says most EU Commissioners "annoyed" by the Spanish attitude on Endesa EIND: Construction company Fomento de Construcciones y Contratas says it intends to continue to grow in the U.S. ETRD: Jamon Iberico may be coming soon to a store near you ECON/SOCI: Retoucherie - from small town to world-wide business ECONOMISTS SPECULATE WEAK DOLLAR MIGHT NOT BE SUCH A BAD THING ¶1. (U) Spanish Employers Federation (CEOE) Economic Commission President Jose Luis Feito says the Spanish economy can withstand a dollar/euro exchange rate of 1/1.4 because most Spanish exports go to Europe and, besides, exports are not as important a component of Spanish GDP as they are for countries like Germany, France or Italy. Feito argues that the probability that the European Central Bank (ECB) will not raise interest rates, and might even lower them, is much more important to the Spanish economy because Spain is more interest rate sensitive than exchange rate sensitive. (Comment: Feito is a well-respected economist and a good Embassy contact. He is probably right that interest rates matter more than exchange rates for Spain. Nonetheless, it is worthwhile remembering that Second Vice President and Finance Minister Pedro Solbes has fretted publicly about the stronger euro inhibiting German exports, and hence Spanish exports to Germany. In 2006, Spanish exports to Germany represented almost 11% of Spain's worldwide exports. So exchange rates really do matter for Spain, albeit perhaps less than possible ECB easing of interest rates as Feito points out.) (El Pais, 9/30/07) BBVA PRESIDENT CONSIDERS U.S. - EUROPEAN DIALOGUE "CRUCIAL" ¶2. (U) Gonzalez remarked on the need for a dialogue in the context of the 9/27/07 European Financial Services Roundtable in Washington, D.C. Fed Chief Ben Bernanke gave the closing address at this conference. Gonzalez called for more dialogue on a range of issues, including antitrust, although he focused on the financial sector. (Comment: Gonzalez, intervention was noteworthy because Spain's most important businessmen do not often comment publicly on these matters.) (Expansion, 9/28/07) GOVERNMENT RESEARCH & DEVELOPMENT SPENDING SET TO INCREASE BY 17.4% IN 2008 ¶3. (U) This increase is certainly less than the 30% by which R&D spending went up in 2007, but it does mean that the Zapatero government will have fulfilled a pledge to double R&D spending during the 2004-2008 period. Civilian R&D spending will receive euros 7.7 billion and euros 1.6 billion will be allocated for military R&D spending. (El Pais, 9/30/07) EU COMPETITION COMMISSIONER SAYS MOST EU COMMISSIONERS "ANNOYED BY THE SPANISH ATTITUDE ON ENDESA ¶4. (U) Kroes added that the Commission 152 million euro fine against Telefonica was justified. (Comment: Many Spanish analysts agree with Commissioner Kroes, although even those analysts very critical of the Zapatero government note that, especially in the energy sector, other countries such as Germany and France also want to create and defend "national champions.") (Expansion, 10/2/07) CONSTRUCTION COMPANY FOMENTO DE CONSTRUCCIONES Y CONTRATAS SAYS IT INTENDS TO CONTINUE TO GROW IN THE US ¶5. (U) FCC owns Giant Cement Holding in the U.S. and says it is selling all the cement it produces. Giant Cement produces cement in South Carolina, Maine and Pennsylvania and most of it is used in infrastructure projects. FCC sees continued opportunity in Texas, despite the controversy in that state over toll roads. FCC recently qualified together with an Australian contractor to build the Dublin metro. (Comment: Clearly FCC, like other Spanish construction firms, will continue to look for opportunities overseas as Spanish infrastructure and housing development slows down.) MADRID 00001942 002.2 OF 002 (Expansion, 10/3/07) JAMON IBERICO MAY BE COMING SOON TO A STORE NEAR YOU ¶6. (U) Spanish "Jamon Iberico" may soon be available to U.S. consumers in the United States. The U.S. Department of Agriculture's Food Safety Inspection Service (FSIS) just approved the list of Spanish port products exporters submitted for export accreditation by Spain's Ministry of Health (MoH). The list contains a slaughterhouse that is approved for export - the only Spanish slaughterhouse ever to have been approved for export to the United States. This means that the "products" of Spanish-produced hogs, slaughtered by the approved slaughterhouse, are now either eligible for export to the United States. And, since one of the specialties of the approved establishment is slaughter of the Iberia hog, the traditional Iberian ham is now eligible for export. Regarding the possible timing of the first Iberian ham exports, the first possible shipment may come within months, or could be delayed by two-to three years. Because the slaughterhouse in question was previously approved for export to the United States and has continued following FSIS inspection protocol during a suspension of that export accreditation, the hams that have been curing in storage may become eligible for export. FSIS is expecting to receive just such a request from MOH within the next few days and will then decide the fate of the hams currently in storage. Regardless, hams produced from hogs now being slaughtered will be eligible for export when fully cured - two-to-three years. RETOUCHERIE FROM SMALL TOWN TO WORLD WIDE BUSINESS ¶7. (U) Manuela Rodriguez Losada began as a seamstress at home taking small orders to make ends meet and later on was the exclusive seamstress of a clothing company in France where she and her husband moved in pursuit of a better life. Motivated by her clients she opened her own store, la Retoucherie - an alteration store, was born. She returned to Spain and opened and still maintains her first store in La Vaguada in 1983 a "gold mine" location she says. A family business with the logo of a measuring tape in the form of a lasso in black and white colors. At 65 she refuses to retire, there are too many things that she would like to accomplish such as creating a foundation for senior citizens. The stores bear her name now La Retoucherie de Manuela and she owns 28 out of the 312 stores the rest are franchises. She recently signed a franchise contract with China to open 17 stores. Manuela employs mostly women over 40 as they are the hardest hit during recessions and she sympathizes with them. The company offers a training program for the employees and has recently added an extra benefit, a no cost private health plan. The company continues to grow and just last year made 40 million euros a 15% increase from the previous year. LLORENS