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Good food cheap is remarkably easy to find in Madrid. Try TimeOut guides for most European destinations where they have published a full guide, as they organize their reviews of bars, restaurants, hotels, and attractions in an intuitive manner and offer the best pinpoint information that I’ve seen in a major travel guide (e.g, closest subway stop or bus line, etc.). TimeOut offers several of the following recommendations, which can be found in the sixth edition of their Madrid guide.
First, no visit to Spain is complete without a sampling of paella and tapas. The paella dish originated in Valencia, but most regions of the contry have produced their own variations over the years. La Paella de la Reina, at C/Reina 39 -just off the Grand Via and near the Chueca stop on the metro, is a local restaurant, and may appear unapproachable and overpriced at first, but the staff is accommodating of any attempt at the Spanish language - and the dishes are affordable for a full dinner in a major city.
You’ll cherish your quiet time at Reina once you venture out for a post-dinner drink in the area. BarCock, another TO recommendation, is down the way at #16. Tip: the prices double after 11 pm or so, as a replacement for a cover charge and as a way to ensure the clientele remains above-board. It has the feel of a London gentlemen’s club, and the drinks are well-poured. It is supposedly connected underground to the Museo Chicote, an Art Deco-era bar that once offered shelter to the likes of Hemingway and Orwell as Civil War shells were lobbed along the Gran Via in the 1930s. The Chicote is an easy walk around the corner and is definitely worth a visit for cheap drinks in a cosy hipster joint with a revolving door and half-moon booths - which makes up for some tortoise-like service.
In terms of tapas, La Taperia on C/Huertas (across the Paseo del Prado from the museum of the same name) offers a well-priced and placed menu del dia (set menu). The menu del dia is a good way to save on your dining experience - a larger lunch with set rates is often a good way to save on more expensive dinners when inexpensive, individual tapas can be substituted. Try Bar Tapas, north of Chueca and near the Plaza Alonso Martinez (a major metro stop). Here, there are several drinking and dining options for the 20- to 30-something set, with Bar Tapas providing tasty tapas. O’Connor’s is on the north side of Alonso Martinez towards the Estadio Bernabeu. Good pints, and always a friendly Aussie or Kiwi to talk to.
Finally, if you need carnivorous relief try La Vaca Argentina on the Plaza Isabel II, which is about two blocks west of the Puerta del Sol. Well-priced grilled meats and cheap Argentinian malbec made for a great meal -though bear in mind all dishes are a la carte.
Around the Prado area are good choices for food. The previously mentioned La Taperia is also good for breakfast (desayuno), as is the nearby La Plateria, which serves a variety of food and drink thoughout the day. Both places have outdoor dining in a nice, quiet plaza. Around the corner is La Cuatro Fuentes, Alameda 4, a very good restaurant that serves a quality, inexpensive menu del dia of less than 10 Euros. On Atocha, near the Anton Martin metro stop is Canas y Tapas, a local, old fashioned neighorhood place with good food and a very inexpensive menu del dia of 8.50 Euros. Farther down Atocha, closer to the train station is La Fuente de Fama, another very good place with a 10 Euros menu del dia--all the options were excellent.