TOLEDO, Spain—Thrown a lifeline to shore up its banks, Spain must now
show it can fix its public finances—or face an even bigger bailout. In the trenches of that struggle is Maria Dolores de Cospedal, an
up-and-comer in Spain's ruling party who inherited the deepest deficit
of the country's 17 regional governments when she became president of
Castilla-La Mancha a year ago.
Ms. Cospedal has taken dead aim at the red ink—closing schools,
dismissing teachers, privatizing hospitals and lengthening public
employees' workweek. The tough moves have earned her praise from credit
raters and Spain's conservative prime minister, Mariano Rajoy. An
economic payoff, though, remains nowhere in sight: Her region's
unemployment has surged and its growth rate wilted.
Ms. Cospedal's strategy is the kind of bitter medicine that aims to
rectify structural problems and set the stage for growth in the future.
But Spain doesn't have a lot of time. Bond buyers' aversion to its debt
threatens to force Spain into asking for a countrywide bailout, at a
likely cost to international rescuers far above the figure of up to €100 billion ($125.7 billion) earmarked for its banks.
Castilla-La Mancha is small region, but it poses a test of a crucial
question in the euro zone at large: whether austerity can nurse sick
economies back to health or, by battering their near-term growth, may do
more harm than good.
Last month, in a meeting at the ancient walled city's historic
Fuensalida Palace, Toledo's mayor implored Ms. Cospedal to ease up. Her
spending cuts were "strangling the economy and setting us back decades,"
said the mayor, Emiliano Garcia-Page, regional leader of the Socialist
Workers Party that had ruled Castilla-La Mancha for decades.
Ms. Cospedal stood firm. "It's not possible" to stop the cuts, she said. "The first thing we need to do is deal with the debt."
Part of what spurred her cost crusade was something discovered after
Ms. Cospedal, a telegenic 46-year-old, won the region's presidency in
May 2011: piles of unreported bills to suppliers. A spokesman for the
defeated socialist party said it had been steadily paying the bills off.
Nonetheless, their discovery doubled the size of the region's
previously reported budget deficit, pushing the 2011 tally to 7.3% of
its annual economic output.
That was more than twice the average for Spanish regions and nowhere
near a 1.5%-of-output goal for the regions recently set by the national
government.
Ms. Cospedal, who had pledged to promote jobs—"To the…unemployed,
above all, for you we are going to work hard," she said in her victory
speech—made thrift her first priority.
Some items presented ripe targets: a government fleet of Audis and
Volvos and a "mini embassy" in Brussels. And of the dozens of schools
she marked for closing, some had fewer than 10 students.
But many cuts have intruded deeply on daily life, such as a halt of
work on two new hospitals, a cut in public-employee pay and the
lengthening of their workweek. Hospital waiting lists have grown, and
students have seen professors dismissed.
She isn't through. Last month, her government unveiled a delayed budget for 2012 that lopped 20% off the prior year's spending.
After a year of this, unemployment in Castilla-La Mancha hit 27.1%
in the first quarter, up 5.4 percentage points from a year earlier and a
faster climb than Spain's national rate, which rose 3.1 points to
24.4%.
The region's growth has nose-dived. Its economic output had edged up
at a 0.6% annual pace in the quarter of 2011 during which Ms. Cospedal
was elected; but in the first quarter of 2012 it contracted at a 1.8%
annual pace, according to researchers at the Instituto Flores de Lemus
of the University Carlos III in Madrid. They estimate Castilla-La
Mancha's output will be contracting at a 3.1% annual rate by the end of
this month, the worst of Spain's statelike regions.
Labor leaders call Ms. Cospedal the "unemployment machine." A
Facebook page devoted to "hating Cospedal" caricatures her with scissors
for hands.
"She's cutting indiscriminately," said Juan Angel Organero, a
professor of biophysics at the University of Castilla-La Mancha in
Toledo who has seen funding for research wither. "Before, this region
was just agriculture, and it will return to that if you stop investing
in education," he said.
At the same time, there have been glimmers of improvement longer
term. Castilla-La Mancha was one of a handful of regions authorized by
Prime Minister Rajoy in March to issue debt for the first time since
2010, a reflection of a more solid position. The region has since
borrowed about €540 million of various maturities, with interest rates
around 5%, to refinance debt coming due and pay suppliers.
Moody's Investors Service assigns the region a credit rating below
investment grade. However, Castilla-La Mancha escaped a further
downgrade Moody's dealt to seven other regions recently.
Castilla-La Mancha "is very strict on the execution of the budget,"
said Marisol Blasquez, a Moody's credit analyst. Referring to the goal
for the region, she said, "They might not reach 1.5% [debt to GDP], but
they will make progress."
Seated in the region's parliamentary office overlooking a medieval
bridge across the Tagus river, Ms. Cospedal said in an interview that
the best way to help the people of Castilla-La Mancha is to reduce its
debt. The region's debt load stood at 17.2% of its gross domestic
product when she was elected, according to the Bank of Spain, and
declined to 16.6% of GDP in the 2012 first quarter.
"We cannot be drowning in debt if we want growth," she said. "I, too,
want to invest, but right now, with this deficit we inherited, it's
impossible."
The deficits must be reduced to lower interest premiums they force
the government to pay when it borrows, she said, describing a choice of
budget cuts vs. growth as a "false debate." A major fiscal adjustment,
Ms. Cospedal said, is needed to preserve health care and education in
the long run.
Luis Miguel Lopez, a 20-year-old studying management, voted for Ms.
Cospedal and is hopeful her policies will ultimately result in more job
options than now. "She's trying to revive things," he said outside a
supermarket where he works once a week handing out fliers. "Things have
to get worse before they can get better. I still believe she can do it.
It's still early."
Ms. Cospedal grew up in Castilla-La Mancha, trained as a government
lawyer and in 1996 went to work in the administration of Prime Minister
Jose Maria Aznar of the conservative People's Party. In 2004 she became
an official in the government of Esperanza Aguirre—head of the Madrid
region and a figure known for fiscal discipline and clashes with
unions—whom Ms. Cospedal has described as a mentor.
People close to Ms. Cospedal say she often eschews the sacrosanct
Spanish sit-down lunch in favor of sandwiches. She recently said
Spaniards should work harder and look to German companies as an example.
The People's Party in 2006 named her its leader in her home region,
grooming her for the presidency of a place that had been governed since
1983 by the socialists. Days before arriving in Toledo in her new role,
Ms. Cospedal, then unmarried and 40, gave birth to a son conceived by in
vitro fertilization. The move drew national attention and some
criticism from conservative constituents, but Ms. Cospedal, who wanted a
child despite being single, has called it "the best decision" of her
life.
In 2008, Mr. Rajoy, as national leader
of the People's Party, named Ms. Cospedal its secretary-general, or
second in command, the first woman to fill the role. Political analysts
see her as his likely successor at some point, and thus a possible
future nominee for prime minister.
Ms. Cospedal's rise faced a threat earlier this year when her
husband, Ignacio Lopez del Hierro, whom she married in 2009, was
appointed to the board of the partly state-owned power company Red
Electrica, a position critics charged was secured with his wife's help.
After public outcry, he turned it down. A spokeswoman for Ms. Cospedal
said her husband was offered the post on his own merit.
The real fireworks around Ms. Cospedal began in May 2011 when, newly
elected in Castilla-La Mancha, she launched her budget cutting.
Frugality campaigns have swept across Spain these days. The large region
of Catalonia has reduced public workers' salaries amid severe
belt-tightening. The city of Seville has put diapers on carriage horses
to reduce cleanup costs. But Ms. Cospedal, with her immediate and
across-the-broad cuts, captured national attention.
"There were no partial measures with Cospedal," said Eduardo Nolla, a professor at the University of San Pablo-CEU in Madrid.
Javier Gomez, who earned €2,000 a month working on forest maintenance
and in the region's helicopter fire brigade, found his employment
reduced in January to four months a year from 12. "It was a shock," said
the 29-year-old. "Last year I made €24,000, and this year I won't even
make €12,000."
One place felt a special sting. The cliff-side city of Cuenca has
long been propped by government spending, with hospital and other
public-sector jobs accounting for 80% of employment, according its
business council.
Before Ms. Cospedal's election, the regional government was in the
process of building Cuenca a second medical center—complete with
cutting-edge diagnostics, trauma treatment, day care for staff and 1,600
parking places—in hopes of attracting people and growth. The region was
planning to spend some €150 million on it.
Ms. Cospedal scotched the plan. Now the site has only a parking lot
and some stoplights that stand, unblinking, over an unused access road.
At the city's existing hospital, meanwhile, the budget is being reduced
by 18%, the workforce cut by 10% and some floors have closed. In April,
some rooms had three beds instead of the usual two.
Residents continue to have access to free medical treatment there or at another regional city.
Still, the cutbacks are rocking some citizens' core assumptions about what the state should provide.
"As a nurse and as a Spaniard, I wake up and think, 'What is this
nightmare? I cannot believe that in Spain this is happening, that they
would touch our health care and touch our education,' " said Maria Jose
Peralta, a nurse.
Before this year, Cuenca hadn't seen a significant protest march
since Spain's entry into the Iraq war in 2003. But in April, about 3,000
people joined a protest of the cuts.
Personal pressure has mounted on Ms. Cospedal. A group of severely
disabled people took to the streets of Toledo late last year to demand
payment of delayed subsidies and an end to a planned benefits revamp
that would limit direct subsidies and result in more disabled people
being treated in institutions. A procession of people in wheelchairs and
even a rolling bed moved slowly through the streets under the banner
"Pay us Cospedal, someday this could be you." TV and newspapers took
notice.
Organizer Jose Luis Gomez, who has two sons afflicted with a
degenerative disease, said he counts on monthly €950 payments to bolster
his teacher salary, and had to borrow from a bank and relatives to
afford medicine and food for his family because of the delay in
disability payments.
"I don't know if these cuts are necessary or not," he said, hunched
over a table at a cafe in a village outside Toledo. "But we didn't cause
the crisis, so why should we pay?"
Mr. Gomez said that thanks to the march, the regional government made
the delayed payments. The government said the march didn't influence
the timing. It defended the benefits revamp as a system that would
prevent people from using government payments for things other than
directly helping a dependent.
When Ms. Cospedal met last month with socialist Mayor Garcia-Page,
she hoped he would sign a unity pact supporting her new budget. He
declined.
"Nobody doubts there needs to be an adjustment of accounts in Spain," the mayor says. "But we're trapped in a downward spiral."
Ms. Cospedal then presented the budget without his support, saying, "To produce growth, we need cleaned up accounts."
A week ago, Ms. Cospedal, speaking to the press, addressed the
surging borrowing cost that is threatening Spain's ability to avoid a
full, country bailout. "We must gain confidence and credibility," she
said. "It's lost quickly, and it takes time to gain back."
Write to Sara Schaefer Muñoz at Sara.Schaefer-Munoz@wsj.com
(Publicado hoy en The Wall Street Journal, de Nueva York)
