You have taken everything from me! These were the words of Inocencia Lucha, a 47-year-old Spanish woman who recently walked into her bank in Almassora, Valencia, poured petrol over her body and set herself on fire. She was indebted to the bank, living on €360 (£303) a month, and had just received an eviction notice. Behind Spain's new unemployment figures, with 27% of the population now out of work, lie many such stories of desperation: in the last three months there have been 14 suicides where economic hardship was a factor reported in the media.

It is nearly two years since the indignados ("the outraged") took over public squares around the country to protest against the economy being run for the benefits of the banks and not the people. Now, from the Mortgage Victims' Platform (Plataforma de Afectados por la Hipoteca) to the Citizens' Tide – (Marea Ciudadana) a coalition of 350 organisations, from health workers to trade unions and youth groups, that have mobilised hundreds of thousands against privatisation and austerity – more people are making the journey from private sadness to public indignation. There is a dawning realisation that recovery is not, as the politicians promised, just around the corner. All signs point to a "lost decade"; figures published last week show a large increase in the number of those out of work for more than two years, indicating a newly growing underclass. The unemployment rate is a staggering 40% for some regions in Andalucia and 57% for young people; one in five people live below the poverty line.

Spinoza says that sadness arises from a disconnection from our potençia – our power to act. It is no coincidence, then, that the powerful use the language of shame to keep us impotent: unemployment and debt are the fault of the individual alone, they say, and social sadness a private affair. This is no doubt why María Dolores de Cospedal, general secretary of the ruling Partido Popular (PP), recently boasted that its supporters "would go hungry" rather than fail to pay their mortgage. (This, it must be pointed out, is one way to weaken your voter base.)

Cospedal was targeting the Mortgage Victims' Platform, which, through its campaigning, is transforming the isolating stigma of eviction into a groundswell of popular outrage that is fuelling practical action. Widespread mis-selling of mortgages contributed to the huge foreclosure crisis – running at 500 eviction orders a day – that is leaving families destitute and homeless. In just a few years the PAH has defended hundreds of homes from eviction and forced banks to renegotiate. Ada Colau, its spokesperson, is now a household name after calling the representative of the Spanish Banking Association "a criminal" during a hearing in Congress: "He is not an expert," she said. "The representatives of the banks are the cause of the problem."

The PAH trudged pavements for more than a year to gather 1.4m signatures, forcing the government to debate its proposal to change the draconian mortgage law where you can lose your house and still carry mortgage debt with you for life. Its other demands include a halt to evictions and social rent. This week the PP gutted the legislative proposal, despite a recent ruling by the Luxembourg court of justice that found Spanish mortgage laws contravened EU directives. Huge popular support for the PAH demands have put PP politicians on the offensive: politicians have described the group as "Nazis" and "terrorist sympathisers" because activists were doorstepping them in their homes to pressure them to pass the new law.

But it is the Spanish political class itself that is close to being discredited. Corruption scandals have implicated many key members and former colleagues of the government, including the prime minister, in taking undeclared money from the construction and property development industries responsible for the housing bubble. Mariano Rajoy, the prime minister, has become known as Mariano Plasma after giving press conferences via a TV screen so the media could not ask questions; during last Friday's sombre economic announcements he made no appearance at all.

Given the lack of accountability in the political process, social movements are finding other, creative ways to give voice to those suffering from the crisis, including the young people who have been forced to look for work abroad. According to El Pais, 260,000 people aged between 16 and 30 left Spain last year. An indignado group, Juventud Sin Futuro (Youth Without Future), is collecting portraits of these young Spaniards, holding up signs detailing their stories of unemployment, exile and insecurity under the slogan: "We didn't leave; they threw us out."

Meanwhile Madrilonia, an indignado blog, declares the entire economic model broken; the authors are not waiting around for someone to fix it but building their own alternatives, from the Catalan network of co-operatives to the Casa Precaria in Madrid that advises people on how to go about creating their own jobs through worker co-operatives.

Couple social deprivation with a democratic process that most people feel alienated from and you have a recipe for social unrest. The only question is whether protest will successfully create meaningful forms of political participation and democratic control over economic decision-making. The Citizen's Tide coalition, for example, is pushing for an audit of Spain's national debt under the slogan "We don't owe, we won't pay", and a referendum that will allow the population to register its opinion on austerity measures and privatisation. On 1 June it will join other social movements across southern Europe in street mobilisations against austerity and the Troika. Meanwhile, PAH members are increasingly turning to civil disobedience. The number of repossessed, bank-owned blocks of flats occupied by evicted families is growing.

Two years ago the indignados occupied the plazas of cities across Spain to protest against the crisis and demand a "real democracy". Now, it seems, indignation is becoming a generalised condition.