Against all expectations, incumbent president Boris Tadic failed to secure a 3rd consecutive term, losing the presidential run-off election to Tomislav Nikolic, who he beat both in 2004 and in 2008. The run-off followed a first round earlier last month, when local, parliamentary and presidential elections were held simultaneously. Nikolic is the leader of the centre-right Serbian Progressive Party (SNS), which became the largest party in parliament with 73 seats out of 250, followed by Tadic’s Democratic Party (DS, 67 seats) and the socialists (SPS, 44 seats). The latter two dominate the outgoing centre-left coalition and have announced their intention to continue this collaboration, together with a number of smaller parties. Nikolic will thus have to accept co- habitation, with Tadic expected to become the next prime minister. In fact, the Serbian PM wields more actual power than the president, who can delay but not block legislation. No abrupt policy break should therefore be expected.

Impact on country risk

The ultranationalist Serbian Radical Party (SRS), from which Nikolic broke away in 2008 to found the SNS, did not manage to pass the electoral threshold. Since having left the SRS, Nikolic has rebranded himself as a conservative and significantly tuned down his rhetoric and softened his positions, no longer rejecting a European future for Serbia. Following his election he has reiterated his commitment to EU integration. Under the staunchly pro-western Tadic, Serbia made significant progress on the road towards EU membership. It gained candidate status in March and official negotiations are expected to be opened by the end of the year. Yet, full EU membership is still easily a decade off and will require a solution for the lingering Kosovo issue.

Serbs in Kosovo were able to participate in the elections with both countries nurturing pragmatic relations under EU patronage. The election of Nikolic may complicate things, as the new president has been much more outspoken about Serbia’s territorial claims on the breakaway region. But moving from opposition leader to president may inspire him to choose a more pragmatic approach, especially as neither the EU nor Kosovo played a major role in the elections, which were dominated by the economic situation in the Balkan country. Following several years of sluggish growth, the latter is expected to slow down further this year to a meagre 0.5%. As a consequence, one in four Serbs find themselves without a job, while high inflation has further eroded households’ purchasing power. Given the grim economic situation, the new government will have little option but to negotiate a new support programme with the IMF, implying painful economic reforms.

Analyst: The Risk Management Team, p.dellafaille@credendogroup.com