UPDATE 1-Spain's slow recovery yet to be felt in austerity-worn capital
* Madrid lighting maintenance staff latest to stage walkout
* City budget cut by almost a third since 2008
* Investment per inhabitant down by two thirds from 2008 to 2011
* 4,500 bars and cafes closed in the last four years
* Madrid unemployment at one in five
(Adds lighting workers begin strike, new comment)
MADRID, Dec 12 (Reuters) - Hundreds of street lamp and traffic light maintenance workers began an open-ended strike in Madrid on Thursday, the latest in a succession of public-sector worker walkouts to hit Spain's austerity-pinched capital city.
After five years of on-off recession, Spain's economy is showing the first signs of recovery, mainly fuelled by an uptick in the country's exporters.
Yet the optimism emerging in business circles hasn't yet trickled down to Spain's cities, which are still reeling from a crash in employment rates and cuts in local government spending that have reduced services from hospital care to street cleaning and halted public works projects.
Madrid, once a symbol of the country's economic surge of the 1990s and early 2000s, is now emblematic of its painful, slow recovery.
Madrid's spending budget, not including payments on debt, has been slashed by almost a third since 2008, as Spain struggled to bring down one of Europe's highest public deficits.
Investment per inhabitant dropped by around two thirds from 2008 to 2011, more than any of Spain's major cities. It was largely unchanged in Barcelona, Spain's second-largest city.
Next year the mayor proposes a slight hike in spending, but budgets for tourism, the arts and sport will all be cut again. One in five of Madrid's working population is without a job - better than the 26 percent national average, but dismal considering the city's unemployment rate was just 8.3 percent before the economic crisis began five years ago.
The result has been a steady outpouring of popular discontent. In November street cleaners and gardeners downed tools for 13 days, leaving the city's streets pockmarked with overflowing bins, dead rats and pigeons and its drains choked with piles of autumn leaves.
The city is also plagued with intermittent strikes by public transport workers, protests by nurses and doctors over the partial privatisation of hospital management and threatened walkouts by park workers and protests by workers in blood transfusion centres. Many of the city's public buildings are in disrepair, and proliferating pot-holes have made cycling more hazardous.
Though tourism has risen this year on Spain's popular beaches, visits to Madrid fell by about a fifth in August from a year earlier, the worst on record for the city, while Catalonia, home to the more popular seaside city of Barcelona, welcomed 12 percent more.
"Before the crisis, Madrid was a very clean city with well-kept parks. And it was always so full of life, the streets full of people, no matter what night of the week you went out. Now, it's dirty and you almost never need to reserve for restaurants anymore," said Elena Ines, 46, who sells lottery tickets on one of the city's main shopping streets.
Thursday's strike by some 720 lighting maintenance workers has been prompted by the city's decision to award a new contract for lighting services, including control of street lights and traffic lights and the illumination of fountains and statues.
Union representatives say they fear the contract will be awarded to the cheapest bidder, who will likely save costs by cutting salaries.
While the union has been pushing city hall to reveal the conditions of the new contract, they say there has been no indication yet who will win the contract - and what, if any, cost cuts will follow.
Unions say past tenders for street cleaning and hospital laundry have led to cuts in wages and staff numbers.
Two affiliates of the foundation that recently won a four-year hospital-bedding laundry contract for 46 million euros saved the Madrid region 36 million euros from its previous deal, the region said. Many of the savings came out of worker salaries.
"They've offered us lower than minimum wage of 620 euros a month, a 60 percent cut for many of us. We just can't handle this. It's impossible," said Francisco Ronco, head of the workers' association that launders bedding for 19 hospitals in the Madrid area.
Dionisio del Torro, responsible for Madrid maintenance workers for Spain's largest union CCOO, now fears a similar fate for lighting crews.
"We are now waiting for city hall and whichever company wins the contract to tell us what the new conditions will be," del Torro said.
Civic pride took another dent on Sept. 8, when the city lost its bid for the Olympics for the third time after running for the 2022 games, despite already having built most of the necessary infrastructure.
Meanwhile, because of a rise in airport fees, low-cost airlines EasyJet and Ryanair have cut flights at Barajas international airport.
In a city that socialises outside the home, given the typically cramped apartments, 4,500 bars and cafes have closed in the last four years, more than a third of them in 2012 alone, according to industry association La Vina.
Retail sales in Madrid have fallen by more than 20 percent in the last six years, compared with 16 percent nationally.
Celinda Garcia, 56, who runs a delicatessen in a middle-class district in Madrid, says that, while on paper, the economy is improving, her clients are cutting spending more than ever.
A few years ago it would have been unthinkable for her customers to pay for food staples with luncheon vouchers - a popular fringe benefit in Spain that workers use to pay for their main, sit-down meal in a restaurant at 2 p.m. Now her till is full of them.
"Many have started paying for bread, milk and ham with luncheon vouchers, much more than last year. They're taking restaurant tickets their employers give them and using them for the basics," she said.
(Editing by Janet McBride and Will Waterman)