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Cyprus Central Bank Independence Attacked, Official Says

Demetriades Says Cyprus Central Bank’s Independence Under Attack
Customers outside an automated teller machine (ATM) operated by Cyprus Popular Bank Pcl, also known as Laiki Bank, in Nicosia, Cyprus,on March 28, 2013. Photographer: Simon Dawson/Bloomberg

The governor of Cyprus’s central bank said the government is attacking his institution’s independence at the same time as his family endures death threats from people who lost money in the country’s bailout.

“The independence of the central bank of Cyprus is being attacked at this time,” Panicos Demetriades, who is also a member of the European Central Bank’s Governing Council, said in an interview in Dublin yesterday. His ability to manage the situation is being made more difficult by “death threats not only to myself, but toward my children and my wife,” he said.

The central bank is at loggerheads with the government of President Nicos Anastasiades as Cyprus finalizes a 17-billion-euro ($22 billion) bailout agreement that will shrink its banking sector and tax deposits of more than 100,000 euros. Demetriades said the government doesn’t have the right to rescind the appointment of deputy governor Spyros Stavrinakis or sell the nation’s gold reserves without the central bank’s consent.

“The government seems to have committed to a sale of state gold without consulting the central bank,” Demetriades said, adding there has been “constant interference in relation to the management of the banks under resolution.”

Christos Stylianides, a Cypriot government spokesman, told reporters today that Demetriades would be expected to explain his comments, adding that the government fully respects the independence of the central bank.

Watching ‘Keenly’

Members of the ECB Governing Council are watching the Cypriot situation “keenly,” Austrian central bank governor Ewald Nowotny said today. That follows comments by ECB President Mario Draghi, who had said that Cyprus could face sanctions by the European Court of Justice if it breaches European law that prohibits governments from intervening in central-bank affairs. Draghi wrote to Anastasiades this week expressing his concerns.

“We think that it is of utmost importance to fully respect the independence of a central bank, especially in difficult times, and not to have a scapegoat,” Nowotny said in Dublin.

The Cypriot government annulled the appointment of Deputy Governor Stavrinakis on April 9.

“According to the constitution, the deputy governor is removed from office in the same way as the governor, i.e. through a majority decision of all 13 high court judges,” Demetriades said. “However, this procedure has certainly not been followed in this instance. Procedurally, this move by the president needs to be examined.”

Two members of the central bank’s board, Andreas Matsis and Haralambos Akhniotis, resigned in recent days, a spokesman for the Nicosia-based central bank said yesterday without elaborating.

Those resignations are yet to be explained and the implication is “that the government will be able to appoint people that are closely aligned to it,” Demetriades said.

A third board member, Louis Christofides, submitted his resignation yesterday.

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