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Children Lose to Bailed-Out Bankers as Crisis Forces Cuts

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Photographer: Angel Navarrete/Bloomberg

Alonso Arroyo, aged 12, center, plays on his PC laptop at the family home in Madrid.

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Photographer: Angel Navarrete/Bloomberg

Alonso Arroyo, aged 12, center, plays on his PC laptop at the family home in Madrid. Close

Alonso Arroyo, aged 12, center, plays on his PC laptop at the family home in Madrid.

Photographer: Angel Navarrete/Bloomberg

Alonso Arroyo's daily medication, a growth hormone produced by Pfizer Inc. is seen in this arranged photograph. Close

Alonso Arroyo's daily medication, a growth hormone produced by Pfizer Inc. is seen in this arranged photograph.

Photographer: Angel Navarrete/Bloomberg

Maria Escalante, the mother of Alonso Arroyo, aged 12, injects her son with his daily medication, a growth hormone produced by Pfizer Inc., at their family home in Madrid. Close

Maria Escalante, the mother of Alonso Arroyo, aged 12, injects her son with his daily medication, a growth hormone... Read More

Photographer: Alessia Pierdomenico/Bloomberg

Prime Minster Mariano Rajoy ordered the regions to cut healthcare spending by about 5 billion euros. Close

Prime Minster Mariano Rajoy ordered the regions to cut healthcare spending by about 5 billion euros.

Twelve-year-old Alonso Arroyo is worried about his friend Dario.

Doctors in Spain (IBEX), where the government is cutting health spending while paying 23.5 billion euros ($29 billion) to bail out its third-largest bank, stopped Dario’s prescription of the 2,000-euro a month growth hormone both boys need to stop their bodies degenerating because of a genetic condition. Alonso doesn’t know his treatment was pulled too.

“We’ve developed capitalism to the point where it’s eating us,” said his father, Jose Andres Arroyo, who’s been unemployed since his trucking firm in Madrid folded three years ago. “How did we do this? We’ve trashed the European welfare state.”

The two Spanish boys, who also have learning disabilities because their illness slowed down brain development, have never heard of government bonds. They don’t know that their country’s banks plowed 300 billion euros into property developments, many of which are empty, or that Greek politicians lied about their debt. With the European financial crisis now in its third year, spending considered sacred in the good times is becoming expendable as governments weigh the needs of their most vulnerable against the threat of losing access to debt markets.

European Struggle

Spain is struggling to avoid following Ireland, Portugal and Greece in requiring a bailout from the European Union and International Monetary Fund. Greece is fighting to stay in the euro. The U.K., whose four biggest banks paid 32 senior executives a combined 103 million pounds ($161 million) last year, is in its second recession in three years. In all the countries, people who know little of the debt crisis are being caught up in it as medical aid and day care is scaled back.

“The welfare system was put in place when things were easier and cheaper,” said Gerard Lane, an investment strategist at Shore Capital stockbrokers in Liverpool, northwest England. “It’s difficult for a state to target those who need to get off welfare, but keep it for all those who need it. The definition of ‘need’ may change as living standards fall.”

While President Barack Obama suffers sustained attacks over his attempt to introduce universal health care in the U.S., the cradle-to-grave European welfare model established in the wake of World War II has become part of the continent’s identity.

Now those commitments are being undermined by the biggest economic crisis Western Europe has faced since the last shot was fired in 1945.

Emergency Room

Restrictions in treatment, care services and benefits will push more vulnerable people into more precarious situations, putting more pressure on the last line of defense -- emergency rooms and hospital intensive-care units. For many, that has disturbing similarities to the U.S. system where sick people without insurance get neglected until they wind up in the hospital.

“This is the U.S. pathological model,” said Ken Dubin, an American political scientist professor who teaches at the IE business school in Madrid. “Instead of spending a few thousand euros to keep these people’s health more or less in check, we are ending up spending 20,000 euros a day on them for a month or two months. It’s completely absurd.”

Spanish Prime Minister Mariano Rajoy is cutting about 7 billion euros of health-care spending, as part of a 45 billion- euro program of reductions and tax increases aimed at regaining the confidence of investors and lowering the country’s borrowing costs. The bill for bailing out Bankia, which paid former Chairman Rodrigo Rato more than 2 million euros last year, is undermining that effort, sending yields on Spanish 10-year debt to a record 548 basis points more than German bunds on June 1.

No Choice

Even with the anger the bailout provoked, Rajoy had to salvage the lender because it would have exacerbated economic problems had it collapsed, said Martin Van Vliet, an economist at ING Groep NV in Amsterdam.

“You have to rescue the systemic banks because if you let them go bust you can make the depression even worse and unemployment goes up even further,” Van Vliet said in a telephone interview. “If Bankia went bust, what would happen to the other Spanish banks?”

Alonso and Dario are focused on keeping up with schoolwork and the daily struggle to hold back the effects of Prader-Willi Syndrome, a genetic disorder that hampers muscle development and causes constant hunger cravings. They follow strict diets and exercise regimes. Until now, they’ve had daily hormone injections to retain basic mobility and stave off the morbid obesity that the condition can cause.

“Is Dario going to get really fat?” Alonso asks his mother, Elena Escalante.

Fighting Food

He’s a smiling kid who plays video games obsessively, supports five different soccer clubs and says he spends every waking moment fighting the urge to eat. When his parents talk politics he goes quiet, buries his face in his arms. His mom stretches out her hand. He squeezes it without looking up.

“He knows something’s going on, but we haven’t told him about the final decision,” Escalante said in a telephone interview. Without the hormone treatment, “he’ll slow down, physically and psychologically. The year you lose, you don’t get it back.”

Restrictions on prescribing hormone treatment that Spain introduced in May aren’t driven by spending cuts and won’t alter her use of the treatment, Isabel Gonzalez Casado, the head of pediatric endocrinology at Madrid’s La Paz hospital, where Alonso is treated, said in a telephone interview. She declined to comment specifically on Arroyo’s case.

Same Philosophy

While Europe’s commitment to solidarity may remain as politicians and voters from London to Paris to Athens question the austerity measures of U.K. Prime Minister David Cameron and those demanded in the euro area by German Chancellor Angela Merkel, the ability to pay for it is diminishing.

“It’s not a fundamental change in political philosophy, it’s how we cut back what we do,” said Mark Goldring, chief executive officer of Mencap, a U.K. charity for people with learning disabilities. “People are losing the opportunity to live a full life. Little cuts in lots of directions can cause a great amount of pain.”

Like the Spanish boys, Paula Leonard, who lives in a west London suburb, doesn’t know anything about the debt crisis or the measures Cameron says are needed to fix it.

‘No Voice’

The 48-year-old, who has Down’s syndrome, rarely speaks and needs constant care. The day-care center she has attended since she was a child is threatened with closure. Her mother is part of a group challenging it in the courts, claiming it unlawfully reduces the service without adequate consultation. The case was filed in the High Court in London on April 25, said Alex Rook, a lawyer at Irwin Mitchell, the firm acting for the parents.

“The mentally handicapped have no voice at all, they only have their parents,” June Leonard, 76, a retired community nurse, said in an interview from her home in Hillingdon, the London district that’s reorganizing day-care services. “We’re all concerned about what will happen to our sons and daughters. They are just swept under the carpet.”

Public spending is falling as leaders and investors demand deficit reduction. Total expenditure by the 27 European Union governments averaged 50.6 percent of gross domestic product in 2010 and is set to decline to 48.9 percent this year, according to the European Commission’s Economic Forecast for Spring 2012.

Keeping Up

Leonard, a widow with three other adult children, said if the center four miles from her home closes and Paula has to go to a new location further away, it may bring forward the time when she has to move into more costly full-time care.

“I know the time is coming when Paula might have to go into care and I’m dreading it,” Leonard said. “I need the day center to keep us going. It’s absolutely essential.”

Hillingdon Council said the changes are designed to improve service by giving people access to a broader range of activities in different places rather than in one center. “This is part of on-going service improvements,” Linda Sanders, the council’s director of social care, health and housing, said by e-mail.

While the U.K. economy slipped back into recession in the first quarter, the country has kept its AAA credit rating and 10-year government bonds, a key measure of national borrowing costs, yield about 1.5 percent. That compares with 6.2 percent in Spain, 7.1 percent in Ireland and 11.2 percent in Portugal, data compiled by Bloomberg show.

Needing Support

“You can’t cut services that people’s lives depend on and expect everything to be okay,” said Claudia Wood, deputy director of London-based research institute Demos. “Some don’t have any neighbors or family to fall back on and that’s where you’ll increasingly see instances of abuse and neglect and people dying alone in their homes without anyone knowing.”

In Ireland, whose voters last week backed Merkel’s tougher budget rules in a referendum, people are getting tired of the cost cutting. The last two governments have introduced 24 billion euros of reductions since the economy went into recession in 2008.

More than 100 parents and carers of children with special needs marched on the Irish Parliament in Dublin on April 24 to protest moves they claim are aimed at eliminating benefits for children with disabilities. Social Protection Minister Joan Burton said May 15 that payments to a small number of people were suspended because they failed to provide some information.

Cut Concern

Deirdre Kiernan, 44, who has a daughter Kate, 8, with autism and Down’s syndrome, attended the protest. She hasn’t had her benefits reduced, though is concerned they will be. The family receives 309 euros a month in help, plus an annual payment of 1,700 euros due in June.

“Once one little cut starts, where is it going to stop?” said Kiernan. “It will eventually reach us all and we are all going to have to suffer through the stress, the financial loss and the stress of worrying if we will ever get it back.”

As populations aged and wealth increased during the past two decades, spending on welfare benefits soared. In Portugal, it more than doubled to 22.5 percent of GDP in 2007 from 9.9 percent in 1980, according to the Organization for Economic Cooperation and Development. In Spain, the ratio increased to 21.6 percent from 15.5 percent.

The Portuguese government also is raising taxes and saving money after following Greece and Ireland in seeking bailout from the EU and IMF last year to avoid going broke.

‘Social Tragedies’

“Some families aren’t receiving much-needed subsidies to treat their mentally disabled sons and daughters, who stay home instead of coming to the center,” said Maria Antonia Machado, director of CEDEMA, an association of parents of mentally disabled people running a center for 32 individuals in Lisbon. “One of the big social tragedies of our time is the lack of support available for the mentally disabled. This has gotten worse over the past year.”

Escalante, Alonso’s mother, and her husband have known many people with the same syndrome through their work with the Spanish Prader-Willi Association and they’ve seen sufferers without hormone treatment grow morbidly obese.

Arroyo says he fears that without the treatment, six-foot, 189-pound Alonso’s weight will balloon within a year and his cognitive functions will deteriorate. His doubts about the European social model the family thought would protect their son are mixed with anger at those he says bear the real responsibility, such as the former Bankia chairman.

“They are cutting the one thing that gives him a standard of living somewhere near the other kids his age just to enrich Rodrigo Rato and four friends,” Arroyo said. “Maybe they could just enrich themselves a bit less.”

To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net; Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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