Ian Bancroft in Belgrade -

After years of wrangling, Serbia's parliament - under the EU's watchful gaze - finally adopted at the end of September a law on the return of property nationalised by the socialist authorities following World War II. A key plank of Serbia's EU ambitions, the bill has pleased few and angered many, particularly the country's large ethnic Hungarian minority in Vojvodina.

Disputed property ownership has long been a key impediment to investment and redevelopment, with Serbia one the last remaining transition countries to provide a framework for compensation. Some 150,000 citizens are now expected to file claims (though the actual number could be much higher due to the Serb diaspora) and, where feasible, land or property will be returned to its rightful owner. In most cases, however, compensation will be paid in the form of state bonds worth up to €0.5m over the course of the next five to 15 years.

Critics line up

Though a €2bn compensation fund - financed in part through the issuance of a $1bn, 10-year Eurobond - has been established to fund the claims, the precarious state of Serbia's finances leaves many sceptical about the future value of the bonds. The law's potential financial impact also helps to explain some of the previous government's apprehension over doing anything about the issue.

Others are concerned about more malign motivations. Milivoje Antic, co-ordinator of the Network for Restitution in Serbia, argues that the government's insistence on measly financial compensation represents an obvious attempt on the Serbian political elite's part to hide huge amounts of state-owned property that have never been recorded as such and which, as a result, will now be plundered via documentary falsifications in the land Cadastres.

Though intended to regulate property ownership, the law is prompting concerns amongst some regarding the distribution of state-owned assets. "The main purpose of the ruling Serbian 'partiocracy' is to maintain - at least during the transitional stage - its monopoly over such state-owned properties, as a means of having them transferred in the interim, via the planned law on Public Property, to lower party-controlled entities - for instance, local municipalities and numerous public enterprises - before having their ownership transferred for good to private parties, namely the politically connected and the regime's privileged few," Antic tells bne.

Going Hungary

A stipulation denying World War II occupying forces and their descendants compensation, meanwhile, has caused outcry amongst Serbia's 350,000-strong ethnic Hungarian population. Most reside in the Autonomous Province of Vojvodina - a comparatively wealthy region in the north of Serbia, whose desires for greater autonomy (it recently opened a representational office in Brussels) continue to concern Belgrade.

As Laszlo Varga, an MP for the Alliance of Vojvodina Hungarians and Chairman of the European Integration Committee of the Serbian National Assembly, tells bne: "Codifying the notion of collective guilt into law amounts to contempt for the basic values of civilization. It approaches absurdity that the Bill excludes from restitution even those individuals who were involuntarily drafted by the military of the - as the Bill puts it - occupying powers, even if those individuals prove their innocence through a rehabilitation process in a court of law."

Indeed, Hungary has even threatened to veto Serbia's EU candidacy bid because of the law. Professor Gyorgy Schopflin, a Hungarian Member of the European Parliament and shadow rapporteur for Serbia, explains how the EU sees restitution as a domestic issue, not an EU issue. Therefore, "the notion of collective guilt is unacceptable to the EU... and this affects not just Hungarians, but also Serbs, Romanians and Ruthenians in Vojvodina who served in the Hungarian - or more specifically, German - army. So this is not just a Hungarian issue; Serbs are also discriminating against their own," he says.

With respect to Serbia's European perspective, Professor Schöpflin tells bne that Hungary supports Serbia's membership of the EU. "It makes no sense to have a non-member state immediately to its southern border. We've had good relations, certainly better than with Slovakia. The Hungarian foreign minister, Janos Martonyi, previously visited Belgrade and reached an agreement, but the Serbs went back on it... we want to see Serbia inside the European Union, but not at any cost. We want to see a restitution law that does not discriminate."

Though amendments have been proposed, there appears to be little parliamentary will to support them. For Professor Schopflin, he views this as part of the electoral campaign, with Tadic playing the Serbian nationalist card. "This is a mistake. Whilst it may get him more votes, it damages relations - particularly when people realise that this [the restitution law] applies to others, not just Hungarians."

Given Serbia's record of non-transparent and poorly-regulated privatisations of state-owned assets, there are well-justified concerns about the state's role in the transfer of property ownership, with fears that deficiencies in the adopted legislation will be further exposed by its actual implementation.

By including measures deemed discriminatory against a sizeable minority community, meanwhile, Serbia has antagonised internal and external relations at a key juncture for its European ambitions. How the issue of restitution is handled in future will therefore have an important bearing on the country's economic growth and European perspective.