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

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TAGS: ECON EFIN EIND EINV ELAB ENRG ETRD EWWT PTER
SENV, TSPL, SP
SUBJECT: MADRID WEEKLY ECON/COMMERCIAL/AG UPDATE JUNE 14-20

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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

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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


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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