ALBURQUERQUE, Spain— When officials in Madrid slashed support for alternative-energy programs this year as part of the campaign of government austerity sweeping Europe, ripples quickly hit this rural town with the cancellation of plans for a solar energy plant.
The decision forced several dozen layoffs at the company that would have built and run the project, adding to an unemployment rate that is running at 30 percent in the region. The move also undercut hopes at local firms that had expected to provide heavy equipment and fencing for the plant. At a cement company that was to supply material for the project, mixers now sit idle and the fear of further layoffs looms.
Hours after police in Madrid arrested 18 people, thousands of demonstrators reassembled to protest the government's harsh austerity measures. Police say the protests drew more than 70-thousand people nationwide this past weekend.
The economic debate consuming Europe comes down to the question of whether struggling countries should choose austerity by clamping down on government spending to rein in unsustainable deficits or pursue growth stimulated by more spending.
Spain is wrestling with the problem facing much of the region: how to tame the deficits that have fueled Europe’s debt crisis without undermining vital growth. The euro zone’s tilt toward austerity has contributed to an economic slowdown that is itself making it harder for governments to balance their budgets.
Public anger over the tough medicine is reshaping the continent’s politics, most recently upending the government of French President Nicolas Sarkozy and chasing from power Greece’s two largest parties, which had agreed to severe austerity measures in return for an international bailout.
The tensions between tackling runaway deficits and stimulating the economy are in many ways akin to those facing the United States, where political leaders are struggling to agree on the right balance. And with the U.S. recovery still fragile, Washington policymakers are watching Europe closely, worried that an escalating crisis there could knock the economy off track over here.
So far, Spain’s handling of these difficult choices has failed to restore confidence. Instead of winning support from international investors and attracting fresh investment, the austerity program has produced bitter fruit: recession, spiking unemployment and little faith that either growth or control of public debt are within reach. With investors still skeptical about Spain’s financial health, the government has to pay about 6 percent interest to borrow money. That rate is too expensive to be sustainable because it will boost the government’s obligations to a level that would be hard to pay off, setting up a deadly debt spiral and forcing Spain to raise interest rates yet higher if it is to convince anyone to lend it more money.
Officials in the current Spanish government, elected in December by a historic margin on promises to bring government budgets into line and revive the economy, are sticking to their guns.
A day after tens of thousands of Spaniards took to the streets to protest the government’s economic policies, Prime Minister Mariano Rajoy on Sunday defended the austerity measures as crucial for pulling the country out of crisis.