Two new countries will take on the EU's rotating, six-month presidency in 2006. From 1 January, Austria takes over from the United Kingdom. The Austrian government has declared that the EU's relations with the Western Balkans will be high on its agenda, having already pencilled in a series of meetings to discuss the region; the issue is expected to be the focus of a March 2006 meeting of EU Foreign Ministers. Austria keenly supports the accession of the Western Balkan states, and lobbied successfully to open membership negotiations with Croatia late in 2005. Following a progress report on the latter country, accession negotiations are expected to begin in earnest during the Austrian presidency. Talks on the Stabilisation and Association Agreements (SAAs) with Bosnia and Herzegovina and Serbia and Montenegro will also take place. However, Austria's advocacy of further Balkan integration with the EU is likely to bring it into conflict with those member states whose populations are more sceptical towards further enlargement of the bloc. In April or May 2006, a final decision will be made on whether Bulgaria and Romania are to be granted membership in January 2007 as planned, or whether they will instead see their entry delayed until 2008. Austria also intends to introduce some structural reforms during its presidency by concluding an agreement on value-added tax (VAT) on services in the EU.

Finland will assume the EU presidency on 1 July 2006. Its priorities will be largely determined by the actions of the preceding Austrian presidency. However, the Finnish government has already announced that it will aim to finalise the 2007-13 budget after taking account of all the proposed amendments resulting from the December 2005 summit. Finland also aims to restart the stalled plans for an EU constitutional treaty, and to advance the EU's reform process. How the ratification procedure continues will be discussed at the European Council meeting held during the Austrian presidency. The Finnish presidency will then look to carry on the process based on the conclusions of this meeting, and will lay the groundwork for the German presidency in early 2007, which has already indicated that it would like to bring the constitution firmly back onto the agenda. Other key issues will be an improvement of the EU's capabilities with regards to crisis management, an intensification of transatlantic relations, and co-operation between the EU and Russia, plus the Northern Dimension programme. Finland intends to adopt a new political framework for the Northern Dimension and to focus on the related partnerships.

Elections in 2006

There could be some major changes in government across Europe in 2006, with a raft of elections due to take place. However, there have been unprecedented swings in support between ruling and opposition parties, making many of the elections hard to call. In Italy, although support for the opposition centre-left under the prodigal Romano Prodi has resurged, changes to the electoral system pushed through by the government of Prime Minister Silvio Berlusconi are likely to benefit the incumbent ruling centre-right coalition. That said, dissatisfaction with the government's economic management and its obfuscated position on matters such as troop deployment in Iraq suggests that the electorate could well vote for a change. Presidential elections will also take place in Italy in 2006, but these will carry less significance than the parliamentary battle.

In the Czech Republic, the ruling Czech Social Democratic Party (CSSD) has seen its support rise under new prime minister Jiri Paroubek and it is now virtually on level terms with the right-wing opposition Civic Democratic Party (ODS). The failure of the opposition to capitalise on the government's problems in the Czech Republic has been mirrored in Hungary and Slovakia. Smer-SD in Slovakia and Fidesz in Hungary are both popular (and populist), but will struggle to find suitable long-term coalition partners. All is not lost for these parties, however, as this was also true of the Centre Party (KESK) in Estonia in 2003, but it has since entered into government. If current tensions subside, the KESK can be expected to return to power in 2006, along with a more Russophile outlook. In Cyprus, meanwhile, elections may result in the appointment of a government more in favour of reunification, which could reinvigorate negotiations once more.

Parliamentary and presidential elections will keep voters busy in Portugal, after municipal elections in 2005 resulted in gains for opposition centre-right parties. Former centre-right prime minister Anibal Cavaco Silva has declared himself a candidate for the presidential election, which is to be held in January 2006. Silva, who was prime minister from 1985 to 1995, has always been a popular political figure in the country. Under his leadership, Portugal saw unprecedented economic growth, aided by accession to the EU in 1986, and he is hoping that his popularity will propel him to victory in 2006. His competitors are an 80-year-old socialist ex-president, Mario Soares, who might wield more influence as the Socialist Party (PS) is currently in government, and two further candidates from the extreme-left parties. Silva will look to promote his political neutrality, as current president Jorge Sampaio has, in an attempt to garner support and gain more room for manoeuvre.

Presidential elections are also set to be held in Finland in January 2006 and Prime Minister Matti Vanhanen, of the governing Centre Party (KESK), will be a candidate. Vanhanen will run against current president Tarja Halonen of the Social Democratic Party (SDP), who has held the post since 2000, and Sauli Niinistoe of the National Coalition Party (KOK). Halonen is seen as the favourite to win another term in the largely ceremonial post.

The Balkans' Moment of Truth

In October 2005, the EU set the scene for the following year by agreeing to begin talks with Bosnia and Herzegovina and Serbia and Montenegro on their Stabilisation and Association Agreements, while the UN Security Council endorsed the beginning of talks to determine the final status of Kosovo. Although there has been greater hesitancy over the Former Yugoslav Republic (FYR) of Macedonia's bid for EU membership (it was granted full candidate status in December 2005 but no timeframe was given), 2006 will still be a watershed year for the Western Balkans. A little over 10 years after the signing of the Dayton peace accords that officially brought the Bosnian war to an end, a number of outstanding issues are scheduled to be resolved.

Generally regarded as the Western Balkans' success story, Macedonia will continue deeper integration with the EU in 2006, focusing on judicial reform and capacity-building. Despite concerns in some quarters over the pace of EU enlargement following the defeat of the proposed European constitution, Macedonia was granted full candidate status in December 2005. However, the country's 2006 legislative elections will be a key test of its commitment to democracy, and the EU will adopt a hard line should there be any incidents of electoral fraud.

The Serbian government has pledged to maintain its reform drive in 2006 and will continue to overhaul the health and education services, in addition to modernising the armed forces. Some aspects of the government's economic reform programme, however, remain highly unpopular, and large sections of the population continue to equate the measures with the country's EU ambitions. As a result, the Serbian Radical Party (SRS) will undoubtedly shore up its core support during the course of 2006. Any additional progress with regards to Euro-Atlantic structures will hinge on the government's compliance with the International Criminal Tribunal for the Former Yugoslavia (ICTY) at The Hague (the Netherlands). Hitherto, Prime Minister Vojislav Kostunica's minority government has publicly maintained that it does not know the whereabouts of a number of war crimes suspects, above all Bosnian-Serb General Ratko Mladic. However, it is now crunch time for Serbia and Kostunica cannot continue with his current policy of only agreeing to Hague co-operation if there is no danger of him subsequently paying the political price in early elections, in which his party is already looking likely to perform badly.

By far the greatest challenge for the governments of the region and the international community will be determining the final status of Kosovo. As frustration over the status quo and the unwillingness of the international community to address the issue has increased, tensions have continued to rise, and the Albanian majority will accept nothing less than independence. This leaves the UN and the six-member Contact Group (Kosovo's Albanians and Serbs, Serbia, Russia, the EU and the United States) that will decide the future of the province with a potential headache, as there is a danger that the longer the talks drag on into 2006, the greater the risk that the situation on the ground will drive events. In the final analysis, some degree of 'conditional independence' for Kosovo looks assured, with the government having to adhere to strict guarantees to uphold the rights of the Serb minority, although Serbian sensitivities will have to be taken into account.

Montenegro's authorities are currently preparing for a referendum on whether or not to cede from the loose, so-called 'state union' with Serbia. The referendum, which will take place in April 2006, is likely to produce a victory for Prime Minister Milo Djukanovic, who has led the republic's independence drive. However, the referendum does not have the full-blown support of the EU; although it has pledged to abide by the result, it is no secret that it would prefer to maintain Montenegro's union with Serbia, fearing that the dual loss of Kosovo and Montenegro could radicalise politics in Serbia, reversing the government's progress and boosting the SRS.

Contact: Raul Dary

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raul.dary@globalinsight.com

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