Nicholas Watson in Novi Sad, Serbia -

Under a clear blue, spring sky in the main square of Novi Sad, around 3,000 people of all ages clap and sing along to a comfortingly respectable rock band, drinking beer and coffee from plastic cups as they wait for the party's big-hitters to arrive for a campaign rally ahead of Serbia's parliamentary and presidential elections on May 6.

What is surprising, however, is that they aren't waiting for the arrival of Boris Tadic, Serbia's polished, smooth, baby-kissing, pro-EU president for the past eight years; these people are here to cheer on Tomislav Nikolic, a man who until four years ago was the right-hand man of Vojislav Seselj, the head of the Serbian Radical Party currently mouldering in a cell in The Hague. Nikolic is now the leader of the splinter Serbian Progressive Party, which is in pole position to win the parliamentary elections, and the presidential frontrunner.

The rally illustrates how much Serbia has changed and become, for lack of a better term, a "normal, democratic European country." Four years ago, this rally would have been a Radical one, held in a seedy hall in the countryside, the air thick with smoke and cheap whisky fumes, and heavies lending the whole affair an undercurrent of violence. Now it resembles more (but not quite) the chardonnay-quaffing rallies of Tadic's urban Democratic Party, complete with a sign-language interpreter at the side of stage, pollsters and campaign managers, some with experience of foreign elections.

"I do believe the electoral body has matured over the past years - we have had three democratic elections over the past decade or so, and the times in which politicians got votes just by saying things that people wanted to hear are behind us," Dejan Soskic, governor of the National Bank of Serbia, tells bne.

New beginnings

Nikolic's break with the Radicals, which was then the biggest party in Serbia's parliament though it never held power, has allowed him to attract the natural Tadic supporters - young, ambitious, many foreign-educated - who have been gradually turned off by the perceived cronyism and corruption that dogs the Democratic Party as it seeks to extend its time in government at the head of a pro-European alliance.

A key plank for the Progressive Party was turning away from the strident Serbian nationalism espoused by the Radicals and sending out the bright-eyed new believers of the Progressive Party to tell the erstwhile Radical/now Progressive supporters that they had become pro-EU. "It wasn't as hard as we thought. Really," says one young, fluent English-speaking party worker.

However, this EU label that the western press likes to employ as an easily identifiable way to typecast Serbia's various parties and candidates (read: pro-EU guy good, pro-Russia guy bad) is disregarded by most Serbs these days. The idea that Serbia will be able to join a crisis-ridden, enlargement-fatigued bloc anytime before 2020 is dismissed by even many in Tadic's party as a fantasy. "I'm not worried about an exact date," says Democratic Party Member of Parliament Konstantin Samofalov. "We're on an irreversible track to the EU - we're putting in place reforms to become compatible with EU systems and bring EU values to life in Serbia."

It's the economy that is the pressing issue for most Serbs, not the issues that seem to concern the West, such as its pro-EU leanings or even its policy over the erstwhile province of Kosovo, whose independence was declared in 2008 after a brutal civil war ended by Nato intervention, but has never been accepted by virtually every Serb. "People are going hungry, we are now a desperately poor country," sighs one former politician and academic.

Indeed, economic growth in the final quarter of last year was a paltry 0.4% and is expected to be around that for the whole year, if not outright recession. The local currency, the dinar, is at its weakest levels since the fall of the late dictator Slobodan Milosevic in 2000, while unemployment stands at 24%. The country's finances are in even worse shape: budget deficit targets for 2012 of 4.25% of GDP that were agreed with the International Monetary Fund as part of a bailout loan look set to be breached. And there's little in the way of investment expected from a European economy labouring under the sovereign debt crisis, while other global investors are scared off by the botched privatisations of the last 10 years that have meant 70% of them have been reversed and just 35% of more than 3,000 companies privatised since 2001 are still producing anything today, implying many companies were bought by the politically connected because of the property owned, not because of their market potential. "Industry used to make up 30% of Serbia's economy, now that figure is just 13% - we don't produce anything," says one official of the Progressive Party.

The dire economic backdrop and related endemic corruption has hurt the Democratic Party, which is behind in the polls. According to a poll of 1,400 respondents by Partner Consulting conducted April 5-8, the Progressive Party had 29.7% support, while the Democratic Party garnered 25.1%. The Socialist Party of former dictator Slobodan Milosevic would get about 13%, while four other parties would pass the 5% threshold to enter parliament: the Turnabout Movement led by Cedomir Jovanovic, the Radical Party of Seselj, the Democratic Party of Serbia (DSS) of former PM Vojislav Kostunica and the United Regions of Serbia led by former deputy PM Mladjan Dinkic.

That would put the Socialist Party in a very strong position as a coalition partner, though the Progressive Party would probably prefer a deal with Kostunica's DSS. But the DSS policy of "political neutrality" - ie. not joining the EU to which Serbia was awarded candidate status in March, but also not selling out to the Russians - would appear to fly in the face of the Progressive Party's new EU-oriented credentials that it has spent the past few years convincing Brussels and Washington of. Bringing in Seselj's Radicals to bump up the numbers in a three-way coalition would send Brussels into conniptions. Some political insiders tell bne that a grand coalition of Tadic's Democratic Party and Nikolic's Progressive Party is a distinct possibility.

Such a coalition would depend on the outcome of the presidential race, which is on a tightrope: a mid-April poll by the Belgrade-based Faktor Plus had Nikolic - a stiffer, greyer figure than the flashier Tadic - pulling ahead with 36.1%, compared with 35.7% for Tadic. If Tadic loses an expected second round against Nikolic, perhaps his only way to remain near the apex of power is through a grand coalition between his Democratic Party and the Progressive Party.

Whiffs of corruption

Though Tadic is a formidable opponent who has already beaten Nikolic twice, the latter's message of reinforcing the rule of law, judicial reform, and pressing on with the fight against corruption and organised crime is clearly hitting home. "Corruption is still blooming in Serbia and [the Progressive Party] needs to put an end to it," Nikolic tells bne. "If we want to live in a legal country with solid economy, we need to intensify and put all our effort in the determined fight against corruption and organised crime."

Democratic Party MP Samofalov points out it's his party that has just reformed the judiciary to produce a batch of properly trained judges and exclude political influence from the courts. "The justice system was one of the weakest spots and it's this government that's reforming the justice system to EU standards," he says, pointing out that Serbia is now a regional leader in combating organised crime and it was Tadic who took on "some of the most dangerous people" and won.

Nevertheless, the whiff of corruption and cronyism that surrounds the Democratic Party - it is noticeable that its election posters rarely even mention the party, instead preferring to focus on the more popular and electable Tadic - is proving hard to disperse. "The people that have done well personally in the last 10 years are generally seen as those from the Democratic Party; any public jobs left go to people linked to the Democratic Party; and anyone arrested for corruption these days are those people not affiliated with any of the ruling parties," says the former politician.

For all the politicking, it's noticeable that the two largest parties both advocate job creation through infrastructure projects, regional development, export-oriented growth by favouring industries such as agriculture and food processing, while at the same time looking to reform the pension and welfare systems and sign a new stand-by loan deal with the IMF.

Kostunica's DSS, which could win between 5% and 10% of the vote, stands out here. The DSS can be thought of as akin to the eurosceptic, radical free market wing of the UK Conservative Party - though with a pro-Russian bent. The DSS is pinning a lot of its hopes on an economic plan devised by Belgrade mayoral candidate Nenad Popovic, a Russian-educated (but English-speaking) former athlete with a penchant for wearing tracksuits. Its economic platform emphasises negotiating a €10bn loan from the Serbs' favourite Slavic brothers, the Russians, and then using this money to rebuild industrial sectors such as construction, chemicals and textiles, which it argues will "seed" small business.

For a country that's heading toward bankruptcy, €10bn would undoubtedly be a useful sum. But critics point out the danger of giving such a large sum of money to politicians who until now have singularly failed to transparently and efficiently distribute similar amounts in the past. DSS officials counter to bne that establishing a development bank would solve this problem, though the recent draft law to establish the Development Bank of Serbia has been criticised and there are worries the Bank will lack transparency, be vulnerable to corruption and do little more than prop up loss-making enterprises chosen on a criteria other than economic rationale.

Serbia may have changed much over the past five years, but building solid, transparent institutions are some of the things that will take much longer to complete.