Members of the ruling parties of Serbia and Montenegro said yesterday, after exploratory discussions on redefining Yugoslavia that they would move ahead with trying to reform their joint state.
The talks, held behind closed doors in the Yugoslav parliament building, represent the first time in a year that the parties have discussed their lengthy standoff over the running of the federation.
The pro-Western Montenegrin leadership, elected in 1997, is at loggerheads with the authorities in Belgrade, who have control of the army and customs in the smaller republic and are far less keen on market-style reforms.
The Montenegrin leadership has proposed reorganising Yugoslavia to give Montenegro more power and is hoping that Serbia, faced with rising popular protests over its isolationism, may be ready to compromise.
If the talks fail, Montenegro is threatening to hold a referendum on independence from Yugoslavia, which has already lost four out of six of its republics amid bloody ethnic conflicts.
In Norway yesterday Montenegro's President, Mr Milo Djukanovic, said after meeting the Norwegian Foreign Minister, Mr Knut Vollebaek, that Montenegro would be flexible in the talks, which have no deadline.
"I want first of all to see Montenegro as a democratic country, economically developed and integrated into Europe. If Montenegro can achieve this in its present status as a member of the Yugoslav federation then that's good," he said.
"If that should prove impossible, however, then the issue of independence will be imposed as an inevitable alternative."
Montenegro had initially expressed scepticism over whether Serbia would take the talks seriously, but Mr Zeljko Sturanovic, head of the Montenegrin negotiating team, said after the initial round yesterday he was pleased with the way they had gone.
"It is our impression that representatives of political parties with whom we held talks today did not have any serious objections to the principles we are proposing," Serbia's independent Beta news agency quoted him as saying.
"We have agreed that Yugoslavia finds itself in a serious crisis."
Mr Zivko Soklovacki, head of the team of negotiators from the Yugoslav Left party led by the wife of the Yugoslav President, Mr Slobodan Milosevic, said after the negotiations that his party was ready to continue talks.
"As long as there is goodwill on both sides, an agreement can be reached," Mr Soklovacki, who led a three-member team, told Yugoslavia's state news agency Tanjug.
The Serbian parties also held parallel talks with Montenegro's main opposition party, which currently holds seats in the federal parliament and the post of Yugoslav Prime Minister, both claimed by Montenegro's ruling party.
The Montenegrin ruling party left the Yugoslav parliament in May 1998, after the Serbian-dominated chamber ousted their party member and the then Yugoslav prime minister, Mr Radoje Kontic.
Montenegro's proposal for the future state would mean fewer federal powers and more political and economic independence for the coastal republic. The federal cabinet would keep on drafting framework laws only.
A draft platform sees the two republics bonded with joint but reformed money, defence, foreign and customs policies.
It aims to issue a convertible dinar, set up a currency board, reform the central bank, keep an uninterrupted payments system and develop key infrastructure including energy, transport and telecommunications.
Montenegro would, however, proceed alone in its privatisation drive and keep strict control over its public finances which would include a transparent and balanced budget and creation of stable fiscal revenues.