REGARDLESS of what was decided at last night’s Eurogroup, on his return to Cyprus President Anastasiades should give serious consideration to removing the governor of the Central Bank, Panicos Demetriades from position. He may be an independent state official who has another four years of his contract to run, but a man who has caused such large scale harm to the country, either by accident or design, cannot remain in a post he has proved emphatically unfit for, for another four years.
Of course, it is not his fault that the previous president chose to appoint as governor a novice academic with limited understanding and no practical knowledge of the workings of the banking system, at a time when the banking sector was going through the most difficult period in its history. Laiki Bank was insolvent and the Bank of Cyprus was struggling to meet the capital requirements set by the EU for the end of June 2012, after the haircut of the Greek government debt. But even if the apprentice governor had theoretical knowledge of how the banking system worked, it was not evident in the way he went about the job.
In his first months in the job, he did little else than publicly criticise the banks, legitimising the government’s propaganda that all the economy’s problems were caused by the banks. He did his best to undermine public confidence in the banking sector, constantly talking about the need for re-structuring and downsizing. At the beginning of July, without an in-depth study being undertaken, the Central Bank leaked to a paper that the banks would need €10 billion for their recapitalisation needs. Demetriades saw himself as the punisher/destroyer of the banks rather than the man who would bring stability and confidence to the sector.
If the banks had such big problems, why did the governor not stop Laiki Bank drawing more and more liquidity assistance, allowing it to take in excess of €9 billion? Why did he not arrange for it to be restructured? Did he think we would not have to pay back the money, a big part of which was being sent to Greece for the obligations of Laiki’s subsidiary? It was criminally negligent for a governor who knew Laiki was insolvent and spoke of the need for its restructuring to keep giving it billions in aid.
His refusal to sit on the steering committee and have a say on the assumptions that Pimco would use to estimate the banks’ financial assistance was indicative of the man’s dereliction of duty, or perhaps an indirect admission that he would be out of his depth, unable to make a case against the knowledgeable technocrats of the troika. The results of this ineptitude or indifference are there for all to see.
The banking sector is in ruins and while the bankers have a big responsibility for this, the governor calculatingly made a bad situation much worse. This is why must he be relieved of his duties as soon as possible.
↧
Our View: Our inept Central Bank governor must go
↧