MADRID ECONOMIC WEEKLY, JULY 13-17

UNCLAS MADRID 000721

SIPDIS

STATE FOR EUR/WE, EEB/IFD/OMA
COMMERCE FOR 4212/D.CALVERT
ENERGY FOR PIA/K.BALLOU
TREASURY FOR OIA/OEE/T.O'KEEFFE,D.WRIGHT

E.O. 12958: N/A
TAGS: ECON EFIN EINV EAIR SP
SUBJECT: MADRID ECONOMIC WEEKLY, JULY 13-17

REF: MADRID 688

CONTENTS:

ECON, EFIN: Economy Minister announces increased funding for
autonomous regions
EFIN: Andalucian cajas merge without use of public funds; may
signal beginning of larger merger movement
EAIR: Spain seeing large reduction in airport users
EINV: Foreign direct investment in Spain increases in 2008,
but fewer jobs created

Economy Minister Announces Increased Funding for Autonomous
Regions


1. (U) The Minister of Economy and Finance announced 11
billion Euros of new financing for Spain,s autonomous
regions. Under the plan, Cataluna will receive the largest
share, at 3.9 billion Euros, followed by Andalucia at 3.1
billion, Madrid at 1.7 billion, and Valencia at 1.2 billion.
The controversial plan provides funding through 2012 for
essential public services such as health, education and
social services. This plan was preliminarily approved by the
autonomous communities, and Congressional approval followed
on July 15, but the new financing model must still be
ratified by the communities if they want to receive the
funds. ALL MEDIA, EMBASSY)

Andalucian Cajas Merge Without Use of Public Funds

2. (U) Unicaja and Caja de Jaen, Andalucia,s largest and
smallest regional savings banks ("cajas8),announced that
they would merge without the use of public funds, which has
been viewed by some as a rejection of Zapatero,s bank
restructuring fund (FROB). Following the merger, the caja
will have 32 billion Euros in assets and over 6000 employees.
Caja de Jaen struggled to remain independent, but was forced
to accept a merger because, as their directors stated, this
is &the worst time for the cajas in the last 30 years.8
The Bank of Spain has been pushing many of the regional cajas
to merge in order to ensure their solvency, fueling
speculation that this may be just the beginning of a merger
movement among the cajas. (Comment: Many cajas that had
previously balked at the idea of mergers may have to
reconsider their positions, as their solvency has been
threatened by losses in the real estate and construction
industries. The cajas prefer to merge with other cajas in
their same region because it is easier for them to
consolidate and gain market share. End comment.)(El Pais
7/14).
Spain Seeing Large Reduction in Airport Users


3. (U) AENA, the state-owned airport operator responsible for
all Spain's domestic and international airports, recorded a
13 percent reduction in airport users during the first six
months of 2009. This is much larger than the 3.5 percent
reduction in passengers that Spain suffered in the first half
of 2002, after the 9/11 attacks. All Spanish airlines, such
as Spanair, Iberia, and Air Europa, have recorded sharp
declines in number of passengers during the first part of

2009. One reason for the decline in air travel is that a
significant portion of travelers are choosing to use the AVE,
Spain,s high-speed train, which connects Madrid to
Barcelona, Sevilla, and Malaga, with more routes being
developed. (EL PAIS)

Foreign Direct Investment in Spain Increases in 2008, but
Fewer Jobs Created


4. (U) Foreign direct investment (FDI) in Spain rose 0.4
percent in 2008 over the previous year, a sharp contrast to
the 36.9 percent decline in FDI experienced by the EU. Spain
received almost 38 billion euros in FDI in 2008, with the
heaviest investment coming from the UK and Germany. Spain now
ranks as the fourth largest recipient of FDI in Europe, and
the seventh largest in the world. Spanish investment in
foreign markets, however, has fallen 64.6 percent since 2007.
Despite the uptick in investment in Spain, jobs created as a
result of FDI fell 31 percent in 2008. Ernst and Young
reported that new investment projects declined 8 percent in
the first quarter of 2009 compared to the same period in
2008, and expects FDI to decline substantially over the rest
of the year. (La Gaceta 7/16).
CHACON