Cyprus coalition sundered as Democratic party pulls out

 

NICOSIA – The junior partner in Cyprus’s two-party coalition left the government yesterday, making agreement on vital economic reforms more difficult and potentially complicating reunification talks.

The centrist Democratic Party, coalition partners with the Communist AKEL since 2008, said it was leaving government after exhausting all room for further co-operation.

“It is clear that the dialogue has been terminated and the Democratic party ceases to be in co-operation with the president of the republic,” party leader Marios Garoyan said.

Cyprus has a presidential system and the pullout is not seen as endangering the survival of the incumbent, President Demetris Christofias, whose term expires in 2013.

However passage of essential economic reforms largely depends on parliament, where Mr Christofias’s party does not have a majority.

The reforms are urgently needed to tackle an energy crisis threatening to tip the island into financial meltdown.

“It’s disastrous,” said economist Fiona Mullen. “In order to get agreement on fiscal reform you need at least two parties to get it through parliament. This makes consensus a lot less likely.”

The central bank and the island’s largest commercial bank have warned that Cyprus – which accounts for about 0.2 per cent of the euro zone’s economy – could follow Greece, Portugal and Ireland in taking a bailout.

An accidental blast of decaying stored munitions that destroyed the island’s biggest power station last month greatly aggravated an already difficult fiscal situation.

Moody’s and Standard and Poor’s downgraded Cyprus’s sovereign rating last week and borrowing costs have soared, fuelling speculation that the country could be the fourth recipient of an EU bailout.

The pullout also weakens Mr Christofias in peace talks on Cyprus, where the UN is attempting to broker a reunification deal between his Greek Cypriot side and Turkish Cypriots. Any deal has to be approved in a referendum.

Greek-Cypriot approval for a deal, already in doubt, could be further complicated with a president weakened by the desertion of his political allies.

Coalition squabbling came into sharp focus after Cyprus was hit by the blast of confiscated munitions stored in scorching heat only a few hundred metres from the power station.

The Democratic Party had been a fierce critic of communist Mr Christofias’s tactics in talks on Cyprus, split in a Turkish invasion in 1974 after a brief Greek-inspired coup.

Its withdrawal from government comes at a time when the UN is cranking up reunification talks on the ethnically split island to mend a conflict harming Turkey’s EU ambitions.

The Turkish Cypriot side said that it was concerned but hoped the situation would not damage the negotiations. – (Reuters)