It's not obvious, that's the first thing. Maybe it's because of the weather: Spain and Portugal are enjoying an Indian summer of quite improbable splendour, with clear, powder-blue skies, hot as June. As Juan Darriba put it in Seville: "It's hard to be down when you're blessed with this."

Partly, too, it's the fact that here so much of life is on the street. "We can't stay indoors," said Encarnacion Codeseda, in Huelva. "It's impossible for us. We have to be out. It's the way we are. And once you're out, well, you see friends. You're cheerful."

Some of it is down to pride. And because, as bad as things are, they could be worse. "The worst will be next year," predicted Ana Lobo, in Lisbon. "Now, it's almost still summer. In January, when it's cold and dark, electricity, public transport, bread, will go up. Taxes too, a lot. And pensions and benefits will be cut. Then it'll really hit."

Whatever the explanation, it is not immediately apparent, on a trip through the Iberian peninsula this past week, that the worst economic crisis since the second world war has got a grip. Cafe terraces are well occupied. Some shops might be boarded up but many are open and doing business. Life continues.

As always in such times people are doing fine – until one day, suddenly, they're not, any more. Then there's no shortage of stories.

Luis Alves, a 30-year-old freelance graphic artist in Lisbon, survives only because he works for clients outside Portugal. "The market here has died. Banks aren't lending. Everything, economically and politically, is blocked." Of all his social circle, he said, only two had proper job contracts.

Elsewhere, people speak of friends holding down two, even three part-time jobs. There is resentment, too, at the fragility of what little work is available: a system in Portugal known as recibos verdes, or green receipts, entails workers – hundreds of thousands now – being hired on temporary contracts which bring no social security or holidays.

In Seville Darriba, also 30, has two diplomas, in international trade and industrial safety, but beyond stints at a Citroën plant and the docks in Galicia, he has only ever worked as a waiter. "Even then they cheat you. They declare only half or a third of the hours you work so they don't have to pay full social security. It means if you're out of work you can't claim benefits because you haven't paid enough in."

Many predict an exodus. In Huelva, where 45% of all under-25s are without a job, Dani Martin, a trainee chef, is barely 20 but already resigned to leaving. "I won't find work round here," he said. He had worked in a cafe this summer but takings at Huelva's bars were down a third and the owner refused to pay him. "I've worked abroad before and I'll have to leave Huelva, probably Spain, to find a proper job."

The crunch is hardest, pensioners readily volunteer, for younger generations who grew up on cheap, seemingly limitless credit, with the impression that Spain's and Portugal's comparatively low wages (Portugal's minimum wage is less than €500, or £438, a month) did not necessarily mean an obstacle to smart cars or spanking new villas.

Those who remember the Portugal of the past take a more sanguine view. "We grew up in a different age," said Helena Martins, in Loule, on the Algarve. "Portugal was poor then. We know how to live simply. Lots of older people around here, especially in the countryside, still grow some of their own food. We shop sparingly and live on little. The young ones aren't the same. They don't know how to live within their means."

According to Martins, apartments in the town centre are being repossessed and sold at auctions now taking place almost weekly: "Flats that a few years ago would have cost €130,000 are selling for less than a third of that. People who have money are going to do very well out of this. I know a man came from Switzerland specially for one auction here."

But there is real hardship. Lisbon's Banco Alimentar, or food bank, the largest in Europe, distributes 12,000 tonnes of food a year to about 250 local charities, helping to feed up to 160,000 people last year. The number has been rising sharply over the past two years, said José Almeida, a retired mining engineer who helps run it. Those asking for food, he said, "are not the ones you'd usually expect". He added: "Couples who both had good jobs, and a high standard of living … then one's made redundant and they can't keep up the cars, the mortgage, the school. They turn to charity." Last year lawyers, engineers, even a judge sought help, he said.

So who do people blame? There's anger, plainly, at the banks.

"They threw money at people," said Martins. "They gave the impression it was Christmas every day."

In Spain, the property developers, financial institutions and politicians who fuelled the country's wild property boom, come in for a beating. There is resentment, too, at a state apparatus seen as over-large, inflexible, outdated and too hung up on paperwork, the last a constant complaint.

"There seems to be," said Renny Jackson, an English teacher, "an almost complete mismatch between much of what the state does and what people actually need. To be legally self-employed in Spain costs €250 a month, more than a third of what I earn. So many people are driven to the black economy."

Politicians of all hues are beyond redemption. "So much waste, so much corruption," said Javier Dale, a Spanish journalist. "Every election, millions and millions are wasted in towns around Spain because new town councils call a halt to expensive projects already started by their predecessors and start new ones of their own."

Elected leaders in both countries, people say, failed dismally to react to the global processes of the past decade (globalisation, and trade with east Europe, and Asia) that undercut Spain and Portugal's economic advantage in Europe – low wages. Too much EU money rather than being invested productively went on vast vanity projects.

"We have two motorways connecting Lisbon to Porto, but zero investment in technology," said Manuel Lourenco, a Portuguese businessman, "We have a lot of sports facilities, but we did not spend on education. We have a huge increase in the service sector, but we've destroyed our manufacturing sector. Nothing can be done now – the money was spent."

It is the recognition of the need for "an entirely new way, a properly participative way, of doing politics", and, in Alves's words, "a system that works for the good of all of the people, not just the profit of some", that is helping the growth of the region's Indignados movement. But there's a feeling, too, certainly in Spain, that it is not entirely the government's fault.

Darriba said: "In the north of Europe. I think people understand that if they don't pay their taxes then the health service, education, everything will suffer, for everyone. Here, I don't know. You see all this waste, this uselessness, and you think, why should I give my money to that? So here, you know, if you don't pay all your taxes, you're a clever guy. And I think there are a lot of clever guys in Spain."