MADRID ECONOMIC WEEKLY, MARCH 23-27

UNCLAS SECTION 01 OF 02 MADRID 000323 SIPDIS STATE FOR EUR/WE, EEB/IFD/OMA, EEB/CIP/BA TREASURY FOR OIA/OEE/T.O'KEEFFE,D.WRIGHT COMMERCE FOR 4212/D.CALVERT E.O. 12958: N/A TAGS: ECON EFIN ETRD SP SUBJECT: MADRID ECONOMIC WEEKLY, MARCH 23-27 REF: MADRID 294 MADRID 00000323 001.2 OF 002 Contents: ECON/EFIN: Zapatero Open to More European Stimulus, but Not Yet ECON: Forecasts Show GDP Falling at Unprecedented Pace EFIN: Savings Banks Likely to Require Official Action EFIN: Central Bank Deputy Governor Resigns for IMF Position EFIN: GOS London Summit Priorities ECON: European Commission Tells GOS to Cut Deficit by 2012 ETRD: Exports, Imports, Trade Deficit All Plunge KIPR: Authorities Break Up TV Signal Theft Ring Zapatero Open to More European Stimulus, but Not Yet 1.(U) President Zapatero told foreign newspapers in an interview published March 27 that European governments should wait until the summer to see the impact of existing stimulus measures. If these were insufficient, he would support additional spending focused on renewable energy and biotechnology. He said Spain had room for additional stimulus if necessary, acknowledging the government,s high budget deficit but noting that its absolute level of debt remained relatively low. Zapatero said he would push at the London Summit for Spanish-style countercyclical banking regulation. He plans to use Spain,s EU presidency in the first half of 2010 to promote renewable energy and biotechnology. (WSJ Europe, 3/27; Financial Times, 3/27) Forecasts Show GDP Falling at Unprecedented Pace 2.(U) According to forecasts by the savings bank foundation FUNCAS and BBVA bank, GDP will fall at an annualized rate of between 5 and 6 percent in the year,s first quarter. This would be the fastest quarterly decline in at least the last 50 years. Expressed in the year-on-year terms that are customary here, this will be a decline of about 2.5% from 2008,s first quarter, the worst year-on-year decline since ¶1993. The forecasts predict that the quarterly GDP declines will moderate during the rest of the year and turn slightly positive, ending the recession, at the end of this year or early next year. (El Confidencial, 3/24) Savings Banks Likely to Require Official Action 3.(U) Statements by GOS officials and bankers suggest that some form of intervention in individual savings banks (cajas) or banks is becoming more and more likely. Second Vice President and Finance/Economy Minister Solbes said on March 23 that the GOS had begun talks with legislators about a road map to define the conditions under which the GOS might use the authority granted last year to inject capital into troubled institutions. Solbes reportedly had been reluctant to begin talks earlier because of the signal it would send that institutions might be in trouble. He emphasized that institutions that were not viable would need to be merged or taken over. The next option would be use of the deposit guarantee fund, which the institutions themselves fund and which currently has 7 billion euros. Only as a last resort would the GOS use its funds. Cajas, hit harder by the construction and real estate collapse, are generally thought to be in worse shape than banks. While some small cajas are in different stages of merging or are considered vulnerable, the first action of significant size is the likely merger of the troubled and politically sensitive Caja Castilla La Mancha (CCM) into Unicaja. This step is expected to consume a significant portion of the resources of the deposit guarantee fund resources available to savings banks. (El Pais, 3/24; Expansion, 3/26; Embassy) Central Bank Deputy Governor Resigns for IMF Position 4.(U) Bank of Spain Deputy Governor Jose Vinals resigned March 25 to take a position as the head of the IMF's monetary department. Press reports suggest that Vinals and Governor Miguel Angel Fernandez Ordonez may have disagreed on actions to facilitate the Caja Castilla La Mancha-Unicaja merger. Vinals was replaced by the Bank's Director General of Supervision, Javier Ariztegui. (All Media, 3/26; Council of Ministers, 3/27) GOS London Summit Priorities 5.(U) Secretary of State for Economy David Vegara told reporters that Spain's priorities for the London Economic MADRID 00000323 002.2 OF 002 Summit included requiring hedge funds and venture capital funds to disclose their indebtedness and liquidity levels. Other priorities include creating a clearinghouse for credit default swaps and requiring financial institutions to maintain higher levels of capital. (El Confidencial, 3/26) European Commission Tells GOS to Cut Deficit by 2012 6.(U) The European Commission announced March 24 its recommendation that Spain reduce its deficit by 2012 to under 3 percent, the level established in the EU's stability and growth pact. The GOS budget situation has deteriorated rapidly. In 2007, the surplus was over 2% of GDP, while in 2008 the deficit was over 3%, and the 2009 deficit is expected to be around 6%. Once the recommendations have been adopted by the European Council, the GOS will have six months to specify what measures it will take. Spain's debt level was slightly over 40 percent of GDP in 2008, and is expected to exceed 50 percent by 2010, still relatively low by EU standards. (All Media, 3/24) Exports, Imports, Trade Deficit All Plunge 7.(U) Spanish exports and imports of goods in January were far below their level of January 2008. Exports were down 25% from a year ago, while imports were down 35%. The monthly trade deficit was down 50% to 4.5 billion euros. Imports and exports of every main category of goods fell, with the value of oil imports down 65% (because of lower prices) and automotive imports and exports each down by 45%. Trade in equipment also fell significantly, while trade in food and consumer goods did not fall as much. (Ministry of Industry, Tourism, and Commerce, 3/26) Authorities Break Up TV Signal Theft Ring 8.(U) The Civil Guard conducted an operation against a group of seven people distributing British television signals without authorization to 7,000 mostly British expatriate customers in Alicante and Murcia (southeastern Spain). According to media reports, the group purchased individual cable packages in the United Kingdom and, using decoders and parabolic antennae, broadcast the channels to its customers along the Mediterranean coast of Spain to the detriment of the local rights-holder, Sogecable. Authorities estimate that the pirate activity may have generated 30 million euros (about USD 40 million) before being broken up. This second major television signal enforcement action by the authorities in recent months is a sign that Spanish law enforcement is becoming more sophisticated and active in its efforts to enforce IPR laws. (El Pais, 3/24) CHACON