At first sight, little seems to have changed this holiday season in Italy and Spain, despite Europe's ongoing economic crisis. The main shopping streets in Rome and Madrid were filled these past few days with Christmas shoppers. If someone had taken a picture of Rome's Via Condotti or Madrid's Gran Via avenues over the festive period, it would have seemed that the economic crunch in Europe was not serious at all. But a deeper look reveals a more nuanced picture, as hundreds of thousands of families in Spain and Italy (and many more in countries elsewhere in the eurozone) feel the worsening effects of the unemployment crisis. And, as several statistics revealed in the past few days highlight, there is little prospect of substantial economic improvement in 2014.

As soon as one starts to move away from the main shopping neighborhoods in cities such as Rome, Madrid or Barcelona — where the massive presence of tourists gives a misleading impression — one begins to see a growing number of closed stores, an encroachment of pawn shops, outlets selling used products and myriad small businesses struggling to survive. These businesses are among the main victims of the economic crisis in southern Europe, and several things are threatening their existence.  

Despite the recent announcement that the eurozone has emerged from recession amid timid projections of economic growth in 2014, unemployment is still at record levels in southern Europe and will remain high for the foreseeable future. This is hurting domestic consumption, which in turn hurts domestic companies — in particular small and medium-sized enterprises, the backbone of the European economy.

A report published by Italy's statistics office, Istat, on Dec. 30 revealed that 6.8 percent of all Italian households lived in "absolute poverty" in 2012, up from 5 percent the year before. This means that such families cannot acquire the basic set of goods and services considered essential for an acceptable standard of living. According to the report, the rise in poverty is explained by several factors, including the freezing of salaries and pensions and rising unemployment. While poverty and unemployment are still higher in southern Italy — especially in the regions that have traditionally been less developed — the crisis is spreading to the country's industrial base in the north. Consumer associations recently predicted that in the coming year Italian families would spend, on average, an additional 1,384 euros (roughly $1,900) due to rising prices in food, public transportation, financial services and fuel. In 2014, electricity rates will rise as well by 0.7 percent, further impacting household finances.

The situation is similar in Spain, where most salaries have been frozen while the cost of living keeps rising. In 2014, the minimum salary will remain unchanged for the second year in a row, while workers in the public sector will see their salaries capped for the fourth consecutive year. Another recent reform will allow future pension increases to remain below inflation levels. Inflation will remain relatively low next year (most likely below 1 percent), but electricity prices will rise by 2.3 percent. Meanwhile, a "temporary" income tax increase that was announced last year will remain in place through 2014. Because Madrid is struggling to meet the deficit targets it agreed to with the European Union, new tax hikes are likely in 2014. In this context, purchasing power for Spanish families will remain weak in the coming year, making a substantial increase in domestic consumption highly unlikely in the short to medium term.

Frozen salaries and rising unemployment are limiting the amount of credit available for small and medium-sized companies in the periphery of the eurozone, which are heavily dependent on banks for financing. Currently, banks in these countries are worried about two things: improving their financial situation and limiting their exposure to bad loans. As a result, credit conditions have tightened. Most banks are limiting their lending to struggling businesses as they purchase sovereign debt at attractive rates and borrow at cheap rates from the European Central Bank — whose promised intervention has made such activity relatively less risky. In its most recent lending survey, the bank admitted that credit conditions in the eurozone are still being tightened, but at a slower rate than before. The net percentage of banks expecting to tighten their loan criteria for businesses and households eased to five percent in the third quarter from seven percent in the second quarter.

Europe's current situation could be defined as a vicious cycle. Governments are under pressure from the European Union to reduce their deficits, so they are freezing pensions and salaries in the public sector while increasing taxes and reducing social spending. Households are seeing their purchasing power decline, while a growing number of families are limiting their consumption either because they have been affected by the unemployment crisis or they are afraid they could be. Banks are scared of making loans that could never be paid back, but they are enjoying the relatively stable financial environment created by the European Central Bank. Finally, small and medium-sized companies are struggling to survive, as domestic consumption is depressed and credit conditions remain tight.

For hundreds of thousands of families in the European periphery, this accumulation of issues offers little hope for improvement in their economic situation in 2014, even if the main shopping streets in Italy and Spain seem to offer a different picture.