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08MADRID1050 2008-10-03 15:40:00 UNCLASSIFIED Embassy Madrid
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1.(U) Media concern over the turmoil in U.S. and European
commercial banks prompted authorities to emphasize the safety
of deposits in Spanish banks. Vice President and
Economy/Finance Minister Solbes said on different occasions
during the week that, unlike in many European countries,
Spain's deposit guarantee fund (FGD) was fully solvent and
depositors could rest easy. The fund guarantees 20,000 euros
per account, lower than in many European countries. Solbes
noted discussions on a common EU position on guarantees but
said Spain would reject any steps that would change the way
it funded the FGD. Solbes also called for rapid approval of
the U.S. financial market rescue package, saying that not
having a plan in place would be worse than having this plan
in place. Solbes said that 2008 growth would be around 1.6%
and 2009 growth around 1%, adding that the economy would
bottom out in late 2009 and return to growth rates near its
3% potential in 2010 or 2011. He said inflation could fall
to as low as 3.5% by the end of 2008 if oil prices remained
at their current level. (El Pais, 9/30; Solbes speech, 10/2;
ABC, 10/3)

Zapatero-Rajoy Meeting on Economy Likely

2.(U) Possibly seeking to break a pattern of name-calling in
which opposition PP leader Rajoy has repeatedly accused
President Zapatero of denying the severity of the economic
situation, Zapatero has called Rajoy unpatriotic, and each
has criticized the other for lacking effective ideas,
Zapatero invited Rajoy to meet with him to discuss economic
measures. Rajoy replied that he did not want a photo op, but
a substantive meeting after a preparatory meeting between the
GOS and PP economic teams, led by Solbes and PP economic
spokesman Cristobal Montoro. The preparatory meeting is
likely to take place in the next week or so. (El
Confidencial, 9/30; Solbes speech, 10/2; ABC, 10/3)

Santander Buys Failed UK Bank's Deposit Business

3.(U) Spain's largest bank, Banco Santander, continues to
look for buying opportunities abroad. It outbid Barclays and
HSBC for the branches and savings deposits of the
nationalized British bank Bradford and Bingley, paying 772
million euros in cash for deposits worth 27 billion euros
belonging to 2.5 million clients, along with 197 branches and
141 other distribution points. Santander had finished second
in bidding for a German bank a few weeks ago and according to
press reports also had been interested in Washington Mutual
and Wachovia in recent weeks. This interest in new loans
comes despite the continuing problems of Santander's main
U.S. investment. Pennsylvania-based Sovereign Bancorp, in
which Santander owns a 25% stake, saw its stock fall by 72%
on September 29 before rebounding somewhat later in the week.
(El Pais, 10/29)

Most Statistics Show Continuing Slump, but Inflation Drops

- Mortgage delinquency rose from 1.0% in the year's first
quarter to a still-low 1.3% in the second quarter;
- New housing construction permits in the January-July period
were 58% below their January-July 2007 level;
- Unemployment rose from 11% in July to 11.3% in August, the
highest rate in any EU country, according to Eurostat;
- Car sales in September were 32% below their September 2007
level and are down 22% for the year's first 9 months;
- Year-on-year inflation in September fell 0.3% to 4.6%,
according to a preliminary estimate.

MADRID 00001050 002.2 OF 002

Abertis Pulls Out of $12.8 Billion Pennsylvania Turnpike Deal

5.(U) Construction company Abertis allowed its $12.8 billion
offer to operate the Pennsylvania turnpike for 75 years
expire September 30 given indications that the Pennsylvania
legislature would not let the deal to go forward. The
project (ref B) would have been the largest
public-private-partnership (PPP) toll road deal in the United
States. The Abertis-led consortium, which also included Citi
Infrastructure Partners and Criteria, had won the bid to
lease and operate the Turnpike as a toll road for 75 years,
contingent upon certain state legislative approvals. When
the deal did not receive the necessary legislative actions by
the September 30 deadline, Abertis decided not to further
extend its offer. Abertis representatives noted that the
company was open to revisiting the project in the future
should conditions for it become more favorable. (El Pais,
10/02-03; Reuters, 10/01)

Spanair Reaches Agreement to Lay Off 1,000

6.(U) Sources at the airline indicate that Spanair has
reached a tentative agreement with the majority of its
workers to proceed with layoffs of about 1,000 employees
(almost a third of its workforce) as well as obligatory
relocation of 700 employees to other Spanair hubs. Spanair
had announced its intention to engage in layoffs in July (ref
A), but labor laws required the company to first reach a
compensation package agreement -- in this case upwards of 20
million euros. Spanair has been hit hard by high fuel prices
and a slowing economy, as well as the August 20 Madrid crash
that killed 154. After Iberia, Spanair provided the second
largest level of service to the Spanish domestic market. (El
Pais, Oct. 3)

2007 Foreign Aid Reached Record 0.37% of GDP

7.(U) The GOS spent over $5 billion (3.8 billion euros) on
foreign assistance in 2007, a record 0.37% of GDP but less
than the MFA,s plan of 0.42%. As a percent of GDP,
Spain,s assistance has reached the same level of Germany and
Switzerland, and is much higher than Italy and Portugal,
which spend less than 0.2% of GDP. The primary regions that
received Spain,s aid in 2007 were Latin America (40% of
total) and Sub-Saharan Africa (28%). In 2007, President
Zapatero announced his intention to increase Spain,s
assistance to 0.7% of GDP by 2012, three years earlier than
required under its commitment of UN Millennium Development
Goals. The GOS plans for aid to reach 0.5% of GDP this year
and in 2009. (GOS announcement, 10/2; ABC 10/3)