ECB Strikes Back: Threatens With Greek Deposit Haircut If And When ELA Found To Be "Illegal" On Wednesday

The threats are flying fast and furious now.

Moments after the WSJ quoted a Greek official as saying that Greece will not make its IMF bond payment, the ECB struck back when Bloomberg reported that the ECB would review the legality of Greek aid should there not be a deal, i.e., on July 1 post an IMF default. According to Austrian central bank Governor and ECB member, Ewald Nowotny, on Wednesday’s governing council meeting the central bank will decide whether it can continue to provide emergency support for Greece once current bailout program expires June 30, as the Wiener Zeitung originally reported.

He added that "all legal aspects will be reviewed” and that another issue is also whether Greece support will continue beyond referendum. Perhaps somewhat needlessly he added that there are differing opinions at the ECB governing council on the issue of Greek ELA legality.

As a reminder, Nowotny is the central banker who a few weeks ago surprisingly announced that Austria would follow in the footsteps of Germany and Netherlands, and repatriate a substantial portion of its gold held abroad.

The subtext of what Nowotny just said is that absent a deal, Greek banks will have no choice but to impose a massive haircut on existing deposits, since the entire ELA will be yanked, and the Cyprus scenario would follow, one that would see existing deposits of under €120 billion, chopped off in half or probably much, more depending on the true state of Greek bank collateral.

It also goes without saying that at this point the odds of a premeditated Grexident are soaring.

More if we see it.