* Resignation threatens to derail peace talks *
The junior partner in Cyprus's two-party coalition quit the government on Wednesday, making consensus on much-needed fiscal reforms more difficult and potentially complicating reunification talks.
The centre-right Democratic Party (DIKO), coalition partners with communist AKEL since 2008, said they were leaving government after exhausting all room for further cooperation.
"It is clear that the dialogue has been terminated and the Democratic Party ceases to be in cooperation with the President of the Republic," said DIKO chairman Marios Garoyan.
Cyprus has a presidential system of government and the pullout is not seen endangering the survival of incumbent President Demetris Christofias, whose term expires in 2013. But it leaves his communist party alone to grapple with an energy crisis threatening to tip the island into financial meltdown and derail peace talks with the Turkish Cypriots over the island’s division that is blocking Turkey’s accession to the European Union.
The Central Bank and the island's largest commercial bank have warned that Cyprus could be the next recipient of EU bailout aid, with a munitions blast last month that crippled the biggest power station worsening an already difficult fiscal situation.
DIKO, who take a harder line than Christofias in unification talks, had been insistent that the presidency withdraw proposals made in U.N. sponsored talks.
They had been particularly adamant that Christofias withdraw a proposal that the Greek and Turkish Cypriot communities share future governance via a rotating presidency and a weighted voting system, and that Christofias withdraw a suggestion that up to 50,000 Turks who settled in Cyprus after 1974 could remain in a peace deal.
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