By Aleksandar Vasovic and Fatos Bytyci
BRUSSELS/PRISTINA (Reuters) - Serbia's hopes of starting talks this year on joining the European Union hung in the balance on Thursday after the Balkan country balked at demands from its former Kosovo province for a seat at the United Nations.
Serbia said it would never accept the U.N. condition that Kosovo described as non-negotiable - although the Kosovo government said talks would continue on Friday, suggesting there might be room for a compromise.
The EU said the two sides had "some hours left" to settle their differences before the EU's 27 governments consider on Monday whether to recommend the start of accession talks - a milestone that could help unlock Serbia's potential as the largest market in the former Yugoslavia.
Fourteen hours of talks - billed as make-or-break - between the Serbian and Kosovo prime ministers broke up in Brussels without a deal. The EU wants Serbia to help end Kosovo's ethnic partition between the 90-percent Albanian majority and a Serb pocket in the north, where Belgrade still has a fragile grip.
Kosovo broke away from Serbia in 1999, when NATO bombed for 11 weeks to drive out Serbian forces under late strongman Slobodan Milosevic during a counter-insurgency campaign. Kosovo declared independence in 2008 with the backing of the West.
Desperate for the economic boost of closer EU ties, Serbia's ruling coalition has offered to recognize the authority of Pristina over the northern pocket, but wants autonomy for some 50,000 Serbs living there.
Officials said there was broad agreement on the powers the north Kosovo Serbs could wield over policing and courts. But Serbia, which does not recognize Kosovo as a sovereign state, balked at Point 14 of the proposed agreement, a demand that it drop obstruction of Kosovo's accession to international organizations, implicitly the United Nations.
"Removing that point would undermine the entire agreement," Bekim Collaku, an adviser to Kosovo Prime Minister Hashim Thaci, told Reuters. "What kind of normalization are we talking about if after this deal Serbia will continue blocking Kosovo on its Euro-Atlantic path?"
Serbian Prime Minister Ivica Dacic said all was not lost, but nonetheless accused Thaci of trying to scupper the deal.
"Serbia is supposed to let Kosovo be a member of international organizations? Well then let's just write down that we recognize Kosovo as independent," he told reporters. "We couldn't accept that, and we will never accept that."
KEY TO STABILITY
Kosovo is recognized by more than 90 countries, including the United States and 22 of the EU's 27 members, but U.N. Security Council veto-holder and Serbian ally Russia is blocking its membership of the United Nations, a major obstacle to the country's development.
Settling relations between Serbia and Kosovo would go a long way to stabilizing the still fragile Western Balkans. Kosovo's ethnic partition frequently flares into violence and has frustrated NATO plans to further cut back a peace force that now numbers 6,000 soldiers.
The EU wants to anchor Serbia in accession talks, driving reform and luring investors to this country of over 7 million people. Just as it was the main agitator of the wars that tore apart federal Yugoslavia in the 1990s, Belgrade today holds the key to regional stability and development.
EU foreign policy chief Catherine Ashton, who has mediated six months of talks between Dacic and Thaci, said their differences were "narrow and very shallow" and held out hope an agreement could still be reached.
She is due to report back on progress in the talks before EU governments make their recommendation on Monday. That decision would then be finalized in June.
"We have some hours left," Ashton said.
"I hope in that time, that both delegations will reflect on whether they can take the final steps necessary to finish this agreement and to move their people forward into the future," she said in a statement.
Serbia had already rejected one version of the deal last week, but Ashton summoned the two sides back to Brussels after days of informal contacts fuelled speculation that they had narrowed their differences.
(Additional reporting by Adrian Croft; Writing by Matt Robinson)