Serbia calls crucial May 11 election

BELGRADE (Reuters) - Serbian President Boris Tadic disbanded parliament on Thursday and called a May 11 general election which could decide whether Serbia pursues a place in the European Union or cuts itself off from the bloc.

The 10-month old coalition collapsed at the weekend, with nationalist Prime Minister Vojislav Kostunica blaming deep differences with pro-Western liberals over EU membership and Kosovo, whose secession from Serbia has been backed by the EU.

"The election is a democratic way for citizens to say how Serbia should develop in the years to come," said pro-Western Tadic, announcing what is widely seen as Serbia's most important vote since the fall of Slobodan Milosevic in 2000.

Tadic, also head of the pro-Western Democratic Party, appealed for "a fair campaign" in a peaceful atmosphere so that Serbia gets stable and efficient institutions.

The election will be a close race between Tadic's Democrats and the nationalist Radicals, Serbia's strongest party, who are seen to have gained further on Serb bitterness over Western backing for Kosovo's secession last month.

"May 11 will be when we determine the path that Serbia takes," said deputy PM Bozidar Djelic of the Democrats. "We need new enthusiasm and a clearly determined path towards the EU."

The Radicals are expected to focus their campaign on Kosovo, the benefits of close ties to non-Western powers, such as Russia, and the failure of eight years-worth of pro-Western governments to deliver on their promises of a better life.

The forecast is that neither grouping will get more than 45 percent, producing a hung parliament. Kostunica, who appears to have lost voters to both rival blocs and has just 10 percent support, could emerge as kingmaker.

Analysts say lengthy coalition talks would delay reforms and erode investor confidence, already shaken by Belgrade's recall of ambassadors from states that recognized Serbia's former province and by protests against embassies and foreign firms.

Standard & Poor's revised its outlook on the country to negative earlier this week, noting the impact that an anti-EU government would have on macroeconomic policy and reforms.

"We are concerned that Serbia is slipping away," Bulgarian Prime Minister Sergei Stanishev said in Brussels in a comment to Reuters ahead of an EU summit.

"The political situation in Serbia is creating an atmosphere of national rhetoric...which means possibly in the end Serbia would voluntarily isolate itself from the EU."

NATIONALISTS EYE COALITION

Serbia's central bank also showed its concern on Thursday by raising its key policy rate, citing political risk that could deter investment, push up inflation, and drag down the currency.

Liberal politicians have billed the vote as a referendum on a key question: should Serbs go on working to join the EU even though the bloc backed the secession of its cherished province.

The Radicals and Kostunica's Democratic Party of Serbia say 'no'. The Democrats say that freezing EU ties means isolation.

Radical Party leader Tomislav Nikolic said his supporters were confident the Radicals could win and form a government on their own, but were open for cooperation with similar-minded parties.

"If necessary I'm ready to offer Kostunica the possibility of forming a government together," he told a news conference.

Kostunica has not spoken openly of his intentions, but indicated his decisions will be largely determined by the Kosovo stance of potential coalition partners. In a statement, he said Serbs should elect a "nationally responsible" government."

That government must be "strong enough to fight for the preservation of Kosovo, for successful economic development, and to be an equal partner in talks with the EU," Kostunica said.

(additional reporting by Darren Ennis; Editing by Richard Balmforth)