Cyprus Bailout Deal Is Hit By New Fears

Cyprus' central bank governor has warned he will only work with ministers on the country's EU bailout if the bank's independence is respected.

The comments from governor Panicos Demetriades come following a rift in Nicosia between the bank and political leaders over the EU/IMF-brokered bailout.

Last week, the government said the total bailout cost had jumped 6bn euros (£5.1bn) to 23bn (£19.6bn).

Mr Demetriades was appointed last May by the communist former administration but tension with the ruling centre-right government, in power for just two months, has deepened.

There has been growing pressure on him to resign over his handling of the economic crisis amid an unprecedented levy placed on bank accounts.

Cyprus President Nicos Anastasiades has been accused of meddling

In the past week, the southern Cypriot parliament has started an investigation against Mr Demetriades.

President Nicos Anastasiades's government withdrew the appointment of his trusted deputy and three central bank officials resigned.

The unfolding drama drew a scathing response from European Central Bank (ECB) president Mario Draghi, who wrote to the Cypriot president telling him any attempt to effectively sack the governor could land Cyprus in the European Court of Justice.

Mr Anastasiades, when asked by reporters to comment on the apparent feud between the two bodies, said he was "frankly, very saddened".

"My intention to work with the country's democratic institutions is a given," Mr Demetriades, who sits on the ECB's governing council, was quoted as saying in an interview with the Phileleftheros newspaper.

"We are ready to respond to every call for cooperation and coordination for the benefit of this country always, however within the framework of total respect towards the central bank's  independence, as stipulated by the ECB."

ECB president Mario Draghi has warned the southern Cypriot president

Under European Union law, a governor can only be dismissed if he no longer fulfils the conditions required for the performance of his duties, or if he is guilty of serious misconduct.

The investigation launched by Cypriot politicians last week is seeking to find out whether Mr Demetriades supplied enough information during an investigation into the demise of Cyprus's two biggest lenders, which left the economy in disarray.

The collapse of the Mediterranean island's banking system imposed massive losses on depositors in order to qualify for its 10bn euro (£8.5bn) bailout by the EU and IMF.

:: Gold futures dropped below the $1,500 barrier on Friday, the lowest since July 2011, just days after Cyprus moved to sell 10 tons of reserves to help fund the bailout.

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