MADRID ECONOMIC WEEKLY, SEPT. 22-26

UNCLAS SECTION 01 OF 02 MADRID 001025 SIPDIS STATE FOR EUR/WE, EEB/IFD/OMA E.O. 12958: N/A TAGS: ECON EFIN EIND EINV ELAB ENRG KIPR SP SUBJECT: MADRID ECONOMIC WEEKLY, SEPT. 22-26 REF: MADRID 943 MADRID 00001025 001.2 OF 002 Contents: ECON/KIPR: Zapatero in New York ECON/EFIN: Council of Ministers Approves Draft 2009 Budget EIND: Housing Sales, Starts Remain Weak ENRG/EINV: GOS Reduces Solar PV Electricity Feed-In Tariffs EINV: Spain Among Top FDI Investors and Recipients ELAB: Spain Leads Opposition to Proposed EU Expansion of Allowable Labor Hours Zapatero in New York ¶1. (U) While visiting New York to speak at the UN, President Zapatero met with business executives in a September 24 event organized by the American Chamber of Commerce in Spain. Executives from firms such as Boeing, Microsoft, IBM, Pfizer, and the Bank of America, as well as the MPAA, participated in the session. Zapatero acknowledged challenges faced by the Spanish economy, including the housing downturn and the current account deficit, but he insisted that the economy's resilience and strength would allow Spain to return to its path of strong growth soon. Zapatero also discussed topics ranging from high-speed trains to his commitment to not expand nuclear energy. He said Spain would deepen its focus on biotechnology, nanotechnology, and renewable energies. At least one questioner raised IPR piracy. In his UNGA speech September 25, Zapatero called for international regulation of financial markets and urged developed countries to meet the target of providing 0.7% of GDP in development assistance by ¶2015. In a press conference, he expressed his support for the Administration's financial market rescue package, noting that it was the result of an "exceptional circumstance." (El Confidencial, 9/25; El Pais, 9/25; All Media, 9/26) Council of Ministers Approves Draft 2009 Budget ¶2. (U) The Council of Ministers approved on September 26 what it described as an "austere" draft 2009 budget. Spending, including anticipated unemployment benefits, will rise 3.3%, just below the rate of inflation. Because of the economic slump, the GOS has had to adjust spending down from what it had anticipated only three months ago. The deficit is anticipated at 1.5% of GDP. The GOS emphasized the budget's emphasis on infrastructure, research, the administration of justice, education, and housing. The GOS will submit the budget to the Congress next week, but it still lacks the votes to ensure approval. The unresolved dispute with Catalonia over regional government financing makes it unlikely that the CiU bloc will support the budget, so the GOS is seeking support from the Basque Nationalist Party (PNV) and smaller regional parties. The budget is expected to be approved, possibly after amendments, at the end of December. (Expansion, 9/25; El Pais, 9/26; Council of Ministers, 9/26) Housing Sales, Starts Remain Weak ¶3. (U) 26% fewer housing units were sold in July 2008 than in July 2007. Sales of used housing were down 38%, while sales of new housing were down 10%. Comment: It may be that new housing sales fell by less because builders are forced to sell even if they have to accept lower prices, while owners of existing housing prefer to stay put rather than accept lower prices. End comment. The value of mortgages issued that month was 33% below the July 2007 value; the number of mortgages was down 28% and their average value was down 6%. Builders are responding by cutting back on new construction; in the year's second quarter, the number of housing starts was 43% below its 2007 second-quarter level. (Expansion, 9/26; Cinco Dias, 9/26) GOS Reduces Solar PV Electricity Feed-In Tariffs ¶4. (U) Spain's system of incentives for different types of renewable electricity guarantees generous prices (feed-in tariffs) for up to a certain volume of projects of each technology. For solar photovoltaic power projects, the existing 45 cents(euro)/KWh tariff applies to projects completed and registered by September 29. On September 26, after many exchanges between the Ministry of Industry, Tourism, and Commerce (MITC) and industry representatives, the Council of Ministers approved a new tariff regime for projects registered after September 29. The guaranteed tariff will fall to 32 cents/KWh for ground-based projects and rooftop projects above 20 KW. Rooftop projects below 20 MADRID 00001025 002.2 OF 002 KW will receive 34 cents/KWh; the GOS says rooftop projects use less land and lose less electricity in transmission than ground-based projects. MITC Minister Miguel Sebastian told the Congress that the new tariffs are 25% above those in Germany, the EU's other large solar power market. The tariffs will be in force for 25 years and will include annual adjustments just below the rate of inflation. ¶5. (U) The volume of projects eligible for the new tariffs has been the most contentious point (reftel). Many more ground-based projects were registered before the September 29 deadline than the GOS had expected -- at more expense to consumers, since the guaranteed prices are well above market prices -- and many projects are not yet complete. The 2009 limit of 367 MW of ground-based projects (and 133 MW of rooftop projects) may cause some firms to scrap or delay planned projects. A new mechanism will allow the GOS, if the volume limit of projects is reached in one year, to reduce the next year's tariff and increase the volume limit by the same percentage, up to ten percent a year. This should eventually lower tariffs to the minimum needed to guarantee provision of the volume of generation the GOS seeks. (El Confidencial, 9/26; Council of Ministers, 9/26; Embassy analysis) Spain Leads Opposition to Proposed EU Expansion of Allowable Labor Hours ¶6. (U) Minister of Labor Celestino Corbacho announced Sept. 25 in Parliament that the GOS would lead the opposition against the potential approval of a EU directive permitting expansion of the work week from 40 hours to 65 or 70 hours. Spain,s Chamber of Deputies unanimously rejected this proposal a week earlier, while Spain,s Corbacho formally voted against the proposal along with Greece at the EU level September 15. The European Parliament is expected to decide on this directive next month. (Cinco Dias, 9/26) Spain Among Top FDI Investors and Recipients ¶7. (U) According to UNCTAD,s recently released 2008 World Investment Report, in 2007 Spain was the 5th largest source of foreign direct investment (FDI) -- with almost 120 billion dollars in FDI abroad -- and the 6th largest recipient of FDI inflows. Spain experienced a large increase in FDI inflows from 2006 to 2007; in 2006 these inflows were slightly under 30 billion dollars, while in 2007 this amount almost doubled to more than 50 billion. Comment: A large part of the increase was likely the result of the Italian firm Enel's involvement in the 2007 purchase of electric utility ENDESA. (UNCTAD press release, Sept 24). Aguirre