Bloomberg News

Serbs Pick Nikolic in Protest Over EU-Inspired Austerity

May 21, 2012

Tomislav Nikolic, a 60-year-old former radical nationalist, won 49.8
percent in yesterday’s presidential runoff, the Electoral Committee in Belgrade said with 75.9 percent of votes counted. Photographer: Andrej Isakovic/AFP/Getty Images

Tomislav Nikolic, a 60-year-old former radical nationalist, won 49.8 percent in yesterday’s presidential runoff, the Electoral Committee in Belgrade said with 75.9 percent of votes counted. Photographer: Andrej Isakovic/AFP/Getty Images

Serbs joined voters across Europe in rejecting the European Union’s austerity push, ousting Boris Tadic after eight years in power in favor of Tomislav Nikolic, who advocated closer economic ties with Russia.

Nikolic, 60, won 49.5 percent in yesterday’s presidential runoff, the Electoral Committee said with 99.1 percent of votes counted. Tadic, who secured the Balkan nation’s candidacy to join the EU, had 47.4 percent. The dinar fell to a record against the euro on concern Nikolic’s win may delay the forming of a Cabinet led by Tadic’s party after May 6 elections.

“Nikolic’s victory could well un-nerve some investors who may fear that this will mark a new, more-nationalist tone in policy over Kosovo, for example, and perhaps more divisive or strained relations between the presidency and the government,” Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, said in a note to clients.

Political leaders are falling in a wave of anger over austerity prompted by Europe’s debt crisis. Two weeks ago, French President Nicolas Sarkozy was ousted and a parliamentary vote in Greece ended in a gridlock. The president “will require a high sense of statesmanship to overcome the more difficult challenges,” EU President Herman Van Rompuy and European Commission President Jose Barroso said in a joint statement in Brussels today.

Weakening Dinar

The dinar had its biggest drop in almost three months, touching a record-low 114.4861 per euro in reaction to the vote outcome, said Ratko Guduric, deputy head of treasury at Vojvodjanska Banka, the Serbian unit of the National Bank of Greece SA. It ended the session at 114.2308 at 4 p.m. in Belgrade, down 0.89 percent.

The Belex15 main share index shed 1.3 percent to close at 469.30 points because of the “nervousness of investors arising from the vote,” said Ivan Dzakovic, an analyst at Sinteza Invest in Belgrade.

The Belgrade-based Narodna Banka Srbije sold 40 million euros ($51.1 million) to “ensure the smooth functioning” of the market, it said in a statement on its website, bringing the total spent to prop up the dinar to 878.5 million euros in 2012.

“There’s too much uncertainty, the macroeconomic situation is bad and it’s going to be even worse if the government is not formed any time soon, within 15 days, so someone assumes responsibility,” Guduric said.

‘Increased Uncertainty’

Tadic stepped down in April, eight months before his term was to end, to hold the election on May 6, the same day as a parliamentary vote where his Democrats finished second. The party has agreed with the third-place Socialists, once led by strongman Slobodan Milosevic, to freeze out Nikolic’s party, which won the vote, to form a new government with other coalition partners.

This month’s presidential and parliamentary elections in Serbia “have increased uncertainty about the direction of economic policy and relations with the IMF,” Fitch Ratings said today, adding that the “developments are within the tolerance levels of our ’BB-’ rating with a Stable Outlook.”

Nikolic’s campaign was marked with nationalist rhetoric about the nation’s claim on Kosovo two decades after Yugoslavia broke up and his rejection of cuts needed to keep fiscal policies in line with EU demands.

EU Candidacy

Serbia became a candidate for EU membership on March 1 after Tadic, 54, pushed the country to fulfill a series of conditions, including the capture and transfer of Radovan Karadzic, Ratko Mladic and Goran Hadzic, the three most-wanted war-crimes suspects from the civil wars that accompanied the breakup of the former Yugoslavia, to the Hague-based International Criminal Tribunal for the Former Yugoslavia.

The bloc called on Nikolic, a former cemetery manager, to undertake a “visible and sustainable improvement” in ties with Kosovo in order to advance its membership bid.

“Serbia won’t give up its EU path, but it won’t give up on its people in Kosovo either,” Nikolic said, referring to his campaign promise of a “two-door” policy that would improve ties with the 27-nation bloc as well as with Russia.

Kosovo wants to “build correct neighborly relations” with Serbia, President Atifete Jahjaga said in a statement. She called on Nikolic “to do what his predecessors have not done, to find the courage to take steps to establish good and peaceful relations with Kosovo,” allowing both countries to continue to “walk the path of European integration.”

Deficit, Unemployment

Gains on the political front haven’t been matched by economic success in the past four years as the effects of the global slump and Europe’s debt crises swept across the Balkan nation. A widening budget deficit prompted the International Monetary Fund to suspend talks on renewing a $1.3 billion precautionary loan in February.

Amid a flagging economy and job prospects, higher wages and the fight against corruption were hot topics during the campaign. Unemployment rose 10 percentage points to 24.4 percent at the end of 2011, public debt increased 16 percentage points to 14.4 billion euros ($18.4 billion) and the average take-home wage is now 360 euros per month.

“This is the result of a protest vote and attests to the deep-seated dissatisfaction of the population with Serbia’s difficult economic and social situation, made worse by Serbia’s vulnerability to the worsening euro zone crisis,” said Laza Kekic, country-forecast director for the London-based Economist Intelligence Unit.

Tax Plan

Nikolic’s party has said it wants to introduce a tax on banks to “relax pressure on the manufacturing” to spur as much as 100 billion euros in new investment from Russia and China over ten years. Nikolic will travel to Moscow on his first foreign visit, though he said yesterday the trip is to attend the United Russia party congress and was planned before the vote.

The accord between Tadic’s Democrats and the Socialists give the parties 111 seats in the 250-member legislature while a coalition of Nikolic’s party and the anti-EU party of former Prime Minister Vojislav Kostunica, controls 94 seats.

A win by Tadic “wasn’t a condition for our coalition in parliament,” Socialist leader Ivica Dacic said yesterday after the presidential vote. Tadic ruled out becoming prime minister in a new Cabinet.

To contact the reporters on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net; Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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