Montenegro shelved its independence plans yesterday to form a new union with Serbia, consigning Yugoslavia to history in a deal the West hopes will avoid more violent redrawing of Balkan borders.
"We have taken an important step forward for the stability of the region and of Europe," the EU foreign policy chief, Mr Javier Solana, said after signing a draft constitutional framework with leaders of the two republics.
Under heavy EU pressure, President Milo Djukanovic of Montenegro agreed to a three-year moratorium on a breakaway referendum for his small coastal republic and to reshape Yugoslavia as a union called "Serbia and Montenegro".
Yugoslavia, whose break-up spawned four of Europe's bloodiest conflicts since the second World War, would finally cease to exist but without disintegrating into more unstable parts.
But it will only happen if Mr 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.
Even yesterday's compromise deal raised hopes of independence for Kosovo among some Albanian politicians. Kosovo, now administered by the UN, remains part of Serbia.
"This agreement will accelerate the process of independence for Kosovo, because from today Yugoslavia no longer exists," said Mr Ruxhdi Sefa, of the Alliance for the Future of Kosovo.
Serbia and Montenegro, the only two of Yugoslavia's six republics not to breakaway since the old federation started to unravel along ethnic lines in 1991, will now draft a new constitution.
Parliaments will need to agree the document.
Mr Djukanovic will find it hard to sell the deal to key pro-independence allies at home, and many analysts say Serbia and Montenegro have diverged so far that it is questionable how long their new union can last.
Mr Djukanovic sought to soothe pro-independence sentiment, assuring Montenegro's 615,000 people they could reconsider relations with Serbia, which has a population of 10 million, in the future.
All sides were motivated by ambitions shared across the Balkans to forge closer ties with the EU, which said they had taken a step in the right direction.
President Vojislav Kostunica of Yugoslavia said the new state would embody a break with the former regime under Mr Slobodan Milosevic, who led Yugoslavia into international isolation.
The accord represents a second diplomatic success for Mr 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. - (Reuters)