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(UPDATE) Cyprus centralbanker quits, chief auditor tipped for job

10 March, 2014

The governor of the Central Bank of Cyprus resigned on Monday, ending a year-long rift with President Nicos Anastasiades who tried to have him replaced by a trusted associate who will follow the administration’s policy for economy recovery and an exit from recession.

Leicester University economics professor Paniccos Demetriades, who was appointed by the previous communist administration generally blamed for the downfall of the island’s economy, faced a 12-month battle trying to cope with harsh austerity measures and a hostile government.
His resignation letter was reportedly submitted to Finance Minister Haris Georgiades in Brussels who is attending a Eurogroup meeting of Eurozone finance ministers who are expected to release some 286 mln euros in aid as the fourth tranche of bailout money for Cyprus.
Demetriades will step down on April 10 and is widely expected to be replaced by hard-hitting Auditor General Chrystalla Yiorkadji who has been at the forefront of revealing corruption and incompetence within public service for several years.
Yiorkadji, a technocrat who has never shied from political pressure, succeeded in forcing Anastasiades to adopt her conclusion of each year’s public sector audit as a way to improve civil service and clamp down on financial scandals. Previous administrations simply took her conclusions with a pinch of salt an no obligation to implement her recommendations.
Others slated for the job include a former university rector and also one of the president’s closest advisors on economy issues.
In any case, this well be a week of widespread changes as the president is also expected to announce a cabinet reshuffle, following the pullout of a junior coalition party, as well as other public appointments.
Meanwhile, the president’s government spokesman Christos Stylianides is leaving his post, just as the ruling Democratic Rally (DISY) is preparing to pitch candidates for the European Parliament elections on May 25, as well as search for a name to be appointed as the Cyprus commissioner to the European Council.
The ‘troika’ of international lenders imposed a bailout plan on Cyprus last summer due to a runaway public sector deficit and lax controls of the banking system that included a “bail in” of unsecured deposits of more than 100,000 euros, reaping havoc on the banking sector and resulting in the economy shrinking by a quarter within the past year.
Centralbanker Demetriades, who admitted soon after Anastasiades was elected last March that he was aware of the pending demise of Laiki Popular Bank, the island’s second largest lender, did nothing on the behest of the previous government, but had another three years on his contract, which, running parallel to the current administration’s term, would have made life very difficult for both sides. The former communist government disregarded the bankrupt state of public finances, even proposing further spending which state coffers could not afford, and chose to blame all the ills of the economy on the previous centralbanker, Harvard professor Athanasios Orphanides.
Relations between the president and the incumbent centralbanker hit their lowest ebb in September when Anastasiades openly sought legal advice from the Attorney General on how to terminate the five year contract, as banks were facing a meltdown due to the capital controls imposed by the central bank, urged by the troika of international lenders (ECB, IMF and European Commission).
Reports suggested that Anastasiades immediately accepted Demetriades’ resignation, which some regard as a face-saving gesture from both sides.
The Attorney General, too, has stopped short of prosecuting the centralbanker for mishandling some issues during the breakdown of the economy in the past year, saying there was no hard evidence for prosecution, especially as regards some contracts awarded to international consultants.
Demetriades has always contended that he acted as was required of a central bank governor and European Central Bank council member, and that the austerity measures were aimed at helping the economy recover, with growth expected to improve by 2015.
Some reports also suggested that Demetriades’ relations with the other members of the Cyprus Central Bank board had broken down in recent months, as they had been appointed by Anastasiades to keep a check on the governor.