"You want the money ? stick to our rules or you will get nothing !"
That the reply from EU leaders to Greece after Greece shocked them with a referendum call which lead to EU leaders holding an emergency meeting yesterday before the G20. Sentiment was good prior to the Greece's referendum towards the G20 as EU leaders intend to woo BRICS leaders to invest in the EFSF funds to build on their small little positive step the week before from the EU Summit in resolving the EU debt crisis.
The sudden Greece's referendum has "burnt the bridge that was just built" basically. A "NO" vote in the referendum would mean Greece will be out of Euro and should go into total default which means private investors to Greece's debt will have to totally write-off the investment as compared to just taking 50% haircut. The actual real impact on the Greece's referendum is not about Greece but rather on Italy or Spain. In a nutshell, Greece already in deep recession and already gone deep into austerity measures to reduce the debt ( which made all the Greeks so angry ), the only way Greece to save themselves is get out of Euro, total default and restructure themselves again. That move will have a short-term damage to Euro and Greece but in a longer term perspective, good for Greece.
With the Greece's referendum, investors are shifting their focus to Italy and Spain in anticipation will they end up like Greece. That was why past 2 days Italian bond yield raise above 6%. The default of Italy or Spain could send the world back to recession but not Greece. That the underlying of the fear now.
What can calm and bring back confidence to investors now is perhaps the outcome of the G20 Summit starting today. Details of where the enlarge EFSF will be from should be critical now as these funds will be used as a firewall against Italy and Spain. This should be the minimum requirement of what the G20 Summit should produce.
US side does have some positive cue from yesterday Fed Chief comment. US Fed is aware of all the downside risks at the moment and prepare to roll out stimulus package ( QE3 probably ) should it be required in order to prevent US economy from falling off the cliff due to those downside risk factors. This has in a way assured investors that support is on the way basically.
Another bright spot now is from China. China Premier Wen Jiabao has indicated that China might ease monetary policies to re-ignite its slow growth. Though China is not on the edge of recession but as world number 2 economy, that is very important step to the rest of the world.
While most are focus on Greece's referendum, should not ignore the cue from US and China too. Markets could be over-react to Greece's referendum. The stimulus from either US or China could easily offset the impact of total default by Greece in general.
