After months of uncertainty and political bickering Serbian politicians have at last got their act together and managed to agree to form a pragmatic coalition government, whose clear intent is to join the European Union as quickly as possible.

Although President Boris Tadic, whose pro-Western Democratic Party (DS) will be in the driving seat, still has a lot to prove - particularly in ridding the country of a corrupt political system and speeding up deep reforms to the economy - the alternative right-wing nationalist coalition could have set Serbia back years.

The formation, probably next week, of a pro-EU government looking ahead to a positive future as part of Europe, will come as an immense relief to western nations and other countries in the Balkans such as Kosovo and Montenegro which had feared a fresh bout of instability in the region if a three-sided right-wing coalition led by Vojislav Kostunica of the Democratic Socialist Party (DSS) had come to power.

Mr Olli Rehn, European Union enlargement chief, expressed delight at the developments, saying they meant there was now a "real chance" for Serbia to have a truly pro-European government.

"We have long been looking forward to seeing a democratic European reform-oriented government in Serbia and it will be very important for serving European perspectives to which we are fully committed," he said.

Earlier this week Mr Tadic's pro-Western bloc finally secured an alliance with the tiny Socialist Party of former strongman Slobodan Milosevic, which held the key to the reins of power because it had won just enough seats in the May 11 poll to tip the balance in the 250-seat parliament in favour of whomsoever it chose. The link-up with the 20-seat socialist SPS, now led by Ivica Dacic, and the additional support of independents and liberals, should enable Mr Tadic's DS to lead a viable pro-Western ruling coalition with an expected 142-seat majority on most uncontroversial issues.

Details of precisely who will make up the DS-led cabinet and precisely when the government is formed are likely to be decided over the next few days in a final round of political and financial horsetrading. But it looks likely that the DS party will secure the role of Prime Minister, with the three main candidates expected to be Bojan Patic, the DS party's VP, outgoing Serbian Foreign Minister Vuk Jeremic and outgoing Finance Minister Mirko Cvetkovic.

The G-17 party of Mladan Dinkic is tipped to secure a number of key positions in the Finance Ministry and the central bank. Slavica Djukic-Dejanovic of the SPS has already formally secured the job of parliamentary speaker and the socialists are also expected to take a central role in forming social policy with particular reference to pensions, jobs and unemployment.

The SPS was keen to cast off its reputation as the backward-looking party of Slobodan Milosevic, the former strongman and right-wing nationalist, who died while on trial for war crimes at The Hague after bringing a series of four disastrous wars to his country in the 1990s. The party hopes that a responsible performance in government over the next few years will help revive its fortunes.

Said Mr Ivica Dacic, SPS leader, on announcing the deal: "The main board supported with a majority of votes the formation of a government with the pro-European alliance. We want to be an equal partner in pursuing Serbia's state policy and that was what guided us in taking the decision to form a parliamentary majority with the Democratic Party (DS). We expect all state bodies stemming from such a decision to be formed very quickly."

"I know this decision will not be understood by part of our electorate," Mr Dacic said, "but this is a big comeback for the socialists and an opportunity for a new start."

The SPS' decision to cast off the past and opt for modernisation came after a highly-interventionist campaign by Brussels, Washington and leading EU nations which offered the carrots of enhanced foreign investment and a speedier entry into the EU, while making it very clear that an old-style nationalist regime in Serbia could have serious adverse financial and political consequences for Serbia.

During the latter stages of the poll campaign the EU offered to make it easier and cheaper for Serbs to travel to Europe and in what many regarded as something of a political coup signed an EU Stabilisation and Association Agreement (SAA) with Belgrade's caretaker government in the very middle of the campaign, convincing voters that their future really was inside the EU and not in splendid isolation or in closer relations with Moscow.

"Most commentators got it wrong. A serious intervention by the EU late in the campaign had a big impact. The key thing was the SAA and the 700 M euo deal signed with the Fiat car company. For voters it was just simple mathematics. With the EU, you've got jobs. Without the EU, you don't have jobs," said Alexandar Vasovic, a leading Serbian political commentator, who has observed all Serb elections this decade.

Even though the pro-European DS party secured the most seats in the poll it was still unable to form a coalition without the participation of the SPS, the very party which had virtually ruined Serbia after the collapse of communism in 1989 and during the subsequent demise of Yugoslavia

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During the post-May 11 poll coalition-negotiating period pragmatism and not political ideals were uppermost in the minds of almost all Serbian politicians. For six weeks after the election right-wing nationalists and pro-European Democrats alike fought to woo with jobs, money and power the once-hated socialist party which had just 20 seats to its name.

Even the EU maintained a highly activist political and propaganda campaign throughout the coalition negotiating process. Many in Brussels felt the outcome could turn out to be as vital a turning point for the region as it might be for Serbs. Western investors had become increasingly nervous that the once-rightwing SPS might link up with Tomislav Nikolic's old-style nationalist Serbian Radical Party (SRP) and Vojislav Kostunica's anti-EU Democratic Socialist Party (DSS) to place Belgrade on a course of confrontation with the West over the former southern Serbian province of Kosovo, which declared its independence on February 17 this year.

The West feared such a government might help to destabilise the region again and propel Serbia into the arms of Moscow, while Serbs keen to improve their economic well-being were worried it could prompt sharp falls in foreign investment, a fresh economic slowdown, new falls on the stock market and a government with little intention of joining the European Union.

Many wondered precisely how the west would have been able to maintain good relations with a government the leader of whose main party was in the Hague on trial for war crimes. Many still fear that if released Vojislav Seselj might return to Belgrade to run the Serbian Radical Party, the country's second largest. But few analysts doubt that Serbia - by just the skin of its teeth - has chosen in President Boris Tadic a man with a vision to give the country a more politically stable and economically viable path into the future.

If all does go smoothly - and given Serbia's propensity to fly by the political wire until the very last minute this is not absolutely certain - the final details of a new pro-EU government are likely to be agreed next week. In that case Mr Tadic, who says Serbia's signing of the EU Stabilisation and Association Agreement in May was of "historic importance,” is likely to quickly attempt to move on to the next stage of the EU application process, which would probably involve Belgrade receiving candidate status.

Brussels, however, is likely to expect to see greater efforts by Belgrade to co-operate with the war crimes tribunal in The Hague, in particular to help capture or track down the country's two biggest alleged war criminals, Ratko Mladic, the Bosnian Serb military commander wanted on charges relating to the 1995 genocide in Srebenica and Radovan Karadzic, accused of having ordered the ethnic cleansing of thousands of Bosniaks.

The arrest earlier this month in Serbia of war crimes fugitive Stojan Župljanin was widely viewed as a good step in that direction but the Netherlands is adamant that the remaining suspects must be brought to justice.

Kosovo too could be a thorny issue. Brussels has made it clear it is determined to secure Kosovo's full United Nations-approved independence as well as taking over the lead legal and political advisory role from the UN in the former Serb province. All Serb parties in Belgrade, however, have made it clear they will never recognise its full independence from Serbia.

Both the Democratic Party and Brussels have made conciliatory noises on the issue in the last few days. Mr Tadić said Belgrade would soon create an opportunity to begin "real talks on Kosovo's future status that could lead to a compromise solution over its status."

This week Mr Stephen Wordsworth, the UK ambassador in Belgrade, said, "recognition of Kosovo's independence was, "not a condition for Serbia's EU accession,” because the EU itself was not united on the issue.

"Twenty EU members recognise Kosovo, seven do not and have no plans of doing so, at least not soon, so we cannot ask Serbia to do more than any other members are prepared to do," Mr Wordsworth said. "Serbia will be expected, however, to find a practical way to cooperate with the EU and its mission to Kosovo," the ambassador said, saying Serbia's stand on Kosovo had to be taken into account.

Reaching some form of true and lasting compromise on Kosovo, however, is likely to be an almost impossible task and both sides may be forced simply to accept that they will never be able to agree.

Mr Tadic's coalition is expected to command up to 142 seats in the 250-seat parliament, though precisely how stable a government this will be is as yet unclear, given the fact that it is made up of more than half a dozen parties, some with very different political points of view.

The President's "For a European Serbia" coalition won 102 seats in the May election and the socialist SPS coalition won 20. The new government is expected also to have the support of seven lawmakers who represent minorities, including four for ethnic Hungarians, two for Muslims and one for ethnic Albanians. It will also be able to count on 13 deputies from the Liberal Democratic Party of Cedomir Jovanovic, a man who helped to negotiate the arrest in 2001 of Milosevic.

*Richard Cowper is an economist and foreign policy expert, who worked for the Financial Times of London for 30 years. He can be contacted by email at This e-mail address is being protected from spambots, you need JavaScript enabled to view it .