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Greek Vote Today Could Roil Financial Markets Worldwide

Two thousand years ago Greece invented democracy, which at its core is about the peaceful transfer of power from one leader or party to another. Today's election there is likely to be anything but peaceful and the consequences could be felt worldwide and might even have a big impact on the U.S. elections in November.

If you want a history of Greece covering the past 2000 years, check out this article in Wikipedia. Here you are going to hear about just the most recent 6 weeks. On May 6, the Greeks went to the polls to elect a new parliament and the results were indecisive. Thirty one parties participated and seven won seats in the parliament. The party with the most seats was the center-right New Democracy party, which got 19% of the vote. The radical left-wing party known by its initials SYRIZA came in second with 17%. The old social democratic party, PASOK, came in third with 13%. Various fringe parties got the rest.

To make a long story short, the gulf between what the larger parties wanted was so great, it was impossible for any combination of parties to form a coalition that would have a majority in the parliament. The main point of contention was how to deal with the crushing austerity measures the previous government had agreed to, which led to almost constant demonstrations and protests of all kinds. Eventually everyone threw up their hands and called for new elections, which will happen today.

Greek law forbids publishing election poll results within two weeks of an election, but some polls published before the ban took effect suggested that SYRIZA might be the largest party in the new parliament. It's fiery young (37) leader, Alexis Tsipras, has threatened to tear up the harsh terms imposed on Greece by the banks that loaned it $164 billion this spring to keep the government afloat. Under Greek law, the party that gets the most votes in an election gets a bonus of 50 seats in the (250 + 50 = 300 seat) unicameral parliament. If SYRIZA comes in first, it might be able to cobble together a small and shaky majority with the help of some of the fringe parties. If Tsipras became prime minister and then rejected the bailout terms, Greece might be forced to leave the euro.

There is a detailed procedure for new countries to enter the eurozone but no procedure for leaving it, so we would be in uncharted waters if that happened. What many people fear is that a SYRIZA-led government would simply start printing new drachmas and announce that as of a certain date drachmas were in, euros were out, the initial conversion rate was 1 to 1 but henceforth the new drachma would float against the euro and dollar. What a lot of governments and bankers are scared to death of is seeing their 100-million-euro loan to Greece become a 100 million new drachma loan at midnight when the new currency kicked in and have that be worth 20 million euros at 9 A.M. when the market decided that a new drachma was worth only 20 eurocents ($0.25).

Banks, including large U.S. banks, would instantly have to write down the value of their Greek loans, which would affect the stock prices of these banks and the entire financial sector. Nobody knows what the consequences of this would be. Spain and Italy might be he next to go. A financial panic or another recession would be possible. The U.S. electoral consequences would be unpredictable except that Mitt Romney would blame President Obama for mismanaging the economy and Obama would say that if George Bush had regulated the banks better in the first place, none of this would have happened.

CNN has a story about three possible future scenarios for the European Union.

The first exit polls will be released around 1 P.M. EDT.

Update: The New Democracy party came in first and will probably form a government with PASOK, stay in the eurozone, and avoid a crisis.

What If the Supreme Court Strikes Down Just the Mandate?

In 1993, the state of Washington passed a law similar to RomneyCare, but two years later the state legislature removed the individual mandate so people could wait until they got sick to sign up for health insurance. Predictably, insurance companies began pulling out of the state so that by 1999 it was impossible to buy an individual policy--no company was offering it.

Other states have tried health-insurance reform as well and in all cases it has become clear that in order for it to succeed, there has to be a mandate. If the Supreme Court strikes down the mandate--possibly as early as tomorrow--but leaves the rest of the law intact, there will be complete chaos in the health insurance market. If the Court strikes down both the mandate and the requirement that insurance companies cover anyone who shows up, the market will be protected but the situation will be hardly changed from what it is now.