bne -

Defying the cynics, Kosovan and Serbian leaders managed to stitch together an 11th hour EU-brokered deal on April 19 over normalizing relations between the two foes - a breakthrough that will have far-reaching implications for both countries' EU hopes. There are still considerable hurdles ahead, though.

The deal after ten tough rounds of negotiations between the prime ministers of the two countries under the supervision of Baroness Ashton, the EU's foreign policy chief, is a major success for the bloc, which had made progress between Serbia and its erstwhile province Kosovo a key condition before it would start membership talks with Belgrade.

After the eighth round of talks broke up without agreement on April 8, there were worries that a deal was beyond the two. Kosovo unilaterally declared independence in 2008 after Nato helped stopped a civil war several years before between the ethnic Albanian and Serbian populations, and while many countries recognise Kosovo as an independent country, Serbia still does not and has been holding on through various means to the Serb-dominated north of the country. About 140,000 ethnic Serbs live in Kosovo out of a total population of 1.7m; about a third of them live in the north. And it's the fate of those Serbs in the north that was the main sticking point in the talks.

Serbia had offered in the talks to recognise the authority of Pristina over the north, but was pushing for broad autonomy for the Serbs living in the Serb-dominated north of Kosovo. The Kosovans were holding out against this, and Serbs felt that Kosovo was not interested in compromising because the EU was not putting any pressure on them to do so.

That appeared to have changed. The 15-point treaty basically says that while Serbia does not recognise Kosovo as a state, it concedes its legal authority over the whole territory. In exchange, the Kosovo authorities concede a level of autonomy to four Serb-controlled areas of northern Kosovo, which will form one large community. This region will then receive broad rights and authority in issues pertaining to police, justice, education, health care and culture.

This Serbian community in Kosovo will still be financed by Pristina, and the police and courts in the northern region must be part of the Kosovar judicial system. This fact can be regarded by opponents of the Serbian government as "recognition of the Kosovar state," according to former Serbian PM Vojislav Kostunica and his opposition party, the Democratic Party of Serbia.

Kostunica's skepticism over the deal is mirrored by Kosovan Serbs and hardline nationalists on both sides. Serbian nationalists say the treaty is a "betrayal of Serbian interests in Kosovo," while government officials say they have had death threats pouring in "every second". Protests are expected. Even so, the governments in Belgrade and Pristina likely have enough support to send an official positive response on Monday, April 22 to the EU's Ashton.

"This is a first and historic agreement between Serbia and Kosovo," said Hashim Thaci, the prime minister of Kosovo, who is a former leader of the Kosovo Liberation Army, guerrillas who fought the Serbs in 1998-1999. "Serbia has recognized the full sovereignty and territorial integrity of Kosovo. This is the start of normalizing the relationship between our two countries."

Ivica Dacic, the Serbian prime minister who, during the Balkan wars of the 1990s was a close associate of Slobodan Milosevic, the then Serbian leader, wasn't quite as enthusiastic: "That's the best suggestion we received in this dialog. My signature doesn't mean, however, that we accepted this document."

However, the third man in the room, Aleksandar Vucic, the all-powerful Serbian deputy prime minister, who like his Serbian Progressive Party colleague President Tomislav Nikolic was a former hardline nationalist, has put his imprint on the deal, meaning government approval is a formality.

Implementation is key. It won't be straightforward mainly because of the resistance of Serbs in Kosovo's north, who have a habit of setting up roadblocks and indulging in violent flare-ups. "The NATO-led KFOR [peacekeeping] mission, Eulex [the EU's police mission to Kosovo] and the Kosovar government will be responsible for supporting the agreement," Thaci said. "We also expect facilitating measures from Serbia." The parties to the agreement will found a "Commission for Treaty Implementation" in Brussels by April 26.

Both parties agreed that they will not "hinder or disturb each other in the process of approaching the European Union," which is key for the wider investment community. The EU has signaled that by making the agreement, Serbia will be now be given a green light to open EU accession talks, probably in June, while Kosovo will get a formal commitment to negotiating an earlier step in the process, known as a Stabilisation and Association Agreement.

What that means more than anything else is money - something both countries' economies are in dire need of. That means EU aid as well as private sector portfolio and direct investment.

"If they end up getting the green light from the European Council and accession talks begin then Serbia is locked into the EU accession process - if they meet the terms of accession, ie. the acquis, then they will be allowed to join," says Tim Ash of Standard Bank. "That said, as the process with Turkey has proven, the process can be very, very long, and individual member states can stall/delay the process, and the longer term issue over the future state of Kosovo remains as an impediment still to actual Serbian EU accession. Serbia will not get the final sign off for EU accession until the issue of Kosovo is permanently resolved to the satisfaction of both sides. Still in the interim, today's move should see a confidence boost to Serbia, and to investment into Serbia."

For the EU, there might be postive knock-on effects. An agreement between Kosvo and Serbia could prompt the ethnically split Bosnia-Herzegovina to do more to make similar necessary compromises, and Macedonia, which also has testy and sometimes violent relations with its Albanian minority.