MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JUNE 14-20

UNCLAS SECTION 01 OF 03 MADRID 000692 SIPDIS STATE FOR EUR/WE AND EEB/IFD/OMA E.O. 12958: N/A TAGS: ECON EFIN EIND EINV ELAB ENRG ETRD EWWT PTER SENV, TSPL, SP SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JUNE 14-20 MADRID 00000692 001.2 OF 003 Table of Contents: ECON/ELAB: Truckers' strike fizzles, other sectors demonstrate ELAB: Labor Minister offers payout to immigrants to leave EFIN: Bad bank debt rises, still below EU average EINV: Inward, outward FDI both rose in 2007 TSPL: Research and development spending up, still below EU average ECON/ELAB: Madrid region liberalizes store hour rules ENRG/EINV: New York judge recommends against Iberdrola's acquisition of Energy East EIND/ETRD: Textile industry continues to decline, brands/marketing key to survival EWWT/PTER: Ceremony celebrates Container Security Initiative SENV: Americans among winners of biodiversity awards ECON: Population reaches 46 million TRUCKERS' STRIKE FIZZLES, OTHER SECTORS DEMONSTRATE ¶1. (U) After suspending last week,s disruptive truckers, strike, independent truckers, groups also cancelled a Madrid demonstration scheduled for June 18, ostensibly due to security concerns. Demonstrations, however, continue within other sectors affected by high fuel prices. Over 10,000 members of the Asaja farmers and cattle raisers association protested June 19 in Madrid and another 8,000 in 12 of Spain's 17 Autonomous Communities seeking government actions to cushion the impact of high fuel and fertilizer prices, including a reduction in VAT tax on fuel. Asaja leaders have threatened to block highways at the start of the vacation season in late July and early August if the government does not meet their demands. (ALL MEDIA, June 18-20) LABOR MINISTER OFFERS PAYOUT TO IMMIGRANTS TO LEAVE ¶2. (U) Minister of Labor and Immigration Celestino Corbacho announced on June 17 a new measure to offer unemployed legal immigrants lump sum payments to return home. The measure would be offered to non-EU immigrants, and would provide a lump-sum payment of 40% of unemployment benefits when the immigrant renounces his/her Spain residency and the remaining amount when he/she returns to the country of origin. With this measure, the ministry hopes to soften the blow of Spain,s economic downturn, particularly given that unemployment rates for immigrants surpass the national average (15 percent compared with 9.6). The initial reaction from immigrant groups was that the incentive was not sufficient to encourage many to return. (Wall Street Journal, 6/18; El Confidencial, 6/17) BAD BANK DEBT RISES, STILL BELOW EU AVERAGE ¶3. (U) Nonperforming loans held by banks and savings banks rose to 1.3 percent of the total in April, the tenth consecutive monthly increase and the highest rate since March of 2000. It is still significantly below the EU average of 2.5 percent. (Europa Press, 6/18) INWARD, OUTWARD FDI BOTH ROSE IN 2007 ¶4. (U) After four consecutive years of decline, Spain's share of total world foreign direct investment (FDI) rose to 3.9 percent in 2007. The partial purchase of ENDESA by the Italian firm ENEL accounted for a significant portion of the increase. Even without this transaction, FDI in Spain would have risen 33 percent, twice the rate of growth of overall world FDI. While inward FDI was 36 billion euros, Spanish FDI abroad rose 44 percent to a record 91 billion euros. Again, one transaction accounted for much of the increase, this time Banco Santander's participation in the purchase of ABN Amro. (Expansion, 6/17) RESEARCH AND DEVELOPMENT SPENDING UP, STILL BELOW EU AVERAGE ¶5. (U) Spending on research and development as a percentage of GDP rose from 0.79 percent in 1995 to 1.2 percent in 2006. However, this contrasts with the 1.74 percent EU average and the 2.25 percent OECD average. Press reports state that the higher spending has not yielded a commensurate payoff in terms of innovation and productivity, in part because educational quality, with a few exceptions, is weak. (Comment: The new Zapatero government has created a Ministry of Science and Innovation that is intended to encourage research and promote the link between research and overall MADRID 00000692 002.2 OF 003 economic productivity.) (El Mundo and El Pais, 6/18) MADRID REGION LIBERALIZES STORE HOUR RULES ¶6. (U) On June 19, the Autonomous Community of Madrid approved a law to allow store owners to keep their businesses open longer. Under the prior law, stores were only allowed to open for a total of 90 hours per week between 7am and midnight, Monday through Saturday. Additionally, those stores with more than 300 employees were restricted in the number of Sundays or holidays that they could open. The new law, which is the most liberal of its kind in all of Spain, would remove those restrictions, allowing stores to be open anytime during Monday-Saturday. Although the Autonomous Community of Madrid praised the new bill as a positive step that would lead to more employment and less inflation, it was met with protests by Spain,s workers, unions, the UGT and the CCCO. (El Pais, 6/20) NEW YORK JUDGE RECOMMENDS AGAINST IBERDROLA'S ACQUISITION OF ENERGY EAST ¶7. (U) On June 16, a New York administrative law judge issued a non-binding recommendation to the state,s Public Service Commission (PSC) that it not approve the $4.5 billion acquisition due to a "lack of potential synergies or other benefits." The judge also recommended several preconditions if the PSC does decide to give its approval, including barring the company from owning power generation capabilities in the state of New York, including wind farms, and requiring Iberdrola to pay $650 million to Energy East customers. Iberdrola has offered to pay $200 million in ratepayer benefits. After the judge,s recommendation was made public, Iberdrola announced its plan to invest $2 billion in renewable energy in New York state. Both Governor David Patterson and Senator Charles Schumer have issued statements encouraging the PSC to approve the deal. (El Pais, Bloomberg, Reuters, 6/17) TEXTILE INDUSTRY CONTINUES TO DECLINE, BRANDS/MARKETING KEY TO SURVIVAL ¶8. (U) The Center for Textile and Apparel Information (CITYC) numbers are clear. During the 2001 to 2007 period, the number of Spanish companies in the sector declined from 4,815 to 4,120; employment declined from 175,000 to 136,000; nominal euro value production declined from 7.2 billion to 6.6 billion; and, production fell from 287,000 tons to 220,000 tons. During the same period, exports rose from euros 2.6 billion to euros 4.5 billion; imports rose from euros 4.4 billion to euros 9.5 billion; and consumption rose from euros 9 billion to euros 11.5 billion. One way of looking at this is that in 2001, Spain,s textile and apparel trade deficit was euros 1.8 billion. By 2007, it had grown to almost euros 5 billion. Spain has had some successes thanks to brands such as Zara, Mango and others. But while exports have grown substantially, imports have grown more, and domestic production is declining. There is only one solution: more development of brands and more high-end design, if not production. Spain has demonstrated that this can be done, and there is no reason not to believe that Spain cannot continue to be successful in this area. But the reality is that overall production and employment in the Spanish textiles and apparel sector is likely to continue to decline. (El Pais, 6/16) CEREMONY CELEBRATES CONTAINER SECURITY INITIATIVE ¶9. (U) On June 18, the Department of Homeland Security and Spain,s Customs Authority organized a ceremony to honor those individuals participating in the successful Container Security Initiative in Spain. The Container Security Initiative is a DHS program in which DHS personnel work with local authorities to interdict hazardous materials and contraband that may be a threat to the U.S. The Ambassador presided over the celebration, presenting the U.S. and Spanish participants of the program plaques to thank them for their service. The CSI program is active in three ports in Spain - Valencia, Barcelona, and Algeciras - and has been key in the interdiction of arms, smuggled goods, and other items going through Spanish ports. AMERICANS AMONG WINNERS OF BIODIVERSITY AWARDS MADRID 00000692 003.2 OF 003 ¶10. (U) Stanford professor Harold Mooney and Peter Raven of the Missouri Botanical Garden were among the winners of the BBVA (bank) Foundation 2007 Biodiversity Conservation Awards, given June 17 in the presence of Environment Minister Espinosa. The awards were divided into three areas: research in ecology and conservation biology, application/development of conservation projects, and dissemination of environmental knowledge and social awareness. Professor Mooney and Mr. Raven shared the research prize, while the Mexican Sierra Gorda Ecological Group won the conservation project prize and Spanish journalist Benigno Varillas won the knowledge dissemination prize. In his keynote address, Professor Mooney applauded Spain's efforts at fostering international cooperation on environmental issues and praised BBVA for its private sector leadership on conservation. He then discussed the imperative for action from individuals and nations on climate change. He argued that the lack of an independent body or specific targets listed in international conventions was a major obstacle to progress on the policy front. However, he said that an upcoming meeting to be hosted by the French represented a positive step. POPULATION REACHES 46 MILLION ¶11. (U) According to the latest National Institute of Statistics (INE) survey, Spain,s population reached 46 million in 2008, a 1.9% growth from the year before. Not surprisingly, the largest growth in population came via an increase in immigrants; of the 863,000 net new residents in 2007, 700,000 were immigrants. The immigrant population is now 5.22 million, 11 percent of the total population. (Cinco Dias, 6/20) AGUIRRE