BELGRADE (Reuters) - The Socialist Party of late strongman Slobodan Milosevic held the key to power in Serbia on Monday after an inconclusive election in which voters punished the ruling Democratic Party for their economic woes.
The Democrats, part of a reformist bloc that ousted Milosevic in 2000 and tilted Serbia westwards, saw their support crumble to some 23 percent from 38 percent in 2008, hurt by a downturn that has left a quarter of the workforce jobless.
After years of teetering between pro-Western reformers and pro-Russian nationalists, Sunday's elections for president and parliament were marked by a consensus between the main political blocs, who now share a goal of EU membership.
The right-wing Serbian Progressive Party, former allies of Milosevic who came first in the parliamentary poll with around 25 percent, will try to lure the Socialists away from their existing alliance with the Democrats.
With the Socialists in the driving seat, the horse-trading to build a government may take up much of the available 90 days.
Most analysts, however, ultimately expect them to renew the coalition with President Boris Tadic's Democrats that this year clinched official candidate status for EU membership.
"They have a happy marriage behind them and after all, better the devil you know than the angel you don't," said Nenad Sebek, head of the Centre for Reconciliation and Democracy think-tank.
The SNS, led by former ultranationalists under Tomislav Nikolic who say they now favor EU accession, will likely command 73 of parliament's 250 seats once all the votes are in, while the Democrats are set for 68 seats.
Even with the Socialists' 45, either of the main parties would need other allies to get to a majority.
The Liberal Democratic Party, on 20, would sit more easily with the Democrats, while the far-right Democratic Party of Serbia, also on 20, would be more natural allies for the SNS. Other minority groups might go either way.
Any new government will have to tackle the economy, which is suffering from the crisis in the euro zone, the Balkans' main trading partner. The average Serbian earns 380 euros a month. The economy is forecast to grow just 0.5 percent this year.
The daily Politika said the outgoing Socialist interior minister, Milosevic's former spokesman Ivica Dacic, would demand the post of prime minister.
"Whoever wants to talk to us...will have to understand that we have risen from the ashes," Dacic told jubilant supporters in the capital, Belgrade.
Dacic has reformed the Socialists but does not apologize for Milosevic's role in fomenting war in Croatia, Bosnia and Kosovo in the 1990s, conflicts that killed more than 100,000 people and drove his own country into poverty and international isolation.
He favors EU membership for Serbia but is hostile towards the International Monetary Fund (IMF) and the prospect of Serbia seeking new funds from it. He has also pledged to protect state assets from privatization and said pensions should be raised.
"Since a new government without the Socialists is unlikely...we can expect even more socialism in Serbia," said economic analyst Aleksandar Stevanovic.
"That can't bring a rise in living standards, unless the Socialists in practice trample on most of the promises that brought them such a good result."
The Democrats are favorites to retain the less important presidency. In updated results, Tadic edged out Nikolic by 26.7 to 25.5 percent in Sunday's presidential first round. Analysts expect Tadic to pick up more votes from defeated candidates in the second round on May 20.
Under Tadic's Democratic Party, Serbia closed a dark chapter with the arrest and extradition of Bosnian Serb genocide suspects Radovan Karadzic and Ratko Mladic, and in March became an official candidate for EU membership.
The EU is weighing whether to open accession talks next year. They could run until 2020.
"The result makes a good environment for Serbia's future advance towards the EU," Vincent Degert, head of the EU mission in Belgrade, told the Tanjug news agency.
The Serbian dinar shrugged off the results and opened unchanged at 111.85/112.10 per euro.
"We do not think the elections will be a factor until the full start of government talks and the second round," said a dealer at a Belgrade bank.
Writing by Aleksandar Vasovic and Matt Robinson; Editing by Angus MacSwan