Spain's closed Don Quijote airport helps explain Europe's economic crisis

CIUDAD REAL, Spain _ The doors to the new air terminal are locked shut, the parking lot is nearly empty and the runway, built for Airbus A380 super-jumbos, has no traffic. The only breach in the silence over the nearby scrubland these days is the sudden whoosh of a train on the high-speed line to Segovia.

Aeropuerto Don Quijote, states the metal marker across the road from the boxy terminal, and like the wannabe knight of medieval fiction who tilted at windmills in Spain's La Mancha, imagining they were giants, this was the ultimate quixotic project.

It was conceived as Madrid-South, a second airport 100 miles south of capital, though only 50 minutes by train and across the tracks from where city fathers hoped to build the "Kingdom of Don Quijote," an entertainment park to include Spain's biggest casino. Unemployment in this town of 60,000 would have disappeared, and Ciudad Real would be on the map. That's not to be, for the airport closed down on April 13. At its closing, only a handful of flights used the facility each week.

Today the white elephant _ it cost about $650 million to build and possibly twice that, if roads and utilities to serve it are included _ is an object of national ridicule, a metaphor for Spain's crazy construction bubble and an example of the kind of spending that has made Spain as well as Greece and Italy poster children for Europe's economic malaise.

At the time, the Spanish government was running a surplus and its public finances were healthy. Then, the construction bubble burst and this nation of 47 million was plunged into crisis. Today, unemployment is more than 24 percent, the highest in the eurozone, and for people under 25 it's at a staggering 50 percent. Economists say the base figure could rise to 30 percent.

The local banks that loaned money for the airport, for infrastructure and above all for second houses or apartments for hundreds of thousands of Spanish families have largely collapsed, but the banking system still hasn't cleared itself of toxic assets. Spain's credit rating was recently downgraded to BBB by Standard and Poor, and it now pays nearly 6 percent for bonds, about three times what Germany pays. In the first quarter, the Spanish economy shrank by 0.3 percent.

Instead of calling for government spending to try to stimulate the economy, Spain's government, headed by right of center Prime Minister Mariano Rajoy, is preparing to raise taxes and cut spending, following the policy of austerity that the European Union's most powerful country, Germany, has demanded. It's a highly controversial move.

"This is not the way to stimulate the economy and employment," says David Taguas, director of the Institute of Macroeconomics and Finance, a Madrid think tank, and a minister in the previous socialist-led government.

Following that formula would take 10 to 15 years to bring unemployment below 10 percent, Taguas said. So Spanish leaders are pleading with other EU leaders for flexibility.

"What we're telling them is that I can take off 40 kilos but I cannot run a marathon the next day," said Inigo Mendez de Vigo y Montojo, the secretary of state for European affairs in the Spanish Foreign Ministry.

Today, construction, one of the engines of Spanish economic growth, is dead. "Our business is down 95 percent," said Lorenzo Wakonigg of Madrid, whose firm sells construction equipment.

"We've had a souffle economy, with revenue up 20 percent a year during the boom," said Jose Maria Arielza Carajaval, the director of the Aspen Institute Espana. Now that it's crashed, "the question is how we're going to grow poor and still live."

The country is showing strain in ways that couldn't have been imagined previously. King Juan Carlos, its once popular monarch, has been in the headlines recently for all the wrong reasons, and politicians are now asking whether he should step down, according to El Pais, the national daily. His son-in-law is under investigation for corruption and has been excluded from official acts of state. Last month, the king was photographed in Botswana, where he'd gone on an elephant hunt, with a woman who's not his wife.

"There's an increasing feeling of collective failure, and that our political or upper class has been corrupted," said Guillermo Solana, artistic director at Madrid's Thyssen-Bornemisza Museum. "Whenever there is a deep crisis, the crowd is off searching for a scapegoat."

The question that many are asking is why Spain's boom from 1997 to 2007 was exclusively in the areas of tourism and real estate, and whether the economy now can be diversified into generating export growth so that the current crisis never recurs.

People sense that "there something not sound here. We grow very quickly. We fall deeper than anyone, we suffer more intensely," Solana said.

"People don't think about long-term reforms and the long-term future," says Arielza of the Aspen Institute. "The quality of life in Spain has been so high _ the sun, the good food, the outgoing people _ that we are under a narcotic effect." He added: "We have no visionaries here."

As bad as the figures are, the outward appearance in Ciudad Real is one of stability and solidity, and in Madrid and in many other places, elegance and wealth. Where are all the unemployed? The common response is that Spain's saving grace is its "black economy," where tradesmen and small businessmen deal with customers in cash and don't pay taxes. Economists say such off-the-books activities may be a quarter the size of the official economy. As for the younger unemployed, they often live with their parents until they are 30 or even older.

Yet another answer is that the figures may not be quite so high as they seem. Full employment here means 7 percent are out of work, and some economist estimate it may really be 10 percent, given the number of people who call themselves unemployed in order to collect compensation.

"That's why the streets are not at war," says Milagros Hernando Echevarria, Spain's ambassador to Lebanon, who served in the inner councils of the previous government.

Much of the financing for the airport came from the regional savings bank, whose board was dominated by local politicians.

"The politicians used the savings banks to finance their regions," said Antonio Sanchez-Migallon Andres, former chairman of the confederation of business organizations in the town. He said they would lend money without guarantees. The main problem with the airport is that it was privately sponsored and built for speculation, to be sold for a profit.

He blamed "selfishness ... egoism" for its demise. Those who backed the project "didn't care if there were flights."

Yet if Ciudad Real's airport is a metaphor for Spain's boom-gone-bust, it has something that Madrid may lack: vision.

For its modest size, Ciudad Real thinks big. There's an ultra-modern rail station to serve the high-speed trains, a university and a mammoth new hospital to serve the entire region. The bullring has a fresh coat of exterior paint.

In the city's main square, a clock offers a rather strange puppet show hourly featuring a wooden Miguel de Cervantes holding a sword, a Don Quijote raising his dagger and his squire, Sancho Panza, lifting a jug of wine. The bells improbably toll the great chorale of Beethoven's 9th Symphony. Never mind that Cervantes probably never set foot in Ciudad Real, and the likely location for the 17th century classic he wrote is in a village at least 50 miles away.

What Madrid has going for it is a pragmatic drive for economic reforms and the confidence of its political elite that it will bring results. Rajoy's People's Party won an absolute majority in the Spanish Parliament in November and now is determined to change the way the country operates.

"This government is taking measures every Friday," said Mendez of the Foreign Ministry. The biggest reform was in labor rules, and the latest were reforms in education and health. "Spaniards know it," Mendez said, referring to the need for reform. "If you have a health system that is universal and free, it's all well and good. But if you have a crisis, you have to take measures."

Not that they've thought of everything. Indeed, the biggest threat to Spain's economy is that it will keep on sinking.

"It is difficult to be optimistic," said Jose Igancio Torreblanca, head of the European Council on Foreign Relations office in Madrid. "Without growth you cannot pay your debt, and it will keep piling up."

As for Ciudad Real, the city fathers will have to lower their sights. "Many people here are now pessimistic," Sanchez-Migallon said. "Our credibility has been hurt."

How does it feel to be a symbol of excess and of failure? "It bothers us a lot," he said. "Maybe we should be more modest."

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