Serbia and Montenegro, the last remaining republics of the former Yugoslavia, have agreed to create a new nation, in an effort to preserve what is left of the federation. The historic accord was signed Thursday, after Montenegro's leadership abandoned its independence plans.
After hours of talks late Wednesday and Thursday, Yugoslav President Vojislav Kostunica and his Montenegrin counterpart, Milo Djukanovic, along with other Serbian and Montenegrin officials, signed an accord in Belgrade that will lead to the creation of a new state.
Mr. Kostunica and other leaders announced that the new country will be known as "Serbia and Montenegro" and that it will function differently from the current Yugoslav federation, if lawmakers give the go-ahead.
President Kostunica added that his office will remain and that the country will have one seat in the United Nations.
The agreement marks a major policy shift by Montenegrin President Djukanovic, who in the past has pushed for independence and who had planned to hold a referendum on the issue in May.
Under the agreement Serbia and Montenegro, which comprise what is left of the old Yugoslavia, will share a defense and foreign policy but will maintain separate economies, currencies and customs services.
However, analysts have warned that it will be difficult to reconcile the fact that Montenegro, a tiny Adriatic republic of just over 600,000 people, has dropped the Yugoslav dinar as its official currency.
Although that currency is still used in Serbia, Montenegrins now use the new euro instead. Yet European Union foreign policy chief Javier Solana, who mediated and also signed the accord Thursday, appeared pleased with the compromise.
Mr. Solana and other EU officials had warned that the break-up of Yugoslavia could encourage ethnic Albanians in the Serbian province of Kosovo and neighboring Macedonia, as well as Serbs in Bosnia, to seek border changes of their own.
After World War II, Yugoslavia was for four decades under the communist regime of Marshal Tito. But as Communism collapsed in eastern Europe, long-hidden nationalist feelings and misgivings boiled over, and Yugoslavia began to unravel along ethnic lines.
Slovenia, Croatia, Macedonia, and Bosnia and Herzegovina all declared their independence by 1992. This led to wars that are estimated to have cost at least 200,000 lives.
During that violent period Serbia and Montenegro stayed together, but their alliance began to crumble in 1997 when Mr. Djukanovic distanced himself from then-Yugoslav President Slobodan Milosevic and began advocating independence for Montenegro.
Mr. Milosevic, who has been seen as the architect of Europe's bloodiest conflict since World War II, is now facing charges of genocide before the U.N. War Crimes Tribunal in The Hague.
The demise of the Milosevic regime and pressure from Western countries to remain united are seen as key factors behind Montenegro's readiness to form a new country with Serbia.