Belgrade starts down a difficult path

After weeks of post-election negotiations, Serbia has a new government. Except for the addition of an ethnic Hungarian minority party – the Alliance of Vojvodina Hungarians (SVM) – the ruling coalition essentially consists of the two major parties that formed the previous one: Aleksandar Vučić’s Serbian Progressive Party (SNS) and Ivica Dačić’s Socialist Party of Serbia (SPS). The most visible difference is that Vučić has replaced Dačić as prime minister, while Dačić will hold the positions of vice-premier and foreign minister.

While Vučić was de facto the most powerful figure in the previous government as well, the acquisition of almost two thirds of parliamentary seats through a sweeping electoral victory by his party allows him to formalize his status and continue the consolidation of power more freely. This has caused many to wonder why he nevertheless chose to incorporate SPS into the government even though SNS could have comfortably ruled alone.

Part of the explanation lies in the severity of proposed economic reforms. Vučić wants to reach as broad a political consensus as possible in order to neutralize potential opposition once the reforms start to hurt large portions of people. SPS would be a far more dangerous opponent than the Democratic Party (DS) or the New Democratic Party (NDS), not only because it enjoys considerably greater public support but also because DS and NDS are deeply embroiled in mutual rivalry, as they compete for more or less the same voters.

Despite his current popularity, Vučić is aware that he will be blamed if reforms fail to yield expected results. He also knows his popularity will inevitably decline with the implementation of each new unpopular measure. The only question is how much. The success of reforms does not depend solely on Vučić’s or anyone’s individual will but rather on a variety of impersonal factors, both internal and external.

In order for structural reforms to succeed, they have to be both comprehensive and carefully timed. Partial implementation, with too many compromises in the process, will not suffice. Positive effects will not be felt in the near term. It will take years before people see tangible improvement in their quality of life, and only on condition that the government does not give up in the meantime in the face of strong public resistance.

The government plans to execute two sets of reforms. The first and more urgent pertain to fiscal consolidation aimed at preventing a looming financial default. The second, and in the long term more important, includes a radical change in business philosophy to make it much more friendly to private entrepreneurship. Adding to the complexity, economic reforms will have to be accompanied by a complete institutional overhaul, with emphasis on the judicial system.

On the foreign policy front, Kosovo will remain a top priority for Serbia’s European partners. In one way or another, the Brussels agreement will reverberate throughout the accession talks. With EU membership years away, Serbia’s formal recognition of its former province should not be expected any time soon. For one thing, Belgrade sees Kosovo as a useful lever in shaping its broader relationship with the West. The pace of Serbia’s EU integration will also hinge on how the lingering European crisis affects general sentiment within member states regarding enlargement policy.

On Ukraine, the government has tried to remain neutral. While analysts are warning that Serbia will not be able to maintain such a position for long, that may not necessarily be the case. The West is unlikely to place too much pressure on Belgrade for fear that it could undermine cooperativeness in dealing with Kosovo. Furthermore, even EU countries are divided on how to respond to Moscow’s latest actions. Last  but not least, the EU understands Serbia’s vast energy dependence on Russia. Belgrade is particularly worried about the potential impact of the dispute between Russia and the West on the future of South Stream. Vučić’s government is pinning great hopes on the project, expecting the pipeline construction to boost economic activity and thus facilitate critically important job creation. However, if the crisis over Ukraine escalates further, pressure on Belgrade to take sides will grow accordingly.

The new government has chosen the path of serious reform. But given the challenges lying ahead, nothing can be taken for granted.