IT WAS ALMOST six months ago that President Anastasaides announced in a television interview that he would explore the legal ways of terminating the contract of Central Bank Governor Panicos Demetriades. The president, at the time, was frustrated with, among other things, the blatant feet-dragging of the governor over the approval of the members of the new board of the Bank of Cyprus and his public muscle-flexing.
As an independent state official, Demetriades was untouchable thanks to the EU charter, which gives special protection to central bank governors and a long legal battle would have been inevitable. A few days after the president’s television outburst, on September 20, this column had argued against resorting to the law, because this would have been a long drawn out legal process which could have been lost. Worse still, it would have prolonged the uncertainty and instability plaguing the banking sector.
We had proposed the following course of action: “A more pragmatic approach would have been for Anastasiades to try to negotiate a compensation package in exchange for Demetriades’ resignation. The state could have paid off his contract and he would have stepped down ‘for family reasons’… This would have been the speediest and least costly way of getting rid of Demetriades.”
The government tried to reach an agreement, but Demetriades’ compensation demands were so high – in excess of one million euros – it gave up on this option. Brussels was not happy with the rift between the government and the governor and the Commission sent several strongly worded letters censuring the alleged interfere in the work of an independent state official. However, the Commission could not stop the attorney-general’s office from investigating the governor’s decisions and actions.
The attorney-general, reportedly, had gathered enough information to build a prosecution case against Demetriades. Perhaps this was what finally persuaded him to step down for significantly less compensation than he was originally demanding. Reports suggest that he would be receiving two years’ worth of salary – €250,000 – for agreeing to give up his post. Another factor that may have contributed to his decision was that the ECB did not seem prepared to offer him the level of support it had given him in the past.
In the end, Monday’s resignation was the best possible solution that should satisfy everyone and nobody should complain about his compensation package because it was least costly way of having him removed. Brussels and Frankfurt cannot censure the government as the governor stepped down voluntarily and a long drawn-out and costly legal process was avoided. Most importantly, there will be a new governor of the Central Bank who will work at restoring public confidence in the banking sector and assisting its return to normality, something Demetriades, by accident or design, spectacularly failed to do.
His resignation was long, long overdue.