In Spain, fear grows that budget cuts are worsening nation’s crisis

The tens of thousands of unionists who clogged this city’s grand boulevards on a rainy May Day all had their story — of jobs lost or social benefits trimmed, of anger at government policies they insist are making things worse.

But the broad narrative of Spain’s downward economic spiral has been writ hard in the lives of Javier Laso and Begonia Martin, educated 30-something professionals who were doing everything right. With her government job as a physical therapist and his career as a civil engineer, they rode Spain’s boom years to a half-million-dollar home and made plans to start a family.

Then he lost his full-time job two years ago, and her paycheck is shrinking under government austerity measures meant to keep Spain out of international receivership. The dinners out and vacations they often enjoyed have been jettisoned to pay the mortgage in a cycle that ripples through the clubs and bars and shops they used to frequent.

Kids? The future?

That will have to wait.

“It is no frills,” said Martin, 30, shouting over the drums and whistles and shouts of marchers who snaked from the famous Prado Museum down Alacala Street to a rally under the colonial terraces of the Plaza Del Sol on Tuesday.

Red fumes rose behind her from a smoke bomb. Hundreds of signs, many emblazoned with pictures of scissors in a protest against government spending cuts, bobbed around her.

Spain – the unionists, politicians and outside analysts all agree – is in crisis, with unemployment now a shocking 25 percent, a recession underway and no return to growth on the horizon.

Yet cause, effect and cure have become increasingly muddled. The country’s problems may have begun with a crash in the real estate market that threw thousands of workers like Laso out of their jobs and undermined government tax receipts. But it has since grown into a more encompassing malaise, one arguably deepened by the very policies meant to help Spain’s economy by trimming public debt and avoiding a costly bailout.

Prime minister Mariano Rajoy won a strong victory just a few months ago on that very platform, but there is a spreading sense — even at places like the International Monetary Fund — that he has cut too far, too fast.

“Every Friday there is some new reform or some new tax,” said Roman Fernandez, 59, an auto parts maker approaching retirement as the government is reducing public pensions and asking retirees to pay more for health care.

It is the type of adjustment that economists and actuaries say is needed in aging developed nations in which the years of peak economic growth are likely in the past. Likewise, the five percent cut in pay that Fernandez said his company has agreed to make is part of the wage drop that many analysts feel Spain must endure to become more competitive.

Yet it is nonetheless disturbing as Fernandez frets not just for his own future but for his children’s, as well. One son, a construction surveyor, has been jobless for 18 months, yet another casualty of the bursting property bubble. A second son read the economic winds and moved to Germany.

The company where Fernandez has worked for the past 37 years has sliced its staff more than 50 percent in recent months.

“The work is going overseas,” said Fernandez, sporting a red bandana around his neck for the UGT workers union, Spain’s largest trade group. “They can do it cheaper there.”

Spain’s ability to right its economy and avoid international aid is considered central to calming Europe’s overall financial and economic problems.

The country had in some ways been a star performer, one of the few euro-zone nations that in earlier years had complied with debt and deficit rules that even Germany had on occasion ignored. Home to a core of globally successful multinationals, Spain’s exports of pharmaceuticals, clothing and high-end services have been among the country’s few bright spots.

But its households and businesses borrowed heavily in the good times and often plowed the money into real estate that, as in the United States, has since plummeted in value. If Spain fails to navigate through its crisis without outside help, it could trigger much larger problems for Europe and the global economy. Signs of tension within the country have been rising again: Parts of the banking system may need more public money, and a self-reinforcing cycle of job losses, mortgage defaults and falling property values is putting pressure on both lenders and family budgets.

As a blue sky gave way to rain on Tuesday, Bernadino Criado, a career truck driver, said he knows the country needs to rein in debt and spending.

But as he considers prospects for his daughter — still living at home at age 23, unemployed, and only now considering college — he said he feels the government is responding too harshly to outside demands without regard to the impact at home.

“This country can’t get its head up,” said Criado. “Cuts do have to be made, but it is going too deep.”

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