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Cypriot gov't says in bad relations with central bank governor


09:34, April 17, 2013

NICOSIA, April 16 (Xinhua) -- The Cypriot government on Tuesday acknowledged it faces serious difficulties in its relations with Central Bank Governor Panicos Demetriades, whom it blames for much of the island's current economic woes.

"I can confirm that there is a serious problem in the government's relations with the governor of the Central Bank," said Finance Minister Haris Georgiades.

He added that the government is deeply annoyed by an interview by Demetriades in Dublin during a Eurogroup meeting last week, in which he claimed that the independence of the Cypriot Central Bank is under attack by the government.

Georgiades called on Demetriades to speedily proceed with the appointment of a new Bank of Cyprus board of directors as part of a bail-in involving a haircut on major deposits and the bank's merger with the second largest lender, Cyprus Popular Bank, also known as Laiki.

The unprecedented bail-in was demanded by Cyprus' European partners in return for a 10-billion-euro rescue package expected to be formally signed by the end of April.

Georgiades said the government will take actions within the framework of legality and institutional order to safeguard the smooth operation of the Central Bank, in cooperation with its governor, hinting that it did not intend to dismiss him.

The minister's remarks were in line with a lengthy reply letter by President Nicos Anastasiades to European Central Bank Governor Mario Draghi, who has warned Cyprus it risked being brought before the European Union court if it takes measures against Demetriades.

In his letter to Draghi dated April 15 and leaked to the media on Tuesday, Anastasiades dismissed Draghi's suggestion that an investigation by the parliament "as to whether Governor Demetriades withheld or provided misleading and untrue information in relation to the objectives, terms of reference and instructions he gave to the audit firm 'Alvarez & Marsal' which had been hired to investigate the circumstances under which the Bank of Cyprus and Laiki Bank sought state assistance" amounted to a a procedure for his dismissal.

Anastasiades said the House of Representatives action is within the context of its constitutional rights.

"The above mentioned parliamentary practice by no means constitutes a procedure for the dismissal of Governor Demetriades," Anastasiades said. However, he pointed out that parliament has a right to apply to the Attorney General to judge "whether or not there are reasonable grounds for initiating a procedure for the dismissal of Governor Demetriades."

Anastasiades personally blamed Demetriades for allowing Laiki Bank to receive 9.2 billion euros in emergency liquidity assistance (ELA), pointing out that this amount accounts for more than 50 percent of Cyprus' GDP at a time when the financial needs of the government do not exceed 7.5 billion euros.

The 9.2 billion euro amount was on top of 1.8 billion euros given to the bank by the government.

Anastasiades said he believed that the decision of Governor Demetriades not to annul the liquidity assistance provided to Laiki Bank by ELA with the aim of holding elections in February 2013, despite the fact that the "situation (the insolvency of the bank) was evident" since June 2012, demonstrates his failure of effective prudential regulation and supervision of the banking system.

"It raises questions related to the independency that the governor enjoyed with the former Government," said Anastasiades.

The Cypriot president also hinted at responsibilities by the European Central Bank by pointing to EU regulations obligating national Central Banks to consult with the European Central Bank.

Anastasiades further blamed Demetriades with setting down such a mandate for auditors Alvarez & Marsal that it almost entirely left Laiki Bank out of an investigation into the reasons for the predicament of the Cypriot banking system.

Anastasiades also accused him of failing to appoint a Board of Bank of Cyprus, now under restructuring thus "leaving the bank leaderless and to be supervised by a special administrator appointed by the governor himself" and for not issuing yet bank stocks for depositors who are bound to suffer financial losses of up to 60 percent of their savings.

"It is obvious that these various delays in implementing agreed measures and in properly supervising and handling the banking system, in conjunction with the actions or inactions of Governor Demetriades as I have presented them to you, negatively contributes on the ongoing uncertainty in the banking system and the economy of the country and has a deteriorating effect by increasing the reasonable apprehensions of not only the people of Cyprus, but also of the resident and non-resident depositors and investors in Cyprus..," said the Cypriot president.

However, Anastasiades said that despite all the failings of the Central Bank governor he listed, neither he nor any other officials of his government made any public statements about an initiation of a procedure for the dismissal of Demetriades.

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