BELGRADE Serbia is close to forming a coalition government seven weeks after a parliamentary vote, local media said on Wednesday, reporting that three parties - including the nationalist Serbian Progressive party - had struck a deal to govern.
If confirmed, the deal is likely to raise fears about the Balkan country's bid to join the European Union as EU officials are skeptical about how genuine the nationalists' desire to join the bloc is and unsure whether they will push through the tough reforms which are a prerequisite of membership.
The nationalist Serbian Progressive Party (SNS) won the May 6 vote and on May 20 their leader, Tomislav Nikolic, won a presidential run-off, but they have been unable to form a government because the Serbian Socialist Party (SPS) struck an initial deal to govern alongside the Democratic Party (DS).
But on Wednesday, Belgrade's Politika daily newspaper wrote that the Socialists had reneged on that deal and decided to form a coalition with the nationalists and the pro-business United Regions party instead.
It said Ivica Dacic, the Socialist leader, would become prime minister in the new government.
Although Nikolic, the nationalist leader, says he is in favor of Serbia joining the EU, he once openly professed to want to build a "Greater Serbia" - a dream that inspired much of the carnage in the former Yugoslavia in the 1990s in which 125,000 people died.
The leadership of the Socialists, a party previously led by the late strongman Slobodan Milosevic, was due to meet later on Wednesday to make a final decision on its coalition partner.
"I did not accept anybody's offer, we received the offer, we took the offer into consideration and the party's top bodies will decide," Dacic, the party leader and the outgoing Interior Minister, told reporters in Belgrade.
In a separate statement on Wednesday, Dragan Djilas, the deputy head of DS and the mayor of Belgrade said that the Socialists had abandoned the coalition deal with his own party.
"It appears there's no deal," he said in a statement.
Diplomats say the EU, which made Serbia an official candidate for membership in March, had been hoping that Boris Tadic, the leader of DS and a former president, would become prime minister in a coalition with the Socialists, marginalizing Nikolic as president and keeping the country on a pro-reform path.
The future government will have to tackle a deficit that exceeds 4.25 percent of gross domestic product - a maximum level it agreed with the International Monetary Fund - and inherit public debt of over 50 percent of GDP and unemployment of about 25 percent. It will also have to try to unfreeze a 1 billion euro standby deal with the IMF that was frozen in February over Serbia's inflated spending and widening debt.
(Reporting by Aleksandar Vasovic; Editing by Andrew Osborn)