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ECB’s Draghi voices concern to EU over Cyprus Central Bank independence

Mario Draghi

The European Central Bank has called for the European Union to take action against Cyprus, alarmed at perceived threats to the independence of its central bank governor.

In a letter dated Nov. 1, ECB President Mario Draghi conveyed the “serious concerns” of the ECB’s Governing Council to European Commission President Jose Manuel Barroso over rising tension between the Cypriot government and Panicos Demetriades, the country’s central bank governor.

“Continuous pressure is being put on the Governor of the Central Bank of Cyprus by the Government through public statements made by several of its members,” Draghi wrote.

He said the statements in question called for the governor’s resignation or removal.

“This raises serious concerns about the protection of the personal independence of Mr. Demetriades, not only as the Governor of the Central Bank of Cyprus, but also as a member of the Governing Council of the ECB,” Draghi said in his letter, a copy of which was made available to Reuters by a euro zone central bank official on Thursday.

Demetriades has faced fierce criticism from Cyprus’s conservative government about the way he handled a harsh 10 billion euro ($13.7 billion) international bailout that the island agreed to in March.

He was appointed in May 2012 by the previous left-wing government which lost to the conservatives in general elections last February.

In his letter, Draghi said he expected that the Commission would take “all action necessary” to ensure Cyprus’s compliance with its obligation to maintain the independence of the central bank.

Cypriot President Nicos Anastasiades had in September said he was talking to government lawyers on how to get Demetriades removed. The public rhetoric has since been toned down, but there are still subtle signs of friction.

In Nicosia, Cypriot government sources said the last communication from the EU on the matter was from Commissioner Olli Rehn in September, expressing concern at the remarks. They said they were unaware of any further action by the Commission on the matter.

“Nothing has followed,” one government official said, requesting anonymity. “In fact a high level meeting took place with the Commission last week and nothing was mentioned.” (R)

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