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Serbia Rejects Kosovo Accord, Risking Date for EU Talks

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April 8 (Bloomberg) -- Serbia rejected a European Union-mediated agreement with Kosovo and called for further negotiations with the breakaway province, jeopardizing its drive to start membership talks with the 27-nation bloc in June.

The nine-month-old Cabinet, which insists on a special police and a court system for Kosovar Serbs, will tell EU Foreign Policy chief Catherine Ashton by today’s deadline to comment on discussions that the government is committed to a solution with Kosovo and its “path toward integration,” Prime Minister Ivica Dacic said yesterday in Belgrade. The European Commission will include the comments in an April 16 report on Serbia’s candidacy readiness.

“The government wants to urgently continue dialogue” with Kosovo under EU mediation because the existing proposal “is not acceptable and cannot be implemented,” Dacic said today at the government meeting in Belgrade.

Dacic is squeezed between seeking EU support for Serbia’s economy, as it struggles to emerge from a two-year recession, and placating nationalist citizens who insist that Kosovo should never have autonomy. A political settlement with Kosovo, which declared independence in 2008, is key for the former Yugoslav republic to win a start date for EU entry talks.

Street Demonstration

About 1,000 Serbs, who consider Kosovo to be the heart of the nation’s cultural history, demonstrated in Belgrade over the weekend, urging political leaders to give up EU aspirations and hold on to Kosovo. Some held placards declaring, “We don’t want EU, we want Kosovo.”

The dinar traded at 112.1070 per euro at 6:11 p.m. in Belgrade, or 0.3 percent weaker, according to data compiled by Bloomberg. The main index of 15 most actively traded assets on the Belgrade Stock Exchange shed 0.04 percent to end the day at 586.65 points.

Dacic wants Kosovar Prime Minister Hashim Thaci to grant Serbs in Kosovo’s northern region decision-making rights on police and the judiciary and to pledge to keep the Kosovo army out of Serbian communities. The two leaders last met on April 2, for the eighth time in six months, without any agreement.

Serbia and Kosovo have been at loggerheads since the wars of the 1990s that led to the breakup of the former Yugoslavia. Kosovo is recognized by the U.S. and 22 of the EU’s 27 members.

Visa-Free Travel

Serbian Deputy Prime Minister Aleksandar Vucic said on Pink television yesterday that it’s “unrealistic” to expect an accord to be signed by tomorrow. He also said he was concerned that the visa-free arrangement with the EU may be rescinded as a result.

The EU granted Serbia, Macedonia and Montenegro visa-free travel in December 2009 after nearly two decades of imposing them to prevent a flow of refugees as the former Yugoslavia collapsed in a series of wars.

Serbian support for EU membership fell to 41 percent in December, the lowest since the Balkan nation started measuring the sentiment in 2002, according to a poll presented on Jan. 31 by Serbia’s Office for European Integration in Belgrade.

The Serbian Orthodox Church wrote a letter to the government on April 6, saying it has neither “the right nor the mandate to agree to conditions that have not been imposed on any other candidate state for European Union membership. The ticket is too expensive.”

EU-Kosovo

While Serbia seeks a start date for entry talks, Kosovo is in line to sign a Stabilization and Association Agreement, the first formal step toward membership in the bloc. Both need deeper EU ties after the civil wars of the 1990s stunted the region’s transition from communism.

The biggest of the six ex-Yugoslav republics formally became an EU candidate in March, joining other former federation partners in moving toward the world’s largest trading bloc.

Slovenia has been an EU member since 2004 and Croatia will enter the EU in July. Montenegro has started membership talks and the Republic of Macedonia has been ready to start entry talks since 2009.

Serbia relies on foreign direct investment from western Europe for growth, while 71 percent of the banking industry is controlled by western European institutions.

“Serbia is in Europe, most investment comes from Europe, most of our goods we sell in Europe,” Finance Minister Mladjan Dinkic said after meeting with Dacic yesterday. “There is no alternative and we must maintain the best possible relations with the EU.”

Needing EU

Milosevic’s Socialists, now led by Dacic, rose back to power in last May elections, to rule together with former nationalists of the Serbian Progressive Party, who have turned to Russia and United Arab Emirates for loans and investments.

“I am convinced that the talks will be continued” as Serbia must not risk isolation, Vucic told reporters in Belgrade today. A fallout with the EU would undermine Serbia’s ability to pay public sector wages and pensions, and “people need to eat to survive,” he said and added that “we must not and won’t lead Serbia to disaster, or to the past.”

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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