* Central bank governor, Cypriot president at odds
* Officials say relations fraught with difficulties
* Unpopular bailout deal faces hurdles
* Popular anger growing, opposition threatening referendum
By Michele Kambas and Laura Noonan
NICOSIA, March 27 The ink is barely dry on a
deal struck in Brussels to save Cyprus from bankruptcy, but
rising tension between the island's conservative president and
the Communist-appointed governor of the central bank foreshadow
Thinly veiled disdain for governor Panicos Demetriades
expressed by officials close to President Nicos Anastasiades has
reinforced the perception of a Cypriot leadership reeling under
the backlash against an unpopular, last-minute accord hammered
out in fraught negotiations in Brussels.
Small and so-far peaceful street protests appear to be
gaining momentum, and the opposition - denied the right to
challenge the deal in parliament - is calling for a referendum.
With banks closed for 10 days and capital controls being
readied for when they reopen on Thursday, analysts say Cyprus's
economic contraction is likely to accelerate, potentially
undermining the forecasts that underpin the 10 billion euro ($13
billion) EU/IMF lifeline.
As the experience of Greece has shown, the pitfalls are
Appointed in May by Anastasiades' Communist predecessor,
Demetriades' role is crucial, with the central bank overseeing
the restructuring of the island's largest bank, winding down its
No. 2 lender and handling banking restrictions to avert a flight
of capital when lenders reopen on Thursday.
But officials say the relationship is fraught with
"There is a complete lack of communication between the
central bank and the president's advisers," said an expert
involved in talks to resolve the island's banking crisis.
"The central bank has lost the respect of the president and
the banking sector," he said, speaking on condition of
A spokeswoman for the central bank did not respond to phone
calls from Reuters for comment.
The two sides have clashed over the timing of highly
sensitive announcements regarding the resolution of Cyprus
Popular Bank, also known as Laiki, and the reopening
of banks that have been closed for 10 days to avert a run on
Both measures have infuriated ordinary Cypriots, piling
pressure on Anastasiades' one-month-old government as it
wrestles with Cyprus's worst crisis since war in 1974 split the
island between the Greek Cypriot south and Turkish Cypriot
On Monday, there were clear tensions over when and how to
reopen the banks, with the central bank first saying some would
open earlier than Thursday, before retracting the statement.
A government official told Reuters that Anastasiades was
"furious" at the initial announcement, and pushed back an
address to the nation three times as he met with Demetriades, a
fierce critic of austerity in his former role as professor of
economics at Britain's University of Leicester.
"It will be an absolute disaster, a disaster," a ruling
party official said as he paced the lawn at the presidential
Finance Minister Michael Sarris publicly questioned the
"Logical people might disagree, but the governor believed it
better, rather than to extend the closure of the banks, to take
the risk and open them," he said late on Tuesday. Many in the
EU, he said, "thought this would be very dangerous."
The bailout package has put intense pressure on the
relationship between the government and the banking sector,
crippled by its exposure to Greece, the epicentre of Europe's
The banks face severe contraction and job losses, while
Cyprus will almost certainly lose its status as a hub for
offshore finance, particularly for wealthy Russians.
Criticism of the deal, which sidestepped parliament and will
likely condemn Cyprus to even deeper recession, is widespread.
"An extremist idea has been implemented without the approval
of the elected bodies," Pambos Papageorgiou, a lawmaker from the
opposition communist AKEL party, told Reuters.
"This demonstrates a huge democratic deficit."
Analysts warn the island risks the kind of backsliding seen
in Greece as leaders recoil from politically unpalatable
Elias Neocleous, a prominent Cypriot lawyer in the costal
town of Limassol whose client portfolio includes Russian
billionaire and Bank of Cyprus minority shareholder Dmitry
Rybolovlev, compared the bailout deal to an ultimatum - "either
you commit suicide or we kill you," he said.
"In the next few weeks we'll see exactly how much damage has
been done," Neocleous told Reuters.
"Some of the policy decisions that were taken at the
political level might haunt the people who took them."
Adding to the sense of turmoil on Wednesday, Yiannis Kypri,
the Chief Executive of Cyprus's largest commercial bank, Bank of
Cyprus, said he had been dismissed by the central
bank, "upon demands of the troika", a reference to Cyprus's trio
of lenders - the EU, European Central Bank and International
It follows the appointment of a special administrator to run
the bank and the resignation of Chairman Andreas Artemis.
Some bankers have defended Demetriades. He has more than
four years left of a five-year post, which is independent of the
government, and complex constitutional procedures make his
"The central bank governor has done an excellent job so
far," said one banker who recently left the board of a major
Cypriot bank. "I'm surprised politicians are pointing the finger
Demetriades has said he has no intention of stepping aside
in light of the government criticism, saying that he enjoys the
trust of the European Central Bank.
Asked on Tuesday about his relationship with the governor,
Finance Minister Michael Sarris told state television: "As long
as the governor is in that position, it is my duty to work with