Serbia and Montenegro sign plan to preserve alliance

Serbia and Montenegro have signed an agreement that will radically restructure Yugoslavia.

It will give the nation a new name and its republics greater autonomy to prevent the country's final break-up.

The accord, reached under mediation by the European Union, was signed by Yugoslav President Vojislav Kostunica, Montenegrin President Milo Djukanovic, EU foreign policy chief Javier Solana and other Serbian and Montenegrin officials.

The new country, consisting of two semi-independent states, will be renamed Serbia and Montenegro, said Serbian Prime Minister Zoran Djindjic.

Both republics will share a defence and foreign policy, but will maintain separate economies, currencies and customs services.

Mr Kostunica said his office as federal president would remain and that the new country would have one seat in the United Nations, just as Yugoslavia does now.

Montenegro agreed to set aside its drive for a referendum on independence that was to be held this May, Mr Djindjic said, adding: "We accept reality as it is."

The West opposes Montenegrin secession, fearing the breakup could encourage independence-minded groups in the region, in particular, ethnic Albanians in Kosovo and Macedonia. Arguing that secession would hurt Montenegro's economy and slow down the process of integrating it into mainstream Europe, the EU was pushing for a new Yugoslav constitution that would preserve a joint state while granting the two republics greater self-governance.

Both republics agreed that for the time being, at least, Montenegro could maintain the euro as its currency instead of the Yugoslav dinar used in Serbia. Mr Djukanovic, who advocates independence for Montenegro, rejected the Yugoslav dinar in exchange for the German mark two years ago. Since January, the euro has circulated as the republic's official currency.

Montenegro's 650,000 people are bitterly divided on whether to remain in a federation with Serbia, whose approximately 8 million people effectively determine Yugoslav affairs.