Harriet Salem in Brussels -

Serbia may have opened its EU accession talks January 21, but the bloc's stringent restrictions on smoking have not yet permeated the Serbian Embassy on Boulevard du Regent in Brussels. Reclining in a large armchair, Serbia's prime minister and leader of the Socialist Party, Ivica Dacic, puffs on a fat cigar to celebrate what he described as, "the most momentous and most important day for the country since the end of World War II."

Less than a decade ago talk of Serbia joining the EU would have been laughable. Following the brutal wars surrounding the collapse of Yugoslavia, the country was subject to heavy economic sanctions, and widely regarded as the pariah state of Europe. But since coming to power 18 months ago, this is an image that Dacic and his coalition colleague Aleksandar Vucic, deputy prime minister and head of the leading coalition member Serbian Progressive Party (SNS), have fought hard to change.

And with the formal opening of EU talks, the unlikely duo, both ultranationalists during the 1990s, can certainly claim a victory in taking Serbia closer to Europe than it has been in decades; the PM hopes Serbia will be a member by 2020. Yet both agree that the real hard work is yet to come. "Many countries would today call a seven-day holiday celebration," Dacic told reporters at a press conference January 21. "But tomorrow we will be back at work, even harder than before."

Economic woes

There's plenty to get on with. Serbia's economy, whilst slowly improving, is still struggling to say the least. The 2014 budget foresees a deficit of 4.6% of GDP, and debt tops 60% of GDP. Unemployment stands at around 20%, and the average wage is below €400 per month. "Improving the economy is the now the biggest challenge ahead of Serbia, unfortunately a lot of time has been wasted and we now lag far behind other countries in this respect," Dacic tells bne in an interview.

Attracting foreign investors to boost the country's beleaguered economy has been a key focus of the government over the last year and a half. Thus far, most interest has come from the east, notably Russia, China and, intriguingly, the United Arab Emirates (UAE). In the past year the latter made a $40m equity investment in Serbia's indebted JAT airways and an $800m loan-investment deal in agriculture, while in December it was announced that UAE businessman Mohamed Alabbar is set to put a further €2.5bn into a project known as Belgrade on the Water. "We have shown that there are lots of opportunities for investment," Dacic tells bne. "In agriculture, in infrastructure, energy."

But Serbia hopes that its commitment to attracting foreign direct investment and closer ties with the EU will now open up yet more new sources of funding, particularly in the West. "Securing an arrangement with the IMF [International Monetary Fund] as soon as possible is crucial to stabilising the country's economy in the year ahead," Dacic says.

The PM also expressed optimism that Serbia's progression toward the EU would act in favour of increased investment in the country by the European Bank of Reconstruction and Development, which will meet in February in London with governments from across the Western Balkan region.

At least one high-profile western businessman is already looking to put his money into the country following the opening of EU talks. US tycoon Donald Trump, who met personally with the PM in New York two months ago, sent his team to Belgrade during the Serbian New Year festivities - celebrated according to the Orthodox Julian calendar on Jan 14 - to look at a range of potential opportunities in the city's entertainment industry. "I can say that it looks likely that investment in a hotel will go ahead," Dacic confirmed to bne. "Tourism is an area where Serbia has a lot of underexplored potential, currently it accounts for only about €1bn of revenue, but it could be much more."

However, while investments and loans have undoubtedly helped stimulate the economy, Dacic acknowledges that on the other side the government "must also decrease unnecessary spending." More than 500,000 people have already lost their jobs says the PM, and if the government see through its promise to further trim back the burgeoning, inefficient public sector and shut down so-called ghost companies, many more will follow. This will likely be a "painful and difficult process" for the public, admits Dacic, "but a strong government must stand by its decisions".

The ever-contentious Kosovo issue also could also stir up public opposition in the year ahead. Moving towards the EU has already entailed Serbia making tough concessions including a commitment in the Brussels-brokered April Agreement - co-signed by Dacic and his Kosovan counterpart Hashim Thaci - to relinquish its control over Serb enclaves in the north of its erstwhile province. But some EU countries, most notably Germany, are pushing for wholesale recognition of Kosovo as a prerequisite for Serbia's admission into the EU. The demand may prove to be a step too far. "We will stick to the negotiating framework [and] we are open to a permanent solution on Kosovo," Dacic says.

"But Serbia is not going to change its position," he adds, tellingly.

Snap polls

Snap elections may also be on the cards. The increasingly powerful deputy PM, Vucic, is rumoured to want to cash in on his high poll ratings before the tough times in EU negotiations kick in. Dacic has a vested interest in avoiding an imminent vote; he would almost certainly lose his position to Vucic. But as the PM points out, elections at such a crucial time could also prove a major setback for the country. "This would occupy political parties. Election campaigns are not the time for making difficult decisions," he tells bne. "So the question here should be, what is better for Serbia?"

Despite all the uncertainties ahead, Serbian officials still say they hope to complete all their membership bid commitments by 2018, in time for 2020 budget allocation. It's an ambitious timeframe. The EU will be watching developments more closely than ever before. Accusations of allowing insufficiently prepared countries - namely Romania, Bulgaria and Croatia - cat flap-accessions to the bloc have led to a tightening of accession procedures. "Lessons have been learned," European Commissioner for Enlargement and European Neighbourhood Policy Stefan Fuele told the press on January 21.

In previous waves, aspiring EU countries were allowed to start with policy areas, known as "chapters," deemed easiest for their government, but this time round the European Commission have insisted that Serbia begin the process with the two most challenging; chapters 23 and 24, which address fundamental rights and the rule-of-law.

No public confirmation of the timing for the first set of talks has yet been given, but according to whispers in Belgrade and Brussels, bar unexpected setbacks, June 25 is the date to watch.