MADRID WEEKLY ECON/COMMERCIAL UPDATE MARCH 10-14

UNCLAS SECTION 01 OF 02 MADRID 000317 SIPDIS SIPDIS EUR/WE, EEB/IFD/OMA E.O. 12958: N/A TAGS: ECON EINV ELAB ENRG KIPR SENV SP SUBJECT: MADRID WEEKLY ECON/COMMERCIAL UPDATE MARCH 10-14 MADRID 00000317 001.2 OF 002 Table of Contents: ECON: Lower forecasts for GDP ECON/ELAB: Unemployment continues to rise ECON: Inflation reaches twelve-year high of 4.4 percent ENRG/EINV: Iberdrola takeover maneuvering update KIPR: Police shut down big CD/DVD copying operation, arrest six KIPR: Largest-ever seizure of counterfeit goods KIPR: Judge rules selling modified PlayStations not illegal SENV: More Spanish consumers willing to pay premium for environmentally-friendly electronics LOWER FORECASTS FOR GDP ¶1. (U) Two days after the elections, Second Vice President and Finance Minister Solbes told reporters that (GOS) analysts were now predicting 2008 GDP growth of between 2.5 and 2.7 percent. This is well below the 3.1 percent figure Solbes had cited earlier and much closer to other forecasts. The German bank Commerzbank on March 10 repeated its earlier forecast that 2008 growth would only be 1.5 percent, adding that 2009 growth would be around 1 percent. (Comment: 1.5 percent growth this year would almost certainly result in a recession; the Central Bank has said that if output were to maintain the level of 2007's fourth quarter through 2008, growth for the year would be 1.9 percent. Commerzbank had made the same 2008 forecast last August, but it may get more attention now that other forecasts have dropped.) (Expansion 3/11/08, EFE 3/10/08) UNEMPLOYMENT CONTINUES TO RISE ¶2. (U) Unemployment increased by 50,000 for the month of February, according to Ministry of Labor statistics. While this was less than the January increase of 132,000, experts are convinced that this trend will continue throughout the year, with immigrants and others in the construction field being disproportionately affected. Although Spain continues to experience job growth, its growing labor force is outpacing the economy's ability to generate a sufficient number of jobs. The unemployment rate appears to be between 8.6 and 8.8 percent (sources differ),which is still low compared with prior years in Spain when double-digit unemployment rates were common. Nonetheless, continuous press coverage about increasing unemployment coupled with Spain's relatively high rate vis a vis other European countries has affected consumer confidence. The Ministry of Labor is working with labor unions and business associations to develop an employment stimulus plan. (Ministry of Labor statistics, INEM, El Pais). INFLATION REACHES TWELVE-YEAR HIGH OF 4.4 PERCENT ¶3. (U) Consumer price inflation during the twelve months ending in February was 4.4 percent, up from 4.2 percent in the January-to-January period. This is the highest rate since November 1995. The rate of underlying inflation (not counting food or energy) also rose 0.2 percent, to 3.3 percent. Comment: The government has said for some time that it expects the rate to fall in the second quarter of 2008. (EFE, 03/14/08) IBERDROLA TAKEOVER MANEUVERING UPDATE ¶4. (U) Press reports indicate that President Zapatero and French President Sarkozy have agreed on a deal that the GOS would not oppose in which GOF-owned electricity firm EDF would purchase between 15 and 18 percent of the Spanish firm Iberdrola in return for giving Iberdrola nuclear power plants located in France. Press reports say that the deal would end the possibility of a hostile EDF bid for Iberdrola shares. They do not indicate that Iberdrola's management and controlling owner have lifted their opposition to EDF. Separately, an El Pais lead editorial laments that Spain does not have an "efficient" way to protect Spanish energy companies from foreign takeovers. The editorial notes that French, German and Italian companies are effectively and legally protected from takeovers, whereas the Spanish government's measures to prevent the takeover of Endesa by Germany's E.ON have been struck down by the European Court of Justice. It suggests that the GOS insist on reciprocity with the French government, i.e. the possibility that a Spanish company could buy a major French energy company. (ABC 3/14/08, El Pais 3/13/08) POLICE SHUT DOWN BIG CD/DVD COPYING OPERATION, ARREST SIX ¶5. (U) In what is believed to be Spain's largest operation ever against audiovisual piracy, the Spanish National MADRID 00000317 002.2 OF 002 Police's IPR Crimes Group and its Judicial Police dismantled on March 12 a Madrid province piracy operation and confiscated 240 CD/DVD burners. This was not a minor league operation - the machines had the capacity to produce over half a million copies a week. Some of the movies copied have not yet opened in Spain. All the individuals involved were of Chinese origin. Unlike most operations these individuals were producing, preparing, packaging and distributing the items themselves. The operation was the result of a three-month investigation. (El Pais 3/13/08, Europa Press 3/13/08) LARGEST-EVER SEIZURE OF COUNTERFEIT GOODS ¶6. (U) In the largest operation of its kind in Spanish history, the Guardia Civil and the tax agency have confiscated in the port of Algeciras more than 230,000 counterfeit articles worth over 200 million euros. The operation took place in late February and early March and was announced March 14. The six 40-foot containers on two boats included counterfeit goods with 45 different brands of clothes, accessories, and watches. There have been no arrests yet. (EFE 3/14/08) JUDGE RULES SELLING MODIFIED PLAYSTATIONS NOT ILLEGAL ¶7. (U) A Valencia provincial judge ruled that it was not illegal for a Valencia store to stock and sell Sony PlayStations that had been modified in a way that would allow them to use and reproduce pirated games. The penal code prohibits possessing or selling merchandise specifically aimed at facilitating the suppression of anti-copying features. The judge reportedly ruled that because the modified machines could also play legitimate games from other parts of the world, the store's actions were not criminal. The AntiPiracy Federation noted that at least eight times since 2000 Spanish courts had ruled that such actions were crimes. (El Mundo 3/12/08, Metro 3/12/08) MORE SPANISH CONSUMERS WILLING TO PAY PREMIUM FOR ENVIRONMENTALLY-FRIENDLY ELECTRONICS ¶8. (U) Two-thirds of Spanish consumers - the highest among the five European nationalities measured - say they would pay up to ten percent more for electronic products manufactured so as to reduce the impact on the environment, according to a recent study by the Canalys consulting firm. The corresponding figures for consumers in Italy, Germany, and France were 55 percent, and for the UK 40 percent. A separate study found that 12 percent of Americans were willing to pay more for technology that consumes less energy or for brands that respect the environment. However, not everyone is convinced; a Sony spokesperson noted that actually paying more for products was different than answering a survey. (El Pais 3/13/08) AGUIRRE