By Maja Zuvela
BELGRADE (Reuters) - Serbia's Prime Minister told his coalition partners on Tuesday the finance minister should stand down, denting the country's hopes of starting EU entry talks and raising the prospect of a snap election.
"I propose to the government to carry out its work without (Mladjan) Dinkic and his URS (United Regions of Serbia)," Ivica Dacic told reporters.
Dinkic led an unpopular budget reform process in June in the hopes of pulling Serbia out of a double recession.
Dacic's Socialists (SPS) and the nationalist Progressive Party (SNS), the two biggest parties in the alliance, had already agreed to reshuffle their ministers but Dacic on Tuesday said his party may also leave the coalition if SNS failed to back him.
"If SNS does not accept this, there are two possible choices ahead - elections or a coalition without SPS," he said.
On Sunday, Dinkic indicated he would be willing to give up his economy portfolio if he could retain the position of finance minister but his concession was not enough for Dacic.
"Economy and finance are the most important issues for the future of Serbia and we need an additional impetus here. We have no time for mistakes," Dacic said.
Dinkic's departure from the year-old government would likely unnerve investors worried about Serbia's growing budget gap and public debt, which have all but scuppered hopes of a new precautionary loan deal with the International Monetary Fund.
"This is very bad timing given that global markets are still quite nervous and I think still there's a bit of a question about the budget financing story anyway," Standard Bank analyst Timothy Ash told Reuters.
"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 center-left Dacic," he added.
Without URS's 16 seats, the remaining coalition parties would still hold a slim majority in parliament.
Weeks of fraught negotiations over the reshuffle have raised the risk of a snap election that would almost certainly delay the start of European Union membership talks scheduled for January.
"I am not sure Serbia can afford early elections in terms of lower growth, lower budget revenues, bigger budget deficit, it's going to make life more difficult," said Ash.
(Additional reporting by Valerie Hopkins; Editing by Ruth Pitchford)