Muslim, Serb and Croat leaders agree to form government, avoiding financial collapse and opening way for EU membership.

Party leaders reach landmark agreement after 14 months of government deadlock in Bosnia and Herzegovina [AFP]

Bosnia’s Muslim, Serb and Croat leaders have made a major breakthrough by agreeing to form a government and pass a budget for 2011 to avoid financial collapse, ending a political impasse dating back to a 2010 election.

“We have reached an agreement on the composition of the government,” Sulejman Tihic, leader of the SDA Muslim party, told a press conference on Wednesday.

Bosnian Croat leader Dragan Covic, whose party will get the prime minister’s post, said “a lot of courage and determination were needed to broker this deal”.

Milorad Dodik, the hardline Bosnian Serb leader, also praised the agreement as a victory for “compromise and understanding”.

Bosnia has been effectively paralysed for more than a year since the inconclusive parliamentary election. The impasse has halted reforms needed to help the country’s battered economy.

Observers said EU and other Western ambassadors pressed the parties to reach the agreements, partly out of fears that further economic hardship in the country could spark unrest.

Economic challenges

“It is positive news that leaders have reportedly, and at long last, finally reached agreement on the Council of Ministers and other important measures,” Valentin Inzko, the international peace overseer in Bosnia, said in a statement.

“I encourage the political leaders to build on this positive development,” Inzko said, adding that a new government will have to act quickly to address economic challenges in the year ahead and meet terms for faster EU integration.

The agreement will allow the EU and the International Monetary Fund to release hundreds of millions of dollars of frozen funds to the country.

Since the peace agreement that ended Bosnia’s 1992-95 war, power has been mostly shared by three nationalist parties.

The government is divided by ethnicity, with four seats reserved for Muslim Bosniaks and three each for Serbs and Croats.

The leaders also agreed to pass a budget for state institutions for 2011, which have been funded through temporary financing arrangements this year, allowing them to approve interim financing for the first quarter of 2012.

EU membership

Peter Sorensen, the EU representative to Bosnia, welcomed the agreement and urged the authorities to implement the deal without any further delay and continue working on their EU integration agenda.

The formation of the central government and the agreement on the general fiscal framework for 2012-2014 are key conditions for Bosnia to win back funds from an IMF stand-by loan, which were suspended last year because of lack of progress.

The European Commission has also blocked its $129m budget support loan to Bosnia until it formed a government.

Lack of progress also put it at the end the queue of EU hopefuls in the Western Balkans, behind Serbia, Albania, Macedonia and Montenegro.

“It is important that we reached key political agreements on the European package laws that will enable the application for EU membership,” Serb leader Dodik said, whose SNSD party has blocked EU-related laws in the national parliament for more than a year.