Yugoslavia No More

Montenegro shelved its independence plans to form a new union with Serbia, consigning Yuoslavia to history in a deal the West hopes will avoid more violent redrawing of Balkan borders.

The agreement, reached under mediation by the European Union, was signed by Yugoslav President Vojislav Kostunica, Montenegrin President Milo Djukanovic, EU foreign policy chief Javier Solana and other Serbian and Montenegrin officials.

The new country, consisting of two semi-independent states, will be renamed Serbia and Montenegro, Kostunica said after the signing ceremony. Both republics will share a defense and foreign policy, but will maintain separate economies, currencies and customs services for the time being.

"This document sets the shape of completely new relations between the states of Serbia and Montenegro," Kostunica said. "This step means a break with the previous regime" of former Yugoslav President Slobodan Milosevic.

"Amid the threat of disintegration in the Balkans, we are moving toward integration and peace and stability in the region," he said.

"We have taken an important step forward for the stability of the region and of Europe," European Union foreign policy chief Javier Solana told a news conference.

Under heavy EU pressure, Montenegrin President Milo Djukanovic agreed to a three-year moratorium on a breakaway referendum for his small coastal republic and committed to reshape Yugoslavia.

Yugoslavia, whose painful breakup spawned four of Europe's bloodiest conflicts since World War Two, would finally cease to exist but without disintegrating into more unstable parts.

But it will only happen if Djukanovic can overcome heavy opposition from allies and voters who want full independence.

After a decade of Balkan wars, the West fears Montenegrin independence would signal to ethnic Albanians in Kosovo and Macedonia and to Serbs in Bosnia that borders are negotiable, tempting them to seek separation by violent or other means.

Even Thursday's compromise deal raised hopes of independence for Kosovo among some Albanian politicians. Kosovo, now administered by the United Nations, remains part of Serbia.

"This agreement will accelerate the process of independence for Kosovo, because from today Yugoslavia no longer exists," sad Ruxhdi Sefa, a senior official from the province's third largest party the Alliance for the Future of Kosovo.

Yugoslavia first was formed in 1918 as the Kingdom of Serbs, Croats, and Slovenes, and Montenegro gave up its statehood to join. The country was occupied by Nazi Germany during World War II, then tightly controlled under the communist regime of Marshal Tito for four decades after the war.

Yugoslavia began to unravel along ethnic lines during Milosevic's reign. Slovenia, Croatia, Macedonia and Bosnia-Herzegovina all declared their independence by 1992.

Serbia and Montenegro stayed together when the other republics started leaving Yugoslavia in the early 1990s. But their alliance began to crumble in 1997 when Djukanovic distanced himself from Milosevic and began advocating independence for Montenegro.

Parliaments will need to agree to the document.

Djukanovic will find it hard to sell the deal to key pro-independence allies at home and many analysts say Serbia and Montenego have diverged so far that t is questionable how long their new union can last.

The two agree broadly to harmonize their economies but the document contained no detailed solutions to how to realign their highly different financial systems. Djukanovic said Montenegro would not backtrack on de facto freedoms it already enjoyed.

"I think the political public in Montenegro has every reason to be satisfied with what we have achieved with this agreement, most importantly all results of economic reforms that Montenegro has achieved over the past year have been preserved," he said.

Montenegro stopped using the Yugoslav Dinar currency in1999, adopting instead the German mark and its successor, the euro. It was not clear how this, or the two republics' distinct markets and parallel customs systems, would be reconciled.

Djukanovic is eager not to endanger aid and rapprochement with the West but is under pressure from a pro-independence party on whose support his minority government depends.

"Anything but a referendum is a betrayal of those who made him president," a newspaper quoted Montenegro's parliamentary speaker Vesna Perovic as saying.

But the president sought to soothe such sentiment, assuring Montenegro's 615,000 people they could reconsider relations with Serbia, which as a population of 10 million, in the future.

"The agreement does not jeopardize the basic right of every people to re-examine after a certain period their stand on the future of their state," Djukanovic told reporters.

All ideas were motivated by ambitions shared across the Balkans to forge closer ties with the affluent European Union, which said they had taken a step in the right direction.

"This is good news for Europe and for the future of the Western Balkans on their road to the EU," EU Commissio Foreign Relations Spokesman Gunnar Wiegand said in Brussels.

Yugoslav President Vojislav Kostunica said the new state would embody a break with the former regime under Slobodan Milosevic, who led Yugoslavia into international isolation.

"At a time when Europe is integrating, and when the pestilence of disintegration is affecting the Balkans, Serbia and Montenegro have embarked on the road of integration," Kostunica told a news conference.

The deal represented a second diplomatic success for Solana and the EU in the Balkans after last August's peace deal to end nascent civil war in the former Yugoslav republic of Macedonia.