The fluctuations of the financial markets and the relentless round of make-or-break euro-summits gripped the attention in 2011, but this will be the year when the shockwaves are felt by millions of people in Europe and beyond.

Throughout 2011, the language of bond yields, AAA ratings and credit default swaps leapt from City trading floors into everyday chit-chat as the eurozone crisis spiralled out of control.

Instead of answering first to their electorates, Europe's politicians became fixated on sating the demands of anxious investors in the bond markets for ever more drastic spending cuts. Preventing Italian bond yields from topping 7%, and protecting France's AAA credit rating became central policy aims.

But reducing the eurozone's malaise to numbers flashing on a screen only served to mask the fact that millions of livelihoods were at stake in what the technocrats call the "real economy", but most of us would call real life.

The policy of collective austerity imposed at the behest of the money men has driven the eurozone to the brink of a new recession. In 2012 it will be swept over the edge, carrying with it the jobs of millions.

It's hardly surprising people became increasingly angry as they watched policymakers fail so comprehensively to protect them from the lash of the speculators. From the street sit-ins of Greece's Indignati, to the thousands of young people who gathered in Puerta del Sol square in Madrid to demand a stake in their country's future, the public expressed their exasperation.

In 2012, their anger is likely to become more widespread and intense. A recent report by the International Labour Organisation in Geneva warned of rising discontent in many countries about "perceptions that the burden of the crisis is not being shared fairly". It said that even without a new global recession, it could take five years for employment rates to return to pre-crisis levels.

Young people have borne the brunt everywhere. In Spain, where the new government announced a radical package of austerity measures on Friday, the youth unemployment rate is now an almost inconceivable 45%; in Greece, it is 42.9%; in Ireland, 29.8%. That will take a heavy toll in shattered dreams and frustrated expectations. As Heiner Flassbeck, of the UN Conference on Trade and Development puts it: "Those that were not part of the party are having hangovers: that's the problem."

And it's only going to get worse. When Europe's leaders – barring David Cameron – pledged to boost the eurozone bailout fund and draw up a new "fiscal compact" to enforce budget discipline last month, they hoped (yet again) to draw a line under the eurozone debt crisis and escape the unforgiving glare of the world's financial markets.

But even if the new framework is drawn up and agreed rapidly, Europe's economies, including Britain's, face a desperate 12 months.

Across-the-board austerity – the only prescription considered by "Merkozy" and their colleagues – will weigh heavily on growth in the eurozone and beyond, even if the immediate crisis is resolved.

Flassbeck fears that the global economy is facing a "lost decade", akin to the prolonged period of stagnation and deflation that has afflicted Japan since the early 1990s, as austerity is piled on austerity, and demand is depressed.

Alongside the long-term danger of stagnation, there remains an acute risk that Europe's financial system will seize up. There is growing evidence that eurozone banks, with their exposures to the debts of peripheral eurozone economies, are finding it difficult to borrow at anything but punitive interest rates.

Despite drastic emergency measures from the European Central Bank (ECB), including pumping almost €500bn (£420bn) of low-cost loans into financial markets on 21 December, the banks are struggling to finance themselves.

That means, as the ECB president, Mario Draghi, has acknowledged, that a credit crunch akin to that in the wake of the Lehman Brothers collapse in 2008 may already be under way. If that starts to undermine ordinary savers' confidence in their banks, it could be catastrophic.

Italian and Greek consumers have been draining their banks of deposits for months in what amounts to a slow-motion bank run. If it became a full-blown collapse, the situation could quickly spiral beyond the control of the authorities, which is why George Osborne has told parliament that the Treasury and the Bank of England have drawn up detailed contingency plans to cope with a eurozone meltdown. It could yet happen – and soon.

Even if the financial system is stabilised and the eurozone holds together, though, the fragile banks are likely to cut back lending to Europe's households and businesses. And that's where the abstract idea of a credit crunch becomes reality: people lose their homes as mortgage lending is reined in; businesses lay off staff because they can no longer fund their operations. All this, ultimately, because of politicians' contorted efforts to placate the financial markets.

Yet even at the IMF, usually considered the bastion of the so-called "Washington consensus" of privatisation, free-flowing capital and balanced budgets, chief economist Olivier Blanchard recently blogged that financial investors had contradictory feelings about austerity, because it can often hit growth, and make it harder, not easier for governments to repay their debts. "They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth – which it often does," he said.

So even for the financial markets, at whose behest Europe's leaders are holding the axe over their hapless citizens, 2012 looks like being a very unhappy new year.