The Western powers have hailed the December 23 parliamentary elections in Serbia as the final vindication of the 78-day US-led NATO air war against the government of Slobodan Milosevic. The poll resulted in an overwhelming victory for the Democratic Opposition of Serbia (DOS) led by President Vojislav Kostunica.

The 18-party DOS coalition won 64.5 percent of the vote and more than two-thirds (178) of the 250 seats in the Serbian Parliament, while Milosevic's Serbian Socialist Party (SSP) won around 13.5 percent of the vote and 37 seats. The Yugoslav United Left party of Milosevic's wife, Mirjana Markovic, was virtually wiped out, winning less than 0.4 percent of the vote.

Pro-Milosevic forces won a majority in the province of Kosovo, but only because of a boycott by ethnic Albanian parties supportive of independence from Serbia.

Initial euphoria over the installation of Kostunica's pro-Western regime notwithstanding, there is little cause for complacency or celebration on the part of the US and European powers. The DOS victory does nothing to stabilise the Balkan region. The Federal Republic of Yugoslavia (FRY) may now be headed by a more pliant regime, but it is still wracked by political, social and ethnic tensions, compounded by the ruinous effects of the West's economic blockade.

The result reveals the continued presence of nationalist tensions, with the Serb nationalist parties showing strongly. The Serbian Radical Party of Vojislav Seselj won more than 8.5 percent of the vote and possibly 23 seats. The nationalist coalition grouped around the Party of Serbian Unity, once led by the now deceased war criminal Zeljko Raznatovic (or Arkan), took 5.3 percent of the vote and 14 seats. However, the nationalists together with Milosevic's Socialist Party (still the single largest party in the new parliament) won 27.4 percent of the vote and 74 seats, which could create problems if divisions emerge within the highly unstable DOS coalition. Prime Minister Zoran Djindjic heads the Democratic Party, the largest group in the DOS, and has repeatedly clashed with the more popular Kostunica.

The first item of business for the new government, therefore, has been to make personnel changes within the state apparatus to undermine the influence of the SSP and Milosevic. President Kostunica has retired 13 top military officers and recalled 17 ambassadors, including Milosevic's brother, Borislav. Numerous state officials have already been replaced.

The DOS government have pledged to withdraw police bodyguards from Milosevic and indicated that prosecutions are to be expected. But officially, the DOS opposes demands by the US and Europe that Milosevic be turned over to the International War Crimes Tribunal in The Hague.

A greater cause for concern than the internal political feuding within the DOS is the possibility of further nationalist unrest within the FRY. These problems are epitomised by the demands of Montenegro, the last republic remaining in the federation with Serbia, and the growing danger posed by ethnic Albanian separatism in the Serbian province of Kosovo and elsewhere.

Kostunica has spent the past two weeks pleading with Montenegrin President Milo Djukanovic to keep his tiny republic and its 650,000 population within the FRY. But Djukanovic's reply was to denounce Kostunica for having “the ambition to run Montenegro from Belgrade”. Djukanovic wants to retain a common defence, monetary and foreign policy with Serbia, while Montenegro receives international recognition as an independent state.

Opinion polls indicate a Montenegrin population deeply divided on the issue, which could provoke further bloodshed given that the Montenegro controls Yugoslavia's only outlet to the sea.

Western leaders flirted with Djukanovic's separatist agenda as a weapon against the Milosevic regime, but now fear Montenegrin demands could have a knock-on effect in Kosovo, Bosnia and Macedonia—particularly as a result of reawakening Albanian nationalism.

Montenegrin independence would make the demand for the secession of Kosovo to Albania impossible to resist. But this would be met with demands for Kosovo's Serb minority population to be included in a redefined Serbia. A similar fractious process could then begin in Bosnia and Western Macedonia, with its Albanian majority.

Ethnic Albanian insurgents have been attacking Serbia's south-eastern border with Kosovo for months, with the tacit support of US forces patrolling the sector, according to some commentators. There have been various reports that arms are also being shipped from Kosovo into Macedonia.

When the new Serbian parliament convened on December 27, one of its first acts was to adopt a declaration calling on the United Nations to clear Albanian fighters from the five-mile wide demilitarised zone between Kosovo and Serbia. The DOS government has demanded changes in the agreement setting up the demilitarised zone to allow military interventions by Yugoslav forces. The declaration said that Yugoslavia would never permit part of its territory to be taken away.

Three days of negotiations between the UN and NATO forces that have governed Kosovo since June 1999 and Serbian and Albanian representatives were said to have reached an agreement on December 30 to reduce tensions between the two sides, including the removal of opposing checkpoints in southern Serbia. But by January 2, ethnic Albanian forces had begun mortar bombardment of Serbian police positions on Mount Sveti Ilija, located within the demilitarised zone.

Social relations within Serbia are also potentially explosive. The long-term impact of the ruination of the country by Western aggression and economic sanctions immediately confronted the DOS on taking office. Power cuts of up to 12-hours duration have hit the entire country, affecting as many as 75 percent of consumers.

Bomb damage to power stations and other economic difficulties have led Yugoslavia to renege on payments to Russia for natural gas supplies and to surrounding Balkan states for electricity taken from the region's common power grid. The grid was poorly maintained due to international sanctions and only about a third of the necessary maintenance was conducted on the network this year.

Nearly half of the capital, Belgrade, was without electricity in late December. Many factories throughout Serbia have been closed.

In the central Serbian town of Cacak, the authorities introduced a state of emergency after a major relay station broke down and some 80,000 people lost their electricity for more than 24 hours. All factories, shops, schools and kindergartens were temporarily closed. Protestors in Nis, Serbia's third-largest city, hurled stones at the local power company offices, blocked streets, burned tires and set fire to garbage bins.

Yugoslavia owes Russian gas/oil giant Gazprom more than $300 million and has pledged to honour these debts in return for Russia's promise of a further 53 billion cubic feet of natural gas this year. This promise alone would account for the vast bulk of the $200m in aid promised by the European Union and a similar amount pledged by the US, leaving nothing to alleviate the terrible hardship facing the Serbian working class.

Wages have plummeted to around $40-$50 a week and aid agencies such as Oxfam are operating soup kitchens that feed tens of thousands of people every month. Serbia is host to some 700,000 refugees as a result of ethnic conflicts throughout the region, who are totally dependent on aid.

This situation can only worsen, given the Kostunica/Djindjic government's commitment to impose the free-market austerity measures demanded by the Western powers.

On December 26, Djindjic told a meeting of 200 businessmen that they would have the determining voice in government policy, and that “the economy, not politics, will be the government priority.” He promised to have key legislation, including measures to enable foreign investment, passed in February. This would mean a further hive-off of state-owned enterprises to the private sector and many more closures and job losses.

Djindjic's appeal for a “stable environment” is a measure of the nervousness about public reaction to such policies. “We should not have people demanding big increase in wages, or an immediate wave of strikes,” Djindjic said.

Representatives of the Western powers on the ground share Djindjic's fears. Adrian Severin, head of the Organisation for Security and Cooperation in Europe's mission in Serbia, has warned, “The whole region remains unstable in almost every respect. It will take very hard work to open hearts and minds and huge amounts of capital and financial assistance to bring a minimum of stability to the Balkan area.”

Given the imminence of a Republican administration in the US, however, it is hardly to be expected that such vast amounts of capital will find their way to Serbia. Key figures in the Bush camp, such as designated national security advisor Condoleezza Rice, have called for a US military withdrawal from the Balkans and for Europe to foot the bill for its continued policing and economic renewal.