Serbia’s government says it wants a precautionary loan deal
with the Fund, to restore relations after the collapse of a
previous 1 billion euro ($1.3 billion) arrangement last year and
a row over the independence of the central bank.

The IMF’s representative to Serbia, Bogdan Lissovolik, said
in an e-mailed statement that the delegation would not discuss
the request during its routine 3-week mission starting on
Wednesday.

But he said the “discussions may offer a useful opportunity
to reflect on the reform agenda and discuss what may be needed
for a potential programme.”

Analysts say investors would welcome the security of an IMF
loan deal to help stabilise Serbia’s finances, a further fillip
to the economy after Belgrade last month won a preliminary
agreement for the start of EU membership talks this year.

Without IMF support, the World Bank has said it will
withhold a $400 million loan to support the Serbian budget.

Belgrade economics lecturer Djordje Djukic said Tuesday’s
IMF statement risked stirring “negative sentiments” among
investors looking at Serbia. “A precautionary deal could serve
as a framework to discipline Serbian finances,” he told Reuters.

Serbia’s budget deficit ballooned to some 6.7 percent of
national output last year and public debt hit 60 percent.

The country has since halved its forecasted budget deficit
to 3.6 percent this year, while a restrictive course set by the
central bank has soothed fears of government interference.

The economy contracted 1.7 percent last year, but bounced
back in the first quarter of 2013 with growth of 1.9 percent.
The government hopes investment in infrastructure and energy, an
improved harvest and rising exports from its joint car venture
with Italian automaker Fiat will sustain this pace.

Timothy Ash, head of emerging markets research at Standard
Bank, described the IMF statement as “disappointing”.

“I guess the (Serbian) government is flush with Eurobond
financing and Russia loans and hence is playing hard ball with
the Fund,” he said.

Serbia needs about 4.8 billion euros this year to service
its debt. It sold a $1.5 billion Eurobond this year and last
month secured a $500 million loan from Russia.

(Reporting by Aleksandar Vasovic; Editing by Ruth Pitchford)

The April 19 deal between Serbia and its majority-Albanian former province won Belgrade a preliminary green light for accession talks this year, but the bloc wants progress on the ground before taking a final decision on the talks in late June.

The accession process would drive reform and help lure investors to Serbia’s ailing economy. But the accord faces resistance from some 50,000 Serbs in northern Kosovo, a region bristling with guns and deep animosity.

Trying to mollify them, Serbia’s government said it was prepared to hold a popular vote. The decision would depend on talks next week with Kosovo Serb leaders, Serbian Deputy Prime Minister Aleksandar Vucic told a news conference.

“If they pledge on Tuesday to accept the results of a referendum, the decision of the majority of the people, then we will be ready in 15 days and we’ll put an end to that story,” Vucic said after meeting a delegation of Kosovo Serb mayors.

Under the accord, the northern Serb pocket will be integrated into Kosovo’s legal system five years after the former province, which is 90 percent Albanian, declared independence from Serbia with the backing of the West.

Hardline nationalists and the Serbian Orthodox Church have accused the government of betrayal, but there has been little sign of a major backlash.

According to the results of an opinion poll released on Thursday, 57 percent of Serbian citizens support the accord. Twenty-nine percent of the 1,180 respondents oppose it, polling agency Faktor Plus said.

Serbia lost control of Kosovo in 1999 after 11 weeks of NATO air strikes to halt the massacre and expulsion of ethnic Albanian civilians by Serbian forces trying to crush a guerrilla insurgency.

But Belgrade retained a fragile grip on the northern pocket, where Serbs have lived largely as part of the Serbian state.

Desperate for the economic boost of closer EU ties, Serbia last week agreed to cede control over the north, and won a preliminary green light for the start of membership talks with the 27-nation bloc, probably later this year.

Kosovo Serb leaders pledged to resist.

“We will continue our peaceful battle, because we are in the right,” said Slavisa Ristic, mayor of the northern Kosovo municipality of Zvecan.

“We cannot accept a change of identity by force,” he said, according to the Tanjug state news agency.

(Additional reporting and writing by Matt Robinson; Editing by Michael Roddy)

The Serbian dinar has been bolstered by the April 19 deal to settle fraught relations between Serbia and its former province, which earned Belgrade a tentative green light on Monday for the start of talks on joining the EU this year.

The agreement is a milestone in the region’s recovery from the bloody collapse of Yugoslavia in the 1990s and opens the door to growth and a more prosperous future for both Serbia and Kosovo, which broke away in a 1999 war and seceded in 2008.

The accession process is expected to spur reforms in Serbia after more than a decade of sluggish progress, drawing investors to the largest market in the Balkan region and unlocking much-needed EU funding.

“Portfolio investors definitely gained more confidence after the Brussels talks (with Kosovo), which have shown that Serbia may now secure a definite path to the EU,” said Sasa Djogovic, an analyst with the Belgrade-based Institute for Market Research (IZIT).

Miladin Kovacevic, deputy head of the Serbian Statistics Office, said: “Slight easing of the key rate is possible on these positive impulses … but monetary policies can be relaxed substantially only after major fiscal consolidation.”

“Inflation is now entering a quiet zone,” he said, citing expectations of a better harvest this year than that of 2012, which was devastated by drought and helped drive annual inflation into double digits.

The Serbian dinar traded at an average of 111.7 against the euro last week, and was at 111.3 on Tuesday.

The yield on Serbia’s $1.5 billion Eurobond fell by 15 basis points to 5.08 percent on Monday, down from 5.15 percent when it was sold in February.

IMF LOAN TALKS

The central bank’s next policy meeting is on May 13.

At 11.75 percent, its benchmark rate is the highest in the region and has not been trimmed since January 2012.

Governor Jorgovanka Tabakovic, who was appointed in mid-2012 from the ranks of the ruling coalition, has confounded expectations she would bow to government demands for lower borrowing costs to support the economy.

But slowing inflation, a $500 million loan from Russia this month and progress on the EU front might lead the bank to relax monetary policy to spur a return to growth after a 1.7 percent contraction in output last year.

“The reaction of monetary policy has been broadly orthodox with the hiking of rates as inflation rose over the last year,” Nomura wrote in a note late on Monday.

“That said, we still believe that under this new administration there will be a lower long-run real rate and so cutting can occur as inflation falls back through this year.”

There is still uncertainty over implementation of the Kosovo deal before the EU decides on accession talks in late June, and whether Serbia can secure a new precautionary loan deal with the International Monetary Fund in talks due to start on May 8.

Serbia’s public debt is seen at 65 percent of gross domestic product this year. The government is targeting a budget deficit of 3.6 percent of GDP, down from around 6 percent at end-2012.

(Editing by Catherine Evans)

Serb nationalist protesters also vowed “no surrender” in the first signs of a backlash that could, if it gains ground, test the government’s resolve to carry out an historic accord struck last week with Kosovo.

Patriarch Irinej, who heads the Serbian Orthodox Church, denounced Belgrade’s agreement to cede its last foothold in Kosovo under the deal that opens the door to EU accession talks.

“This appears to mark the pure surrender … of our most important territory in spiritual and historical terms,” he said in a statement.

Landlocked and impoverished, Kosovo is steeped in history and myth for Serbs as the cradle of their nation and Orthodox faith, and home to some of their most revered religious sites.

The European Commission, the EU’s executive arm, recommended on Monday that accession talks should begin and a final decision by the bloc is expected in June. The talks have the potential to drive reform and lure investors to the largest country to emerge from ashes of federal Yugoslavia.

However, Patriarch Irinej urged parliament and the president to overturn the EU-brokered Kosovo accord. “The price of eventual entry to the EU will be formal recognition by Serbia of an ‘independent Kosovo’,” he said.

Analysts say the government so far has the balance of public opinion in Serbia behind the Kosovo deal, under which it also agreed to end the young country’s ethnic partition between the Albanian majority and a pocket of about 50,000 Serbs.

However, the region bristles with weapons and animosity, and the accord could yet unravel if the Serb minority in northern Kosovo resists.

“NO SURRENDER!”

Ninety percent of Kosovo’s 1.7 million people are Albanians, who broke away in 1999 when NATO bombed for 11 weeks to halt their massacre and expulsion by Serbian forces fighting a counter-insurgency war.

In the ethnically-divided northern town of Mitrovica, more than 5,000 Serbs rallied against the deal, which calls for their integration into Kosovo’s legal framework in exchange for limited autonomous powers. Up to 2,000 also marched in the Serbian capital, Belgrade, calling for a referendum on the deal.

The Serb north had functioned largely as part of the Serbian state since 1999 and even after Kosovo’s declaration of independence in 2008.

Desperate for the economic boost of closer EU ties, Serbia also promised not to obstruct Kosovo’s path to eventual membership of the 27-nation bloc. All but five EU member states recognise Kosovo as independent.

Protesters in Mitrovica chanted “Treason, treason!” and “No surrender!”.

“No one has the right to push us into an unrecognized state against our will,” said Dragisa Milovic, mayor of the northern Kosovo municipality of Zvecan.

But the reaction in Serbia has been muted so far compared with riots in 2008 after Kosovo’s declaration of independence, when protesters set fire to the U.S. embassy in Belgrade.

On Sunday, hecklers demonstrated at the start of the Belgrade marathon, shouting “We won’t give up Kosovo” and unfurling a banner that read “We defend Serbia”. One protester approached Serbian Prime Minister Ivica Dacic and asked him: “Do you sleep peacefully at night?”

(Additional reporting by Branislav Krstic in Mitrovica; Writing by Matt Robinson; editing by David Stamp)

The deal, brokered by the EU, capped six months of delicate negotiations and marks a milestone for the region’s recovery from the collapse of Yugoslavia in the 1990s.

If implemented, it could unlock Serbia’s potential as the largest market in the former Yugoslavia, taking the country from international pariah under late strongman Slobodan Milosevic to the threshold of mainstream Europe.

“And the white smoke is out! Habemus pactum! Happy:)))” Kosovo’s EU’s integration minister, Vlora Citaku, tweeted after the prime ministers of both sides initialed a two-page plan outlining an end to the ethnic partition of Kosovo between its Albanian majority and a small, Belgrade-backed pocket of some 50,000 Serbs in the north.

The schism has dogged regional stability and development since Kosovo seceded from Serbia in 2008.

The Kosovo Serbs will almost certainly resist in a region bristling with weapons and deep animosity, and were already demanding a referendum on the deal.

In exchange for limited autonomous powers for the Serb north, Serbia agreed not to block Kosovo’s path to eventual membership of the EU – a concession Kosovo hailed as recognition of independence.

“This agreement is de-jure, legal recognition by Serbia, which will open the way for Kosovo to join international organizations,” Kosovo Prime Minister Hashim Thaci, who led a guerrilla insurgency against Milosevic’s forces in 1998-99, told reporters.

Serbia says it will never recognize as sovereign a territory it considers the cradle of the Serb nation.

But Friday’s deal reflects a sea change in official policy and a realization in Serbia that it has been swimming against the tide at the expense of its economy.

Neighboring Croatia, a wartime foe of Serbia during Yugoslavia’s demise, joins the EU on July 1, a sobering reminder for many Serbs of just how far they have fallen behind.

Kosovo is recognized by over 90 countries, including the United States and 22 members of the 27-nation EU that Serbia wants to join. But it has yet to join the United Nations, something Serbian ally and U.N. veto-holder Russia holds the key to.

Diplomats said the accord was likely to win a provisional green light on Monday from the EU for the start of membership talks with Serbia. A formal decision would come in June.

DEAL TOUGH TO ENFORCE

The accession process could help unlock the country’s potential as the largest market in the former Yugoslavia and lure much-needed foreign investment to its struggling economy.

“It’s very important that now what we are seeing is a step away from the past and for both of them a step closer to Europe,” said EU foreign policy chief Catherine Ashton, who brokered the deal.

Serbian officials said it remained subject to approval by “state bodies” back in Belgrade. “We will inform the EU by letter on Monday whether we accept the deal or not,” Prime Minister Ivica Dacic told reporters.

Western diplomats said there was very little chance of Serbia reversing course, but cautioned that the real test lay in the implementation.

Germany, in particular, “has been very clear on the importance of practical implementation, so that they won’t be burned,” said a senior Western diplomat, who spoke on condition of anonymity.

Kosovo’s Thaci said: “This agreement will help us heal wounds of the past, if we have the wisdom and knowledge to implement it in practice.”

Under the terms, the north of Kosovo will be absorbed into the legal framework of the country but retain limited autonomy in areas of health, education, policing and courts.

In a sign of possible resistance to come, Serb municipal lawmakers in northern Kosovo demanded a referendum on whether Kosovo should be part of Serbia or Belgrade should accept the conditions set down by the EU to clinch accession talks.

Steeped in history and myth for Serbs, Kosovo broke away from Serbia in 1999, when NATO carried out 11 weeks of air strikes to halt the killing and expulsion of ethnic Albanians by Serbian military forces under Milosevic waging a brutal counter-insurgency campaign.

Kosovo became a ward of the United Nations, but Belgrade retained de facto control over the northern Serb pocket. The partition has frequently flared into violence and frustrated NATO’s hopes of cutting back a costly peace force that still numbers 6,000 soldiers.

“Likely to be taken as a positive by the market, as this will further anchor reforms in Serbia, albeit accession negotiations are likely to be very long,” said Tim Ash, head of emerging markets research at Standard Bank.

(Additional reporting by Adrian Croft and Justyna Pawlak in Brussels, Fatos Bytyci in Pristina and Matt Robinson in Belgrade; Writing by Matt Robinson; Editing by Mark Heinrich and Mike Collett-White)

With the 27 EU members due to decide on Monday whether to back the start of accession talks, the prime ministers of Serbia and its former province met in Brussels for a 10th round of negotiations in six months.

On the table was a 15-point plan to end the ethnic partition of Kosovo and guarantee its viability, five years after it seceded from Serbia and became the last state to emerge from the ashes of federal Yugoslavia.

An accord would be a seminal moment in the region’s recovery from a decade of war in the 1990s, and help to unlock Serbia’s potential as the largest market in the former Yugoslavia.

In return for a form of autonomy for a small pocket of northern Kosovo inhabited by ethnic Serbs, the Albanian majority is demanding Serbia drop efforts to isolate the young country.

But the point is acutely sensitive for Serbia because it is determined not to recognize the independence of a territory that it sees as the cradle of its identity.

The Kosovo daily Koha Ditore said the two sides were edging towards a compromise under which Serbia would agree not to hinder Kosovo’s “European integration”, implicitly its path to eventual membership of the EU.

Talks broke down on Wednesday when Serbia refused to agree to Kosovo’s accession to “international organizations”, which Belgrade read as the United Nations.

“We’ve returned to Brussels because we got a guarantee from the European Union that Point 14 of the agreement has been modified,” the Serbian state news agency Tanjug quoted an unnamed official close to the Serbian negotiators as saying.

The outline deal reflects a sea-change in official Serbian policy as it seeks to come to terms with Kosovo’s loss in exchange for the economic boost of closer ties with the EU.

HIGH STAKES

Steeped in history and myth for Serbs, Kosovo broke away from Serbia in 1999 after 11 weeks of NATO air strikes to halt the killing and expulsion of ethnic Albanians by Serb forces waging a counter-insurgency under late strongman Slobodan Milosevic.

It was the culmination of a decade of war in Bosnia, Croatia and Kosovo during the demise of Yugoslavia in the last decade of the 20th century. Serbia was an international pariah until Milosevic was forced out in 2000.

After neighbouring Croatia joins the EU on July 1, anchoring Serbia in accession talks would belatedly help to drive reform in the largest market in the former Yugoslavia, luring investors to a country of over 7 million people.

Kosovo declared independence in 2008 and is recognized by more than 90 countries, including the United States and 22 of the EU’s 27 members.

But its development is also hampered – by an ethnic partition between the 90-percent Albanian majority and the northern Serb pocket, where Belgrade still has a fragile grip.

Talks mediated by EU foreign policy chief Catherine Ashton have edged towards a deal on reintegrating the Serb north into the legal framework of Kosovo, in exchange for limited autonomous powers over policing and courts.

Implementation will not be easy, with some 50,000 Serbs in the north, centered on the divided town of Mitrovica, vehemently opposed to the Kosovo state. The partition frequently flares into violence and has frustrated NATO’s hopes of cutting back a costly peace force in Kosovo that still numbers 6,000 soldiers.

The north Kosovo Serbs warned against signing the deal.

“I remind everyone in Belgrade that they should hold true to the Serbian Constitution, which states that Kosovo is an integral part of Serbia and that no one has the right to sign anything that would try to make these (Serb) municipalities work by Albanian laws,” said Kosovo Serb politician Krstimir Pantic.

(Additional reporting by Adrian Croft and Justyna Pawlak in Brussels, Fatos Bytyci in Pristina; Writing by Matt Robinson)

On the table is an agreement to end the ethnic partition of Kosovo five years since it seceded from Serbia, and potentially clear a path to a seat at the United Nations for the last state to emerge from the ashes of federal Yugoslavia.

An accord would mark a seminal moment in the region’s recovery from a decade of war in the 1990s and help unlock Serbia’s potential as the largest market in the former Yugoslavia.

With the clock ticking to a Monday decision by the EU on whether to recommend the start of accession talks with Serbia, Belgrade on Wednesday balked at demands by its former province for a seat at the United Nations.

Serbia said it would amount to recognition of a territory it considers the cradle of its nation. Kosovo, where 90 percent of the 1.7 million people are ethnic Albanians, said the issue was non-negotiable.

Both sides headed home, only for Kosovo to announce that its prime minister, former guerrilla commander Hashim Thaci, had turned back from Slovenia’s Ljubljana airport at the request of EU foreign policy chief Catherine Ashton.

“Delegations back to Brussels! Dialogue to continue tomorrow!” Kosovo’s European Integration Minister Vlora Citaku said on Twitter.

Serbia’s leadership was silent, until Prime Minister Ivica Dacic emerged from hours of consultations with his allies to say he too would return. “This represents a huge effort given that we only came back from Brussels today,” he told Serbia’s Beta news agency.

Any agreement on Friday could mark the culmination of six months of delicate negotiations between Dacic and Thaci, mediated by Ashton.

Kosovo broke away from Belgrade in 1999 after 78 days of NATO air strikes halted the killing and expulsion of ethnic Albanians by Serb forces waging a counter-insurgency campaign under late strongman Slobodan Milosevic.

KEY TO STABILITY

Kosovo declared independence in 2008 and is recognized by more than 90 countries, including the United States and 22 of the EU’s 27 members.

Dangling the prospect of membership talks, the EU says Serbia must help to end an ethnic partition of Kosovo between the Albanian majority and a northern pocket of some 50,000 Serbs where Belgrade still has a fragile grip.

The two sides have edged towards a deal on the status of the north, including what autonomous powers it might wield. But negotiations on Wednesday, billed as make-or-break, stalled over Point 14 of the plan. That calls for Serbia to stop obstructing Kosovo’s accession to international organizations, implicitly the United Nations.

“Removing that point would undermine the entire agreement,” Bekim Collaku, an adviser to Thaci, told Reuters. “What kind of normalization are we talking about if after this deal Serbia will continue blocking Kosovo on its Euro-Atlantic path?”

Serbia’s Dacic said all was not lost, but accused Thaci of trying to scupper the deal.

“Serbia is supposed to let Kosovo be a member of international organizations? Well then let’s just write down that we recognize Kosovo as independent,” he told reporters. “We couldn’t accept that, and we will never accept that.”

Settling their relations would go a long way to stabilizing the Western Balkans. Kosovo’s ethnic partition frequently flares into violence and has frustrated NATO’s plans to cut back a peace force that still numbers 6,000 soldiers.

The EU wants to anchor Serbia in accession talks, driving reform and luring investors to a country of over 7 million people. Just as it was the main agitator of the wars that tore Yugoslavia apart, Belgrade today holds the key to regional stability and development.

Ashton is due to report back to EU governments before they make their recommendation on accession talks for Serbia on Monday. That decision would then be finalized in June.

The differences between the two sides are “narrow and very shallow”, Ashton said after Wednesday’s talks. “We have some hours left.”

(Additional reporting by Adrian Croft in Brussels, Jaksa Scekic in Belgrade and Fatos Bytyci in Pristina; Writing by Matt Robinson; Editing by Jon Hemming)

Serbia said it would never accept the U.N. condition that Kosovo described as non-negotiable – although the Kosovo government said talks would continue on Friday, suggesting there might be room for a compromise.

The EU said the two sides had “some hours left” to settle their differences before the EU’s 27 governments consider on Monday whether to recommend the start of accession talks – a milestone that could help unlock Serbia’s potential as the largest market in the former Yugoslavia.

Fourteen hours of talks – billed as make-or-break – between the Serbian and Kosovo prime ministers broke up in Brussels without a deal. The EU wants Serbia to help end Kosovo’s ethnic partition between the 90-percent Albanian majority and a Serb pocket in the north, where Belgrade still has a fragile grip.

Kosovo broke away from Serbia in 1999, when NATO bombed for 11 weeks to drive out Serbian forces under late strongman Slobodan Milosevic during a counter-insurgency campaign. Kosovo declared independence in 2008 with the backing of the West.

Desperate for the economic boost of closer EU ties, Serbia’s ruling coalition has offered to recognize the authority of Pristina over the northern pocket, but wants autonomy for some 50,000 Serbs living there.

Officials said there was broad agreement on the powers the north Kosovo Serbs could wield over policing and courts. But Serbia, which does not recognize Kosovo as a sovereign state, balked at Point 14 of the proposed agreement, a demand that it drop obstruction of Kosovo’s accession to international organizations, implicitly the United Nations.

“Removing that point would undermine the entire agreement,” Bekim Collaku, an adviser to Kosovo Prime Minister Hashim Thaci, told Reuters. “What kind of normalization are we talking about if after this deal Serbia will continue blocking Kosovo on its Euro-Atlantic path?”

Serbian Prime Minister Ivica Dacic said all was not lost, but nonetheless accused Thaci of trying to scupper the deal.

“Serbia is supposed to let Kosovo be a member of international organizations? Well then let’s just write down that we recognize Kosovo as independent,” he told reporters. “We couldn’t accept that, and we will never accept that.”

KEY TO STABILITY

Kosovo is recognized by more than 90 countries, including the United States and 22 of the EU’s 27 members, but U.N. Security Council veto-holder and Serbian ally Russia is blocking its membership of the United Nations, a major obstacle to the country’s development.

Settling relations between Serbia and Kosovo would go a long way to stabilizing the still fragile Western Balkans. Kosovo’s ethnic partition frequently flares into violence and has frustrated NATO plans to further cut back a peace force that now numbers 6,000 soldiers.

The EU wants to anchor Serbia in accession talks, driving reform and luring investors to this country of over 7 million people. Just as it was the main agitator of the wars that tore apart federal Yugoslavia in the 1990s, Belgrade today holds the key to regional stability and development.

EU foreign policy chief Catherine Ashton, who has mediated six months of talks between Dacic and Thaci, said their differences were “narrow and very shallow” and held out hope an agreement could still be reached.

She is due to report back on progress in the talks before EU governments make their recommendation on Monday. That decision would then be finalized in June.

“We have some hours left,” Ashton said.

“I hope in that time, that both delegations will reflect on whether they can take the final steps necessary to finish this agreement and to move their people forward into the future,” she said in a statement.

Serbia had already rejected one version of the deal last week, but Ashton summoned the two sides back to Brussels after days of informal contacts fuelled speculation that they had narrowed their differences.

(Additional reporting by Adrian Croft; Writing by Matt Robinson)

After around 14 hours of talks in Brussels between the Serbian and Kosovo prime ministers, billed as a make-or-break session, EU foreign policy chief Catherine Ashton said differences remained between the two sides.

She said however that their differences were “narrow and very shallow” and held out hope there could yet be an agreement before an EU ministerial meeting on Monday at which she is expected to make a recommendation on whether Serbia is ready to start talks on joining the EU.

“We have some hours left. I hope in that time, that both delegations will reflect on whether they can take the final steps necessary to finish this agreement and to move their people forward into the future,” she said in a statement.

Agreement between Serbia and Kosovo is seen as crucial to Belgrade’s chances of securing approval from EU leaders at a June summit to open talks on joining the 27-nation bloc.

Membership talks would be a milestone in Serbia’s recovery from a decade of war and isolation under late strongman Slobodan Milosevic and provide a much-needed boost for its ailing economy, still the biggest in the former Yugoslavia.

Kosovo broke away from Serbia in 1998-99, when NATO waged an 11-week air war to halt the killing and expulsion of ethnic Albanian civilians by Serbian forces trying to crush a guerrilla insurgency. Kosovo declared independence in 2008 and is recognized by more than 90 countries, including the United States, but Serbia does not recognize its secession.

Serbia retained de facto control over a small, Serb-populated pocket of north Kosovo, in an ethnic partition that frequently flares into violence and that the EU says must end.

Kosovo Prime Minister Hashim Thaci said he had accepted proposals on normalizing relations with Serbia that Ashton had put forward but that Serbia had rejected them.

MORE ACCEPTABLE

Serbian Prime Minister Ivica Dacic said the plan put forward by Ashton was much more acceptable to Belgrade than earlier proposals had been.

“It is clear however that Pristina (the Kosovo capital) is not ready to go to the very end and that it is obstructing these talks … and even threatens to resolve the issue of northern Kosovo with some other methods,” he said, without elaborating.

Both leaders voiced hope that an agreement could yet be reached.

The standoff over north Kosovo has frustrated plans by NATO to further cut back its Kosovo peace force, which now numbers 6,000 soldiers.

In a major U-turn in official policy, Serbia’s ruling coalition has offered to recognize the authority of Pristina over the North, but wants autonomy for some 50,000 Serbs living there.

The EU has mediated in talks between Kosovo and Serbia for the past six months, but the talks have run into trouble over the powers Serbs would wield, particularly over policing and courts. The Serbs also want a guarantee that Kosovo’s future army will not be allowed to enter the North.

Dacic said after the latest talks that Kosovo was attempting to link police command in northern Kosovo with a request that Serbia not block Kosovo’s membership of international organizations. He said this was tantamount to recognition of Kosovo as a state and Serbia could not accept it.

Ashton had summoned Dacic and Thaci back to Brussels for last-ditch negotiations just two weeks after declaring the talks over. The EU’s executive Commission, which had been due to issue a recommendation on Serbia’s readiness for membership talks on Tuesday, delayed its decision to allow another chance to seal a deal.

(Writing by Adrian Croft; Editing by Eric Beech and Cynthia Osterman)

Mired in recession and struggling to find investors in the
crisis-hit European Union, Serbia had hoped Abu Dhabi-based
Etihad would buy a stake in JAT, with media reports suggesting
49 percent was up for sale.

Etihad Chief Executive James Hogan told a news conference on
Monday that any investment could be a long way off.

“We have to look at JAT to see if that opportunity exists.
It is still a very early stage of that process.”

JAT will add its JU code to flights to 21 destinations
within Etihad’s network, while the Gulf airline will put its EY
code on all 23 JAT flights to Europe, Hogan said.

Etihad will start operating flights between Abu Dhabi and
Belgrade on June 15, following Gulf competitor Qatar Airways,
which started flights between Doha and the Serbian capital via
Ankara late last year.

Serbia has been trying to offload JAT for years.

Last month the government said it was ready to take on 170
million euros ($222.66 million) of the carrier’s debt, pay
leases for six new aircraft from EADS’s Airbus and
secure severance payments for redundant workers.

JAT operates 10 ageing Boeing 737-300s and four ATR
72-200 turboprop aircraft on 30 routes within
Europe and to the Middle East.

Serbia is looking east for investment and sovereign lenders
including Russia, China and the United Arab Emirates.

Belgrade has already secured a $400 million sovereign loan
from Abu Dhabi for agriculture investment and agreed more than
$400 million in investment by the Al Dahra agricultural firm
based in the emirate.

Trying to ease the burden on its budget, the Balkans country
is also trying to sell its remaining state run firms, including
the RTB Bor copper mines, JAT Tehnika aircraft maintenance
company and indebted Galenika pharmaceuticals.

On Friday, the Finance Ministry said that the United
States-based unit of Canada’s Valeant Pharmaceuticals
International was the only potential partner for
Galenika, having met all the conditions of a tender.