Greek voters could set off the chain reaction today (update 2)

Update: June 22, 2011
Well, there goes any hope for realism. Papandreou narrowly survived the vote in Parliament, suggesting that lawmakers either ignored or didn’t hear from Greek voters on whether or not to oust the key leaders. Another shining example of democracy in action, ironically in its birthplace.

Would the result have been the same if the votes had come directly from the people?

June 21, 2011
Oxford, England

One of the reasons I love southern England in the summer time is because the days are so long. At 5:16pm British time (12:16pm Eastern) today, the earth will reach its maximal inclination toward the sun, marking the day of the year with the longest period of daylight in the northern hemisphere.

(conversely, this is the day of the year with the least amount of daylight in the southern hemisphere…)

All over the world, and especially in Europe, today is celebrated with holidays, parades, and festivals to commemorate the earth’s renewal to a season that brings¬† warmth, light, and growth.

It is no small irony that the ill fated Greek government is facing a vote of [no] confidence today, potentially representing a renewal itself. The vote is essentially a referendum on Prime Minister George Panandreou’s plans to implement severe austerity measures in a country that is literally running out of cash.

Greece’s cash position can now be measured in weeks. If the vote fails and the government is ousted, it is highly unlikely that the rest of Europe, the ECB, and the IMF will maintain their financial support, and a Greek default would be imminent.

If the vote succeeds and the government stays, it is still highly unlikely that they would be able to see through all the necessary austerity measures to trim the budget.

Here’s the underlying problem– the Greek government is so heavily involved in the economy that direct public spending accounts for nearly half of Greek GDP. Deep cuts are going to shake the foundation of Greece’s economy, including its generous entitlement benefits.

If recent history is any guide, it’s pretty safe to presume that most Greeks simply won’t allow that to happen. They’ll protest, they’ll riot, and they’ll cry out, “why should we pay for the political mistakes of the past?”

As such, even if the current government passes this no confidence vote, Greece will only be kicking its problems down the road.  The deep austerity measures that are truly needed to reduce its debt are simply unrealistic in a society that has become accustomed to such generous public spending.

Quite literally, the financial system as we know it may hinge on how parliament votes today. If they vote against Papandreou (and effectively against austerity), a Greek default will set off a financial chain reaction.

Greek banks would become insolvent. Many other banks with significant Greek exposure across Europe, especially in Germany and France, would suffer catastrophic losses. Even the European Central Bank, which has over 50 billion euros of exposure to Greek debt (and rising) would suffer terrible losses.

Other weak nations in the eurozone would likely follow the Greek example and default, not only causing another wave of losses to be realized, but also putting pressure on the fate of the euro itself.

Needless to say, political leaders in Europe will stop at nothing to ensure this doesn’t happen. So far they’ve managed to rob taxpayers, inflate the currency, and outright lie to the public. They all understand the consequences of default, and no one wants to be the guy in charge when the music stops.

They’d rather keep robbing taxpayers and throwing good money after bad to keep the party going. The wealthier nations in Europe, however, are getting sick and tired of supporting the debtors (not to mention US taxpayers are still the largest contributors to the IMF).

As their support fades, the long-term prospects of Greece emerging from this crisis without defaulting go to zero.

For the sake of Greece, Europe, and the rest of the world, we should all hope for failure in today’s vote. The sooner this system collapses, the sooner it can reset itself and be renewed.

Otherwise, this ridiculous soap opera could drag on for another 2-years, resulting in billions upon billions being flushed down the toilet of a foregone conclusion.

Precious metals, particularly when short against the euro, remain an excellent speculation… until, that is, it becomes illegal again. More on that later.