Special Report: Life in Europe's "squeezed middle"

LONDON (Reuters) - When the world's business and political elite gathers this week for the World Economic Forum in Davos, Switzerland, you'll hear a lot of talk about how best to solve the world's economic problems. What you'll almost certainly hear less of is how these solutions might affect -- are affecting -- regular people.

In Europe, as in the United States, the global financial crisis has hit tens of millions of people over the past three years: workers have been laid off or had to accept reduced hours or lower wages, houses have been lost, students face paying more to go to university.

Even as Europe has begun to grow again, parts are still struggling to deal with the impact of the crisis. Some people and families may have begun to see improvements following months of worry and belt-tightening, but that doesn't mean they will start spending freely again. The instinct to watch budgets, to save more, to avoid overextending, will linger.

You may not hear it at Davos, but the plans and hopes of a generation have been scaled back over the past few years, household by household. Even if good times return, that will affect the continent for years to come.

Following are five reports of relatively affluent people's experiences of austerity so far: life in the squeezed middle.

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SPAIN: Working Spaniards face the fact that they won't be as rich as their parents

By Tracy Rucinski

MADRID - Amelia Thomas, 37, used to dream of running a successful furniture design studio and trading the family's two-bedroom apartment for one with a room for each of her three daughters. Now she and partner Gonzalo Acha are planning on moving their bed to the entrance hall.

Sitting at a bright green lacquered dining table that Thomas designed especially for the Acha's sunny apartment in central Madrid, the mother of three outlines how Spain's austerity measures have hit them and others in the country's middle class.

The global credit crisis two years ago hit Spain hard, pricking its overinflated real estate market, fuelling an 18 month-long recession and pushing unemployment to over 20 percent, the highest rate in the euro zone. Some economists believe Spain may yet join Greece and Ireland in needing an EU bailout. So far, Spaniards have suffered salary cuts and VAT hikes as part of a government plan to reduce the budget deficit.

The Acha family is among the lucky. Gonzalo Acha, 52, earns 60,000 euros ($81,000) a year as an industrial engineer, nearly triple the national average of 21,500 euros. His salary was frozen five years ago. To help pay off their mortgage and pay for a few extras, the couple counted on a monthly stipend that Thomas received for sitting on the board of her father's architectural firm, as well as her frequent freelance work.

But in 2009 Thomas lost her board stipend because of the collapse of Spain's property and construction industry. Freelance work has dried up, and rising costs are putting increasing pressure on Acha's salary.

To make ends meet, the couple has cut spending by half in the past two years, and still needs to dip into savings every month. Nine-year-old Beatriz still takes weekly guitar lessons, but they scrapped her eight-year-old sister Leonor's music classes when she started to lose enthusiasm. Beatriz's private French lessons were dropped for the same reason.

Expensive meals at Basque or Japanese restaurants and shopping at designer boutiques have all disappeared. Acha, who handles the grocery shopping and cooking, now buys mostly generic brands. While confessing a soft spot for fine Spanish ham -- a national treasure which can cost more than 100 euros a kg -- he thinks Spain's era of extravagance has come to an end.

"We (Spaniards) lived above our means for a long time. The austerity measures are necessary," he says.

Snatching a moment while helping Leonor with her maths homework and adjusting the wings of four-year-old Isabel's fairy costume, Thomas nods her agreement. "We've cut all extras. We don't splurge anymore," she says.

CHANGING TIMES

The cuts point to a bigger shift in Spain. For the first time in at least three generations, Spain's young may end up with a worse standard of living than their parents. The unemployment rate for people under the age of 25 is over 40 percent and many young Spaniards, from graduates to laborers, say they expect to be worse off than their parents.

That's changing the way people view their careers and lives. While Thomas used to think she would go back to work so that Acha could retire early, now she believes her efforts are better spent giving him some relief in the kitchen. She has taken up cooking and is learning to expand her skills beyond Spanish tortilla.

"The crisis has forced me take a step back and evaluate these changing times. We went from being a poor society to becoming quite rich in very little time. Now I want to be creative in my own house," she says.

Thomas designed all of the sleek furniture in the home when she and Acha bought the apartment a decade ago. With her dream of a larger house in Madrid on hold, she's conceived a plan to divide the master bedroom into a space for her daughters and create a small area in the entrance hall where she and her husband can sleep.

"Our bed will just fit. We can crawl into it and I'll paint the walls dark and inviting," Thomas says.

What does Acha think of the plan?

"None of us will ever be able to live as well as our seniors do now," he says. "Those times are over."

(Reporting by Tracy Rucinski; Editing by Simon Robinson)

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GERMANY: Booming again, but shorter hours have left workers scarred

By Annika Breidthardt

MUNICH - Two years ago, Anna cashed in on the German government's cash-for-clunkers auto subsidy and bought her first new car in 13 years. Months later, she watched from her window as a hailstorm dented her new Fiat Panda. By that point, she wasn't even sure she could pay the installments.

Like more than a million Germans, Anna, a draughtswoman who works for a car-parts manufacturer, had just been told she'd be going onto "Kurzarbeit" -- or shorter working hours. "When I saw my name on this list, shivers ran down my spine," says the outgoing 39-year-old, sitting alone on the sofa of her rented farm cottage, her back to a traditional oil-fired stove that also serves as coffee-pot warmer.

"I thought, 'What have I done to deserve this?'"

A government-subsidized program that allows firms to cut workers' hours rather than numbers, Kurzarbeit is one of Germany's signature responses to recession -- and in Anna's case, it has worked, as she's now back full time at work and busy. Other parts of Europe may still be contracting, but Germany -- Europe's largest economy -- grew by 3.6 percent in 2010, with the number of unemployed falling below 3 million.

Kurzarbeit was designed to contain social tension and keep as many people in work as possible. It has been hailed by economists and politicians as a key factor in Germany's surprisingly confident exit from the deepest recession since World War Two. At the height of the crisis in 2009 more than 60,000 German companies made use of the scheme, which cost the government employment agency 4.57 billion euros ($6.16 billion) in 2009 and 2.94 billion euros in the first 11 months of 2010.

It's a system governments in more heavily indebted countries would struggle to imitate.

But for those people on the list, it was a blow -- especially as, according to Anna, who asked to be identified by her first name only, selection was an arbitrary process, often subject to favoritism on the part of managers.

"I had felt so secure," says Anna. "I always thought, 'I've been at this company for 14 years... Others will be let go before I'll be asked to leave.' So I bought a new car to replace my old rust-bucket."

As the warmth from the stove slowly seeps into the terracotta-painted room that she renovated herself, Anna says she'd always thought she could handle Kurzarbeit and might enjoy some time off -- until she was the one having her shifts reduced.

In the end, she says, handing round homemade Christmas cookies, she was one of the lucky ones: she was forced to stay home for fewer than 20 days in 2009 and worked full time during all of 2010. Just six months after ending the Kurzarbeit program, her firm now has orders flooding in.

"Now there are endless orders, so we had to agree to working more shifts," she says.

However, as a member of the works council, as the employee boards that operate in many German companies are known, she was approached by so many colleagues for advice that her doctor says the stress brought on tinnitus which she still has today.

One of those colleagues was a father of two who works in logistics and was put on 100 percent Kurzarbeit in 2009. Max, as he identifies himself, stayed at home for two months. Being on 100 percent Kurzarbeit meant he could not work at all, but picked up 80 percent of his wages. Federal funds met about 60 percent of his pay package and the company paid the rest.

CASHING IN SAVINGS

Max, invited by Anna to her home to discuss his experience, is a stockily built bundle of energy, unable to stay sitting still for long. He is interrupted repeatedly by his mobile phone ringing with "Wavin' Flag", the promotional anthem for the 2010 soccer World Cup. Now he too is back at work, and it's always the office on the line.

As their company races to keep up with the success of German flagship carmakers like BMW, Mercedes and Audi, Anna and Max's works council has convinced management to agree to a one-off bonus of 1,000 euros per employee to reflect the industry's improved performance.

But Max says he would not wish the frustration of Kurzarbeit on even his worst enemy: it came without warning, and he still feels the effects today. "On Friday I was escorted out of the building," he recalls, taking a large sip of his coffee. "On Monday, I was at the bank, trying to refinance my house. Try doing that during that crisis."

Max earned 2,100 euros net a month before the crisis. When Kurzarbeit hit, his wife was not working because the couple had just had a second child. Kurzarbeit and overtime cuts slashed his income to about 1,400 euros, which would have left just 100 euros a month for a family of four to live on if he had not managed to refinance his mortgage.

"I had to sell all my life insurance policies and savings plans. I had no choice. My (mortgage) payments are now half what they were before but I'll be paying off the house until the end of time," he says. He even sold a life insurance policy he was given by his grandfather that was close to being paid out. Now thirty-something, he has no private retirement provisions left, which is storing up more pain for him and his children.

The family got used to shopping at discount stores, there were no more spontaneous gifts for his wife and daughters and they haven't been on holiday since before the crisis, even though his wife owns a house in her native Turkey. "Sure, my daughters loved having me at home more but a few more months and I would have lost the house," Max says. "The overdraft was at its limit... I got a lot more careful about what I'm spending, and that won't go away."

Nonetheless, both of these German workers feel Kurzarbeit was better than mass layoffs. "Management wanted to cut our wages by 10 percent, cut three or four days of holidays and cut our Christmas and vacation pay, plus they threatened to let go 700 (of about 2,000) workers," Anna says. "So Kurzarbeit was definitely worth a try."

(Reporting by Annika Breidthardt; editing by Stephen Brown, Sara Ledwith and Simon Robinson)

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GREECE: There's little to cheer about at home, so Greeks look abroad

By Ingrid Melander

ATHENS - With their two-year old daughter Kalliopi busy playing with her activity table in the family's cozy living room and another baby on the way, George and Georgia Katharaki, both 35, look like an idyllic Greek middle class couple. George, a doctor, and Georgia, an English teacher, were lucky enough to be given their northern Athens apartment as a gift by their parents and quickly learned to enjoy the mortgage-free life that many young Greeks had in the boom years after their country's entry into the euro zone.

Last April, though, just as the debt crisis forced the Greek government to ask the International Monetary Fund and European Union for a bailout and agree to severe spending cuts, George finished his training as a surgeon only to find it impossible to land work in a public hospital. Around the same time, Georgia, who works in the state system, was forced to take a serious income cut -- losing the 1,350 euros ($1,800) in annual bonuses she had grown used to, a huge hit given her basic pay is just 1,300 euros a month.

By the end of last year, the state of their finances was grim. Every cent was counted, they said. Every purchase pondered.

"If things don't get better here in a year, we are thinking of moving abroad as a family to a country like Denmark or Sweden, where they need doctors and the salaries are better," George said late last year, sad at the prospect of leaving friends and Greece's blue seas and clear skies behind.

The crisis in Greece -- the country has registered nine consecutive quarters of contraction -- is reshaping the country. In addition to the tough austerity measures brought in to meet the terms of the 110 billion euro EU and IMF bailout, the optimism of the good years has all but vanished.

At 13.5 percent, Greece's unemployment rate may not be as bad as Spain's but it continues to rise and is forecast to reach at least 14.6 percent this year. Unemployment among young Greeks is higher still. Little wonder that in a survey for a center-left newspaper last August, seven out of 10 Greek college graduates said they wanted to work abroad. Not since the aftermath of World War Two, when Greeks fled poverty for a better life in places like the United States and Australia, are so many in the Mediterranean nation looking abroad for their future prospects.

A NEW CHANCE

Just before Christmas, the Katharakis got lucky. After months of searching for a job as bills piled up, George was offered work on the island of Crete, where Georgia's parents live. The job -- the health ministry finally opened up some positions in public hospitals -- will pay about 2,500 euros a month including overtime and weekend shifts. Though the contract is only for a year, the couple didn't hesitate. They moved to Crete in mid-January, leaving behind their flat -- the folders of medical cases for George's PHD piled up on the large dining table, wedding pictures now in boxes -- in case their stay in Crete is not extended.

The past year has been tough, Georgia says. It will take some months to get back to where they were financially. The couple had to spend nearly a third of Georgia's salary to pay private day-care for Kalliopi after staffing cuts meant they could not get her into the local public day-care center. They cut out all spending but the minimum -- food and what they needed for the house.

Without the support of their parents, Georgia says, they would have had much bigger problems. Even with George's new job, the couple remains anxious.

"Even now we don't know what the future will be like because the job is just for one year," Georgia said just before the couple left for Crete.

They may yet join the growing wave of emigration. "It's a very big decision because we like our country, and our parents and our friends are here," George says. Then there's the idea of adjusting to a new place with its different customs and language. He asks his little girl to say the only word she knows in English.

"Fish," she says. (Reporting by Ingrid Melander; Editing by Dina Kyriakidou and Simon Robinson)

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ROMANIA: For those who avoided the debt party, hope for a better year ahead

By Luiza Ilie

BUCHAREST - Mariana Stefanescu is fresh off a 24-hour shift as a neurosurgery nurse at a Bucharest state hospital. Her kitchen smells of coffee, pears, fresh flowers and home-cooked chicken.

Through the open window, car horns and the clatter of trams mark a typical morning's traffic on one of the busiest streets in the Romanian capital. Mariana's husband Dan is away on a work trip, their children, Andreea, 9, and Vlad, 8, are at school.

Mariana, 42, runs through the family budget: her monthly salary, including overtime and night shifts was cut last year to 1,400 lei ($437) -- a little above the average wage in Romania -- from 2,000 lei. Dan, 37, who works for a charity foundation, has brought home 1,000 lei a month for years.

Like most families in Romania, where GDP per capita is less than half the EU average, the Stefanescus learned to live cheaply long before the recession hit. Over the past two years, though, as the government cut state wages by a quarter, slashed bonuses and jobs and raised value added tax, they've concentrated on making sure the basics are in their supermarket cart.

While they don't feel deprived, the family lives from payday to payday. They do not eat out, Stefanescu says, and save next to nothing. They keep postponing an eye check-up for Dan, who squints when they watch television. They switch off the light every time they leave a room.

"The children still get dessert, but the (chocolate) Kinder egg is now rare, a reward," says Mariana, a lean tall woman, with auburn hair, a melodic voice and a welcoming smile that both her children have inherited.

DODGING THE CREDIT TRAP

Around two years ago, Romania was the European Union's fastest growing economy. Foreign investment poured in, as did cash from Romanians working abroad. As elsewhere in eastern Europe, an influx of cheap credit triggered a shopping frenzy among Romanians eager to catch up the West.

Now most of those gains have gone. The currency has lost roughly a fifth of its value against the euro since its 2008 highs. Hard-currency loans, which posted double-digit growth in the years before the crisis, now account for more than half of all private loans, weighing heavily on tens of thousands of mortgage holders.

On the streets of Romanian cities, where currency exchange offices once dealt with a flood of remittances sent by Romanian migrants, pawn shops and second-hand stores have multiplied.

Central bank data shows Romanian private lending was, at some 41 percent of GDP in 2009, among the lowest in the EU, where the average was 150 percent. But roughly half Romania's labor force, or 4.5 million people, have an average of two loans with banks or other financial institutions. One in 10 is behind on their loan payments.

The Stefanescus are glad to have dodged the credit trap. When they inherited a 65 sq-meter (699 sq-feet), two-room apartment from Dan's grandmother in late 2007, they decided to sell it, take out a loan and then buy a three-room flat. Then the financial crunch came, strangling lending.

"It was for the best," says Stefanescu, who last autumn joined several thousand protesters at two of the largest rallies against the government's austerity measures. "It would have been impossible for us to repay it now."

Instead, the family moved into their apartment last June. Dan set to work, painstakingly removing an old kitchen wall brick by brick. Stefanescu, who spent 14 years working with children with Down's Syndrome before becoming a nurse, splurged on a couch that turns into a bed. "After all that hard work, our backs deserve a good mattress," she says.

The couch, which cost about 850 euros, took four installments to pay off. One of Stefanescu's favorite spots is the kitchen table where the entire family can sit down for meals together.

The light-filled apartment, an endearing mix of mismatched furniture, is a long-term project. The couple plan to improve as they go: a new closet, a bigger TV, maybe a DVD player. The government will reverse some of last year's public sector pay cuts in 2011, which will help.

"This country has more to learn about treating its people with more respect," Stefanescu says, "but ... economically at least I believe this year will be better than the last, that the crisis is past and that we will gradually recover."

(Reporting by Luiza Ilie; Editing by Simon Robinson)

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BRITAIN: Making plans before the axe falls

By Avril Ormsby

LONDON - Christine Goldsmith is working out how to cut back so she can keep sending her six-year-old son Aston to weekly private Mandarin lessons. They cost more than 700 pounds ($1,100) a year, and though she would like to send her other child, Misty, 3, she can't afford to. "I am adamant, it's the one thing I am keen on, for my children to have an additional skill," she says.

Aston is still learning the basics, and is sometimes reluctant to go, but Goldsmith believes it will not only help with a possible future career, but also ground him in things "other than football and boys' things. I insist he goes. All the other stuff he gets away with, but this is one thing I say 'no, you're doing it, like it or not.'"

Goldsmith herself is unemployed. But thanks to Britain's policy of mixing affordable social housing with high-end real estate, she receives a subsidy from an independent not-for-profit housing association. She lives with her family in one of the most prestigious parts of London, next to the landmarks of Westminster Abbey and Big Ben, where property can easily cost more than a million pounds.

It's not a privilege she takes for granted: there is no way she, her partner and two young children could live in such an area without some form of assistance. So far, the family has been insulated from the impact of a cap on housing benefit which the government introduced as part of its 81 billion pounds of public spending cuts.

Housing charity Shelter says the housing benefits cap could change the make-up of London, creating concentrations of poverty across the city. That would emphasize income inequality in a country where it is already high.

"We're so lucky being so central," says Goldsmith, sitting on a soft brown sofa bought from a discount online store in the spacious L-shaped living room of her two-bedroom flat. An enormous flat-screen television, its picture on pause, sits at the other end of the sparsely furnished room.

"We've got MPs (Members of Parliament) living around the corner," she says. "The flat is big and modern, exactly what I like. It is ideal for me: the children's school is nearby, I know people in the area, the transport connections are good."

The family's annual income of about 32,000 pounds, brought in largely by Goldsmith's partner John Ougan, who works taking emergency calls in London's police force, is just above the national net average; but in one of the most expensive cities in the world, they would be hopelessly short without help. Their rent at 600 pounds a month is a third of what they could be charged on the private market.

BUSINESS ON A CREDIT CARD

A secretary and clerical worker who has not worked since Misty was born, 37-year-old Goldsmith has been saving money toward launching her own business -- selling hair and beauty products for black women. She's excited because she is set to open a stall, funded through her credit card, with the longer-term aim of owning a shop. She's had promotional leaflets printed, and distributed them around libraries and schools. "I am banking everything on this," she says.

At one time she was on a list for a business training course, but the money was pulled as talk of the funding cuts grew, she says.

She is concerned about John's job. More than 300,000 public sector roles are expected to disappear under current government plans to tackle a record peacetime budget deficit approaching 11 percent of national output. That will include thousands in the police force.

Even if he keeps his job, John can expect to see his income frozen for the next two years and will have to pay more into his pension. "If John lost his job we would probably have to move, which I don't want to do right now, but we would obviously have to be realistic," Goldsmith said. "We would have to get on with it, but I'm trying not to let that happen."

She's dropped her gym membership, which will save about 70 pounds a month. "Aston got a new jumper and lunch box for school this year, but I don't see the need for a new uniform each year," said Goldsmith.

She always looks for the special offer labels when shopping, but spending will be tighter in future since the VAT sales tax rose 2.5 percentage points to 20 percent on January 1. The family still goes abroad once a year, but they don't eat out much, and they often spend their weekends cycling around the city's parks rather than on expensive trips.

The government says the cuts are fair and needed to restore confidence in financial markets and keep its borrowing costs down.

Goldsmith, who has been campaigning with the charity Save the Children for school meals to be made more accessible to low-income families in her area, agrees waste could be cut.

"I just think some things are unfair," she added. "Although I'm not destitute and I am capable, the one thing I haven't got is cash in my hand."

(Reporting by Avril Ormsby; Editing by Sara Ledwith)