Spain will be the next Lehman Brother. Greece is just the dessert.

MADRID—Spain's worsening financial crisis remains a strangely low-key affair. One in five people here are out of work, but generous unemployment benefits, strong family support networks and a bustling informal economy are helping maintain people's lifestyles. Bars and restaurants in the city center are doing brisk business.

"It seems to me the situation here is less bad than in Greece," says Manuel Herrera, a 30-year-old Peruvian immigrant, who has seen the recent images of angry mobs protesting in Athens. "Here in Spain, the crisis is not so noticeable: People still go out for beers, to buy cigarettes, whatever."

But the Asian-restaurant chain he works for as a cook has closed down four of its 12 restaurants, and Mr. Herrera says he sees a sense of hopelessness setting in that could point to prolonged economic stagnation.

"The Spanish were not ready for this crisis," he says. "The situation's not getting any worse, but it's not getting any better either."

For years, Spain was one of the euro zone's biggest success stories. Membership in the common currency in 1999 brought historically low interest rates that fueled a credit and construction boom, which transformed the country into one of Europe's chief growth engines. Through 2007, Spain created more than one-third of all euro-zone jobs and absorbed four million immigrants.

The global financial crisis brought that crashing down. Spain is grappling with 20% unemployment and a double-digit budget deficit that threatens to land the country in a Greek-style financial crisis.

Though the government expects the economy to return to growth in the first quarter, that follows contractions in six consecutive quarters.

On Wednesday, Standard & Poor's cited low growth prospects resulting from mounting banking-system stress, high household debt levels and low export capacity as primary factors behind its decision to downgrade Spain's sovereign debt.

Thirty-year-old Eduardo lost his job as a computer programmer a year ago and says many of his friends are also out of work. He still isn't ready to take just any job: "There are jobs out there, but most of them don't pay to well, or they require higher levels of experience."