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Three days after Serbia held parliamentary and presidential elections, the Democratic Party and the Socialists have agreed to renew their governing coalition, boosting the chances of Boris Tadic in the second round of the presidential vote into the bargain. Despite concern over the incumbents' pace of reform, analysts suggest that the arrangement is the best option for the economy.

"They share our values," Democratic Party deputy leader Dragan Sutanovac told a news conference on May 9, reports Reuters. "We've been partners with these people for four years and there's no mistrust."

The resumed alliance locks out the opposition Serbian Progressive Party, which narrowly won the parliamentary election with 24% of the vote on May 6, but still needed the support of the Socialists and at least one other partner to secure a majority in the 250-seat parliament.

Despite continued concern over the government's record on reforming the economy, the judiciary and the bloated public sector, Erste Bank analysts suggest the agreement is positive for the market as the incumbent coalition will continue reforms and lead the country down the road to EU membership much more quickly than other options would have done.

The Democrats said the division of ministries and posts will be discussed after the presidential election run-off, which is scheduled for May 20. However, following a tradition that the third-placed party becomes kingmaker, Socialist Party leader Ivica Dacic, interior minister in the last government, has already staked his claim to the post of prime minister.

The Socialist Party placed a strong third in the election with 14.5% to double its number of seats in parliament to 44. With the Democrat Party seeing economic woes and a perceived culture of cronyism reduce their haul to 22.1%, or 67 seats compared with the 102 gained in 2008, the pair will control 111 parliamentary seats. That leaves them needing the support of either the pro-business United Regions party or the pro-European Liberal Democratic Party for a majority.

Detailed discussion on other partners to be included in a new coalition will also take place after the results of the second round vote in the presidential race are known, a Democratic Party statement announced.

The statement added that the Socialists have agreed to support incumbent Boris Tadic for a new presidential term in the run-off against Tomislav Nikolic, leader of the Progressive Party. Tadic narrowly won the first round on May 6, and is now firm favourite to retain his post. "An agreement has been reached, in line with our previous cooperation, that we will continue to work together to try and form a new majority in parliament and support Boris Tadic in the second round of presidential elections," Branko Ruzic, chairman of the Socialist Party confirmed to Bloomberg.