Spain stretched in trying to reach for the sun

Alburquerque, Spain: When officials in Madrid slashed support for alternative-energy programmes 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 lay-offs at the company that would have built and run the project, adding to an unemployment rate that is running at 30 per cent 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.

Difficult choices

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.

With investors still skeptical about Spain's financial health, the government has to pay about 6 per cent interest to borrow money. This 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. "We are doing what is needed and that means taking difficult decisions," said Rajoy as quoted by the Associated Press.

Official line

At the Ministry of Economy and Competitiveness, where offices are decorated with art on loan from the Prado museum, the logic is considered airtight: If Spain shows it can control its public accounts, then confidence and the economy will rebound. If not, it will become a casualty of Europe's financial storm. Along with deep cuts in many federal ministry projects, such as the alternative-energy initiative, the government has raised the income tax and put strict limits on regional budgets that are expected in coming months to affect funding for schools and health care.

"We want to convince markets that we are fully committed to policies that will make Spain sustainable," a top ministry official said. "The imbalances in this economy are very deep."

Some parts of the Spanish economy are doing well. A pair of major Spanish banks have spun profits out of the boom in Latin America, despite hard times in Europe. Transport firms are winning bids in the United States and elsewhere. Exports have been a bright spot. But in Alburquerque, in the land of conquistadors such as Pizarro and de Soto, there is a sense of shrinking opportunities. "It is a chain reaction," said Jose Lopez-Montenegro, owner of the local Horpebi cement plant in this hilltop village of 5,700.

Chain reaction

Local officials here, 200 miles from Madrid near the border with Portugal, say the proposed project by the NaturEner solar company was expected to create a total of about 1,000 construction jobs over the next two years. The local slate business remains depressed because the downturn in construction. Hog farming, an important local industry, has also crashed with the rise of more productive farms in other parts of the country.

And fewer hogs means less feed to sell. That makes for a double blow for Jose Luis Rasero Perez, owner of a combined feed and fencing store. He had hoped to install the fences that would ring the fields of solar panels planned for the Alburquerque countryside. This project would have created 20 jobs for two years, he said.

"I support the government, but this is affecting my business, my people, my town. We all have to make sacrifices, but this is going too far," Perez said. mayor Angel Espino, who spends his days protesting and lobbying the government in Madrid, describes a town struggling to stay afloat.

There are also doubts about how soon Spain might be able to get its economy back on a sound footing. Juan Jose Mayo was laid off from his job as a maintenance worker at Green Future, the company that was to manage the solar project in Alburquerque. He is collecting unemployment benefits, and his family also relies on part-time jobs that his two adult daughters hold in the nearby town of Badajoz. "In Spain there is no work for 50-year-olds," he admits.