The Cyprus Central Bank Governor Panicos Demetriades has come under unprecedented criticism and is being forced to quit amid allegations of tardiness that has caused irreparable damage to the island’s sector and the economy in general.
President Nicos Anastasiades revealed in a TV interview late Wednesday that Demetriades was uncooperative in dealing with the economic crisis and that his patience with the centralbanker had been exhausted, resorting to the Supreme Court to see if he can sack the independent official.
Demetriades was appointed by the previous communist administration in May 2012 that had refused to talk to the last centralbanker who had warned the government of impending risks soon after President Demetris Christofias succumbed to an EU decision in November 2011 for a haircut on Greek government bonds.
The island’s two biggest lenders, Bank of Cyprus and Popular Laiki, held billions worth of GGBs and subsequently lost their portfolios, forcing Laiki to shut down and Bank of Cyprus to carry the joint burden.
The communist government resorted to the Troika of international lenders due to the inability of the state to support the banks and sought a 10 bln euro bailout, a decision that was delayed by Governor Demetriades’ own admission, due to the presidential elections in February this year.
Relations between Anastasiades and Demetriades, a financial economics professor from the University of Leicester, have remained strained ever since the president took office in March and he had to singlehandedly deal with the harsh conditions imposed by the Eurogroup of Eurozone finance minister as part of the rescue. Eventually, local and foreign depositors were forced to give up their savings as part of a bail-in, while credit controls imposed by the central bank have created a cash crisis in the economy.
Deputy government spokesman Victor Papadopoulos told CyBC radio on Thursday that the president had pleaded with the Governor on several occasions to speed up procedures, but that Demetriades later backtracked on the decisions.
The final straw came with the delay to approve the board members elected by the first shareholders meeting of the restructured Bank of Cyprus earlier this month. Of the 16 elected, including six Russians, the central bank had not approved six, including two Russians, causing further delays in the recovery of the island’s biggest bank.
With the board not fully intact, the bank cannot hire a CEO who will help conclude its restructuring plan that includes splitting Bank of Cyprus into a commercial bank and an asset bank, downsizing the branch network and redundancies, as well as offloading non performing overseas branches.
“The Governor should have evaluated all the candidates before the shareholders meeting,” Anastasiades said in an interview on Mega TV.
“Patience has its limits and I can no longer allow inaction to threaten our economy and our country,” he added.
Marios Karoyian, president of the junior coalition Democratic Party (DIKO) called on Demetriades to resign in order to ease the tension that has been created “and that does not help the smooth operation of the banking sector.”
MP Prodromos Prodromou, spokesman at the ruling Democratic Rally party (DISY) said that “the president’s decision to resort to the Supreme Court over the way the Central Bank Governor conducts his duties, with the scope to replace him, is imperative. He is right to say that his patience has been exhausted and that the central bank should be reinstated as the regulator looking after the wellbeing and restructuring of the banking system.”
He added that the judicial panel investigating the collapse of the island’s banking sector should also look into Demetriades’ many comments that have caused greater harm to the economy.
The opposition Citizens Alliance said that “on the one hand, the Governor is responsible for the controversy, because instead of facilitating the stabilization of the banking sector and the creation of conditions that would help the economy, he is making it difficult.”
“On the other hand, the President and the Minister of Finance are also responsible for not finding the right conditions to open a channel of communication with an independent official of the Republic.”
All along, Demetriades has defended the independent authority of the central bank and its Governor, resorting to constitutional safeguards and the dependence, since joining the Euro area, from the European Central Bank.
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