Serbia faces months of instability and stark choice

BELGRADE (Reuters) - Serbia faces renewed uncertainty on Monday under a caretaker government which will lead the country into its most important election since voters ended the era of the late autocrat Slobodan Milosevic

A deep division over the importance of Kosovo versus future European Union membership killed off the 10-month-old coalition of Prime Minister Vojislav Kostunica on Saturday.

Parliament is due to be dissolved this week and a date set for an early parliamentary election, probably on May 11.

But Kostunica's fractured government will have to soldier on at reduced capacity until the nation chooses its fate.

"The election will be a referendum on whether Serbia takes a European path or becomes isolated, like Albania under (Stalinist dictator) Enver Hoxha," Defence Minister Dragan Sutanovac of the pro-Western Democratic Party told the daily Politika.

Kostunica dissolved the government after tacitly accusing his liberal coalition partners of giving up on Kosovo, the 90 percent Albanian majority province which seceded on February 17, with Western backing.

The election will be a close race between the Democrats and the nationalist Radicals, the strongest party.

Kostunica, whose party lies a distant third, quit after the Democrats and the G17 Plus party voted down a resolution that would have blocked Serbia's path to the European Union until the bloc stopped backing the independence of Kosovo.

Not all of the Union's 27 members have recognized Kosovo, but Brussels is deploying a supervisory mission that will monitor the territory's progress as an independent state.

President Boris Tadic, also the head of the Democrats, said attempts to divide Serbs into patriots and traitors over Kosovo would backfire at the polls. He suggested that Serbia, by joining the EU first, could block Kosovo from joining.

"Kosovo was recognised as independent by some 20 countries. It will not become independent if we continue to work on it," he said on a TV talk-show. "If we join the EU, then we can make sure that this outlaw state never becomes an EU member."

Swedish Foreign Minister Carl Bildt, visiting the Kosovo capital Pristina on Sunday, said neither Kostunica's rhetoric nor the May election would change Kosovo's independence.

"It's an election on whether Serbia wants to be part of Europe or not. And that choice is up to Serbia."

'NO CHANGE' ON KOSOVO

Serbia spent almost five months in limbo under a caretaker government in 2007, also under Kostunica, until he and the Democrats hammered out a policy they could both stand by.

Their deep differences meant the government worked in fits and starts, between compromise and crisis, moving slowly on reforms and ending up last in the Balkan queue of EU hopefuls.

Polls indicate the election could produce a hung parliament and a coalition deal might need long negotiations.

Such a delay could stall urgent legislation and the arrest of war crime suspects -- a key condition for EU membership. But Kostunica's officials say the caretaker government will stay firm in its total opposition to independent Kosovo.

"Serbs and other loyal citizens in Kosovo shouldn't worry," said Minister for Kosovo Slobodan Samardzic.

Belgrade is instructing Kosovo's 120,000 remaining Serbs to sever ties with the Albanian government and ignore the incoming EU mission. The Serb-dominated north is a flashpoint for any move towards a de facto partition.

Kosovo's Prime Minister Hashim Thaci, who has warned Belgrade against trying to carve off part of the territory, said on Sunday Kosovo had contributed to Serbia's democratization.

"In 1999, when we pushed the police, army and Serb administration out of Kosovo, Milosevic's fall from power started," he told reporters at a border crossing where he unveiled a 'Welcome to Kosovo' sign.

"Now, with Kosovo's independence, Kostunica has fallen, the mentality of the past has fallen in Serbia."

(additional reporting by Matt Robinson, Shaban Buza and Gordana Filipovic; edited by Douglas Hamilton and Elizabeth Piper)

(ellie.tzortzi@reuters.com))