Will Cyprus Interrupt the Market Rally?
There is a growing rift between Cyprus’s central bank governor–who was appointed last year by the communist government in power at the time–and the center-right government in power now. Panicos Demetriades, who is central bank governor of Cyprus, faces growing pressure to resign. An investigation has been started by the Cypriot parliament against Demetriades, the appointment of his deputy has been withdrawn by the island’s President and three officials in the Cypriot central bank have resigned, according to Reuters.
The drama has started to reach the shores of Europe. Mario Draghi, president of the European Central Bank, wrote Cypriot President Nicos Anastasiades and told him that forcing Demetriades out could be grounds for the European Court of Justice to intervene. A central bank governor can only be dismissed if “he no longer fulfils the conditions required for the performance of his duties, or if he is guilty of serious misconduct,” according to Reuters.
Cypriot President Anastasiades said he was “frankly, very saddened” by the disagreement between his government and the ECB when asked to comment by reporters. Meanwhile, Demetriades reaffirmed his commitment to working with the central-right government now in power on the island: “My intention to work with the country’s democratic institutions is a given…We are ready to respond to every call for cooperation and coordination for the benefit of this country always, however within the framework of total respect towards the central bank’s independence, as stipulated by the ECB”…
The investigation by the Cypriot parliament against Demetriades looks to find out if he provided enough information during the government’s investigation into the cause of the collapse of the two largest lenders in Cyprus. This collapse has left the Cypriot economy in serious trouble. Huge losses were imposed on depositors for Cyprus to qualify for a $13 billion EU and IMF bailout, which has since been deemed not large enough. According to the Guardian, “the crisis-hit country will be forced to find an extra 6bn euros (5bn pounds) to contribute to its own bailout, much of which is expected to come from savers at its struggling banks.”
Besides political pressure, Demetriades faces death threats. He said in an interview that he faces “death threats not only to myself, but toward my children and my wife,” according to Bloomberg. He also has to deal with the Cypriot government acting on financial matters without consulting him: “The government seems to have committed to a sale of state gold without consulting the central bank…[there is] constant interference in relation to the management of the banks under resolution.” A Cypriot government spokesman — Christos Stylianides — said the government respects the independence of the central bank and that Demetriades is expected to explain his comment.
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