Nicholas Watson in Prague -

The latest round of EU-mediated talks between Serbia and its erstwhile province Kosovo that ended March 5 may not have produced any breakthrough, but comments from the government of Serbia and changing attitudes among its citizens suggest a deal to improve relations is near at hand.

Writing in in the Serbian weekly NIN on March 7, Serbian Prime Minister Ivica Dacic wrote that Serbs had been lied to that "Kosovo is ours" in the decade since the predominantly ethnic Albanian province was freed from Belgrade's rule with Nato's help and then unilaterally declared independence in 2008.

"For 10 years, Kosovo was taboo. No one could officially tell the truth. Tales were told, lies were told that Kosovo is ours," wrote Dacic, who was once the spokesman for the late dictator Slobodan Milosevic when Serbia fought with Nato over Kosovo. But "the Serbian president cannot go to Kosovo, nor the prime minister, nor ministers, nor the police or army. Serbs can only leave Kosovo. That's how much Kosovo is ours and what our constitution and laws mean there."

Dacic's strongly worded remarks followed a poll by B92 TV and the agency Ipsos Strategic Marketing published on March 6 that found 63% of Serbian citizens accept that Kosovo is in practice an independent state and that the only thing Serbia can now do is to fight to secure the best position for the Serbs still left in Kosovo.

That, say analysts remains the big stumbling block between the two sides, which are due to meet again on March 20: what to do with the enclave of Serbs in northern Kosovo who don't wish to accept central rule from Pristina.

Dacic's government - which is led by the Serbian Progressive Party, a group of former hardline nationalists - has been able because of its past to offer concessions that the previous government of Boris Tadic couldn't, namely to recognize the authority of Hashim Thaci's government in Pristina over the north of Kosovo, in return for far-reaching autonomy for the Serbs living there. The Kosovan government is resisting this, fearing it would lead to de facto independence of the northern part of the country. Thaci talks, without a hint of irony given he was a secessionist guerrilla fighter, about the "territorial integrity" of Kosovo.

Hence the impasse: one side sees control from the other as a danger to its very existence, according to Gerard Gallucci, a retired US diplomat and former UN peacekeeper who served in Kosovo.

Yet Gallucci sees the promise of a compromise in the "Ahtisaari Plan" - named after the former Finnish president and Nobel Peace Prize laureate Martti Ahtisaari - which recognised that the conflict in Kosovo between Serbs and Albanians could only be peacefully resolved if a way were found to allow the two groups to co-exist in a majority-run polity while they also lived their own lives in their own communities. "The non-Albanian municipalities would have local competencies, links to the outside and some mechanism for cooperating amongst themselves," Gallucci posits on the TransConflic websitet. "A realistic approach to implementing the Ahtisaari Plan in the north - mostly involving having status neutral internationals taking the place of Pristina in key areas - might work. For example, instead of giving Pristina control of funding from Belgrade to the local Serbs, it could be reported to a responsible international authority and/or go through a bank controlled by neither party."

Crossing the Ibar

Serbia, according to a February report from the think-tank International Crisis Group, appears to have "crossed a threshold", meaning the two sides are now closer than ever to resolving the dispute over the north of Kosovo. The reasons for that are two-fold and related: Belgrade improving its relations with Pristina is a condition for the EU formally opening talks about Serbia joining the bloc, and such a success would give a major boost to the government's efforts to turn around the flagging economy.

The EU is due to decide whether to open accession talks with Serbia in June, following a progress report from the European Commission on the talks that are being overseen by EU foreign policy chief Catherine Ashton. A deal by mid-April would allow a positive report to be presented. Ashton talked about "good progress" at the last meeting.

While the government and president, Tomislav Nikolic, often like to talk about abandoning Serbia's EU ambitions if pushed too far on Kosovo and instead turn towards Russia - an attempt to play off one side against each other that has been practised for years by countries such as Kazakhstan and Ukraine - Belgrade in reality has little choice if it's to fix its economy. Russia might provide some cheap loans, but the investment and reforms necessary to return the economy to sustained growth will have to come from the EU.

The Serbian economy is estimated to have contracted 2% in 2012; the government is hoping for growth of 2% for this year. Such a turnaround in the economy would bolster the Progressives' prospects of being able to win a proper majority at the next elections, and junk its current coalition with Dacic's Socialist Party.

A deal over Kosovo will be painful for these former ultra-nationalists to accept and a few years ago a compromise over the issue would've been electoral suicide. But a combination of time and circumstance means that now it could today reward them at the ballot box.