BERLIN/LONDON (Reuters) - Britain and Germany put forward a plan on Wednesday to revive Bosnia's stalled bid to join the European Union, offering to unlock EU funds in exchange for commitments to institutional reform from the country's yet-to-be-formed new government.
Bosnia is bottom of the pack of Western Balkan states seeking EU membership, hampered by an unwieldy system of ethnic power-sharing set out in the Dayton peace accords which ended a 1992-95 war and divided the former Yugoslav republic into two autonomous regions.
Nationalist parties triumphed in elections in October and a complex political system, based on ethnic and regional quotas, has hampered the formation of a stable national government and dimmed prospects of a breakthrough with the EU.
Nevertheless, the framework set out by the British and German foreign ministers at a conference in Berlin looks to use the elections as an opportunity to regain momentum by dangling the carrot of EU cash and putting economics before political reform.
"We want you to succeed – and we want you as members of the European Union, of the European family," the ministers, Philip Hammond and Frank-Walter Steinmeier, said in an open letter to be published in Bosnian newspapers on Thursday.
"However, there is only one path into the European Union – through reforms that help Bosnia and Herzegovina reach the standard of governance and economic development of EU Member States."
Bosnian Foreign Minister Zlatko Lagumdzija told the Berlin meeting: "We really do hope that based on this initiative we will have as quickly as possible a government that will be formed around a reform agenda."
However, the reforms require agreement of all parties, and newly re-elected Bosnian Serb leader Milorad Dodik, who advocates a loose confederation between his Serb Republic and the Muslim-Croat Federation, strongly opposes a more unitary state. Dodik looks to Russia rather than the EU for support.
With Bosnia's economy in a fragile state and reliant on International Monetary Fund handouts to meet a growing budget deficit, Britain and Germany are hoping the attraction of access to EU funds and eventually its 500-million person single market could help push institutional change.
"We believe that there is no time to waste. The economic situation in your country is deeply serious," the letter said. The reforms sought by the EU were aimed at creating private sector jobs and stopping workers from moving abroad.
In Sarajevo, a senior Western official close to the initiative said the West was looking at also involving the IMF and the World Bank to encourage economic reform.
"The hope is that with a critical mass of reforms, when the economy grows and when reforms have been implemented, that will bring a positive spin and a positive momentum there, and it gives the feel that this bigger project of Bosnia and Herzegovina might work," the official said.
Political inertia, unemployment and corruption sparked a spasm of civil unrest in February, when protesters torched government buildings across the country in the worst violence since the war.
While others across the Western Balkans were making progress on EU accession - with Croatia already a member and Montenegro, Serbia, Albania and Kosovo all moving forward - "it is obvious that in Bosnia-Herzegovina something is amiss", Steinmeier told the conference.
"I am afraid we are at a standstill," he said, blaming "ethnic entrenchment, combined with a cumbersome decision-making process and a lack of will to implement reform".
The proposed framework asks Bosnia to make a written commitment to institutional reforms at all levels of state making it more compatible with the EU, and also to agree an agenda for broader political and economic reforms that would bring it into line with the bloc's accession criteria.
In return for those commitments Britain and Germany will seek to win support from European countries to endorse Bosnia's Stabilisation and Association Agreement - a pre-accession compact that unlocks EU cash to help fund further reforms, with a view to eventually making Bosnia an official candidate member.
Britain's Foreign Office said it hoped that endorsement would come at a Dec. 12 EU foreign ministers' meeting.
Anticipating resistance from some member states about the prospect of further enlargement to the 28-country bloc, both foreign ministers stressed that the new plan did not amount to a watering down of the entry requirements.
The proposal did not offer a solution to sticking points on minority rights highlighted by a 2009 European Court of Human Rights ruling that demanded the removal of ethnic eligibility criteria for official posts, which has yet to be implemented.
The case has derailed previous EU initiatives to accelerate Bosnia's accession process.
The ministers said the issues raised by that case still needed to be addressed, but that other political, social and economic reforms could be brought about sooner, generating momentum for Bosnia's EU entry bid.
Additional reporting by Daria Sito-Sucic in Sarajevo and Matt Robinson in Belgrade; Editing by Paul Taylor