Nicholas Watson in Belgrade -

The Serbian coalition government will remain standing, though probably without the smallest party of Finance Minister Mladjan Dinkic.

In a long drawn-out reshuffle of the year-long coalition, Serbian Prime Minister Ivica Dacic moved to oust Dinkic on July 30, angering the largest party in the government, though not enough to cause the coalition to collapse and force early elections.

"I wanted to preserve the coalition, but Dacic didn't want to," Aleksandar Vucic, deputy PM and the powerful head of the largest party in the coalition, told bne in an exclusive interview.

Vucic refused to say why Dacic wanted to get rid of Dinkic, though many questioned why such a marginal party - the United Regions of Serbia (URS) offers only 16 seats in the coalition, without which the two other parties, Vucic's Serbian Progressive Party and Dacic's Socialist Party, could still form a majority - was given such a powerful portfolio in the first place.

"Without the 16 seats of Dinkic's URS, the coalition would still retain a slim majority in parliament. But his departure would likely unnerve investors worried about Serbia's growing budget gap and public debt, which have all but buried hopes of a new precautionary loan deal with the International Monetary Fund," says Standard Bank analyst Timothy Ash. "I don't think Dinkic himself was absolutely central but his participation and his party's participation in the coalition was important to counterbalance the centre-left Dacic."

Dacic threatened he would pull his party out of the coalition if Vucic didn't accede to his demand, which would force early elections in a country that was only just beginning to enjoy a period of political stability in its turbulent history since former strongman Slobodan Milosevic was ousted in 2000.

Vucic said he feels there is too much the current coalition can and needs to achieve - securing the recent agreement over Kosovo, stabilising the economy and securing a new IMF deal - so is clearly minded to keep the PM happy. President Tomislav Nikolic, a member of the Progressives, will have a say today, though he too is believed to agree. "I have to consult with my people, but it's not realistic to hold elections tomorrow," Vucic said.

However, if new elections were held soon, the Progressives would be the overwhelming winner, perhaps even more so than in last year's election, in which this new party, an offshoot from the ultra-nationalist Radicals, won 24%. According to a latest Faktor Plus opinion poll, the Progressives had 40.9%, the Socliasts on 10.6%, Dinkic URS at 4.6%, ie. less than the 5% threshold required to get parliamentary representation.