When Standard and Poor’s downgraded nine European countries last Friday, they said plainly that European leaders were blinding themselves to the full crisis, ignoring the trade imbalances between core and peripheral Euro nations. But Germany’s Merkel doubled down on austerity, which has created a depression in Greece, with huge risks of default.

The trade deficit between the United States and the rest of the world was the major imbalance in the global economy in the last decade. It created the gap in demand that was filled by the stock bubble in the 90s and the housing bubble in the last decade. It is striking that the Post’s opinion pages are only open to people who try to conceal this fact rather than economists who try to explain this history to readers.

Earlier in the week, I wrote about how David Cameron wanted to use his leverage as a non-Eurozone member of the EU to wring concessions as a condition of signing treaty changes. At the EU summit, he presented his aims: basically, softening a financial transaction tax that the other countries in Europe want, and other policies that protect British banks. Because you need all 27 members of the EU on board with the preferred fiscal policies that really only affect the 17 countries in the Eurozone, Cameron thought he had the power to hold out. So Cameron vetoed the revisions to the Treaty of Lisbon. And then the Eurozone leadership, essentially France and Germany, went around Britain and negotiated a bunch of Eurozone side deals.

Six central banks took coordinated action to ensure liquidity for the global banking system. The European Central Bank, the Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland will provide lending of dollars to banks to ensure they can cover operations.

If the Euro Nations suffer a financial collapse, it could push the US back into recession. Italian borrowing costs soared again, beyond sustainable levels, risking that collapse. And there’s still little progress in sorting out the Italian or Greek leadership choas. This is not good.

With Greece knuckling under to the European financial “troika,” the pressure is now on Italy to impose austerity on itself, just as Greece did. Italy’s borrowing costs are now much higher than Germany’s and may be unsustainable. There are calls for Italy’s Berlusconi to resign, and a confidence vote focused on the austerity package may occur soon.

Let’s get up to speed on the latest out of Greece. When we last left things, Prime Minister George Papandreou’s tenure hung in the balance of a confidence vote on Friday. He survived the confidence vote, but only after agreeing to negotiations that will end his term as leader today.

Greek Prime Minister George Papandreou announced that he would hold a referendum on the latest austerity terms – and possibly even continued participation in the euro – a move that the rest of Europe looked upon with despair.

Everyone knew it was a losing battle, but everyone showed up anyway. In an uprising virtually unprecedented in its size, scope and diversity, malcontents united across Greece to push back against the government’s assault on working people.

Lost Decades looks at why the explosion of debt happened through the traditional lens of supply-and-demand. It examines the motivations and situations of people on both side of this debt. Why did demand for debt increase in the United States? The first reason Chinn and Frieden identify is the huge deficits run during the George W. Bush years. These are the trillions spent on the Bush tax cuts, the expansion of Medicare part D and wars in Iraq and Afghanistan that weren’t paid for.