MADRID ECONOMIC WEEKLY, FEBRUARY 15-19

UNCLAS MADRID 000194

SIPDIS

STATE PASS USTR FOR D.WEINER AND J.GROVES
COMMERCE FOR 4212/DON CALVERT
TREASURY FOR OIA/OEE R.JOHNSTON

E.O. 12958: N/A
TAGS: ECON EFIN SP
SUBJECT: MADRID ECONOMIC WEEKLY, FEBRUARY 15-19

Contents:

EFIN: Demand for GOS Bond Issuances May Signal Reduced Market
Concern
ECON: Anti-Crisis Commission Formed
EFIN: Loan Delinquency Rates Continue to Rise


Demand for GOS Bond Issuances May Signal Reduced Market
Concern

1.(U) The Treasury issued 6.58 million euros of 12- and
18-month paper on February 16, 5 billion euros of 15-year
bonds on February 17, and 958 million euros of 30-year bonds
on February 18. Demand was heavy, as over 14 billion euros of
orders were placed for the 15-year bonds and 1.9 billion
euros of orders were placed for the 30-year bonds. The
interest rates were 80 to 90 basis points above those of
similar German debt; two weeks ago, spreads on other Spanish
debt had briefly been above 100 basis points. Secretary of
State for Economy Campa said the high demand was a positive
sign. President Zapatero credited GOS efforts to combat a
market "mistake and misjudgment." Campa visited New York and
Boston to discuss the GOS' economic plans with institutions
interested in Spanish debt. (El Pais, 2/18 and 2/19)

Anti-Crisis Commission Formed

2.(U) President Zapatero announced an Economic Anti-Crisis
Commission headed by Minister of Economy/Finance Salgado,
Minister of Industry, Tourism, and Commerce Sebastian, and
Minister of Public Works Blanco. The Commission will have
two months to work with opposition parties on drafting an
acceptable economic plan for presentation to the Congress.
The Commission is to present its first draft on February 25
when it begins negotiations with opposition party members.
Opposition Popular Party leader Mariano Rajoy expressed
skepticism, saying the new plan would have to be different
from Zapatero's previous plans in order to win his party's
support. Some reports expressed surprise over the exclusion
from the commission of Labor Minister Corbacho at a time when
many see unemployment approaching 20% as the country's most
serious economic problem and others see labor reforms as a
necessity. (El Pais, 2/19; ABC, 2/18)

Loan Delinquency Rates Continue to Rise

3.(U) Banking system loan delinquency rates rose to just over
5% in December, the highest rate since May of 1996. Although
savings banks ("cajas") as a group have generally reported
higher delinquency rates than banks as a group, bank and caja
rates were nearly identical in December, in part because
Spain's second largest bank, BBVA, reclassified 1.8 billion
euros of loans as doubtful. Consumer credit delinquency
increased, while mortgage delinquency rates remain moderate,
helped by the decline in the Euribor rate that sets
variable-rate mortgage payments. (El Pais, 2/19)


CHACON