By Karolina Tagaris
NICOSIA (Reuters) - Cyprus's central bank governor said on Sunday he was willing to work with the government to pull the island out of its economic crisis, provided the bank's independence was respected.
A rift between Governor Panicos Demetriades, appointed last May by the communist former administration, and the ruling centre-right government has deepened and pressure grown on him to resign over his handling of the crisis.
In the past week, the Cypriot parliament started an investigation against 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.
Anastasiades, when asked by reporters on Sunday 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," 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."
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 lawmakers this week is seeking to find out whether 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 a 10 billion euro bailout by the European Union and International Monetary Fund.
The departures in the past week from the regulator's board have slimmed the six-member board to two, including Demetriades. However, executive power rests with the governor so while they add to the pressure on Demetriades to quit, they are not expected to affect policymaking.
The government, in power for under two months, has sought to play down accusations it was intervening with the central bank's duties.
Authorities have demanded Demetriades take back comments he made on the sidelines of a Eurogroup meeting in Dublin this week that the central bank's independence was under attack, according to the government's spokesman, Christos Stylianides.
"I did not expect Mr Demetriades to make public statements, especially while abroad, accusing his country's government and his country's parliament of supposedly acting against him," Anastasiades told reporters.
He said it was up to Demetriades to cooperate with the government.
"I hope he will work towards this... and behave in a way that will finally restore stability in the banking system," he said.
(Editing by William Hardy)