The Serbian coalition government, with moderate nationalist Vojislav Koštunica as Prime Minister–has collapsed following dissension within the multi-party governing coalition over the “loss of Kosovo.” Voters will go to the polls to elect a new government on May 11th having to make a stark choice in the polling booth: whether to side with the nationalists in their struggle to forestall Kosovar independence, or to vote in a more moderate pro-European government, thereby placating not only members of the European Union but calming the nerves of wary international investors, who have become the life-blood of the Serbian economic system. As reports reports:
…The coalition government collapsed at the weekend, with nationalist Prime Minister Vojislav Koštunica blaming disunity over the conflicting goals of pursuing European Union membership versus defending Kosovo, the province which seceded last month with EU backing.
“Right now, around 1.0 billion euros worth of investments have been put on hold,” [Deputy Prime Minster Božidar] Djelić said. “There is a growing risk perception considering that some parties want to halt Serbia’s road to Europe. The elections will be a choice between Europe and investors are extremely careful.”
Heavily reliant on foreign investment for growth, Serbia is believed to need between 3.0 billion and 5.0 billion euros a year to ensure solid economic growth, single digit inflation and financing of its current account gap of 16 percent of GDP.
“In the absence of the required level of foreign investment, foreign creditors could also decide to put on hold lending to Serbian companies,” said Pavle Petrović of the FREN/CEVES thinktank said.
“The resulting crisis would lead to forcible reduction in external gaps through inflation, currency depreciation, a fall in output and wages. In that case, the central bank could soothe and postpone, but not eliminate the crisis,” he said.