The European Union had a vital interest in saving the Yugoslav federation. A breakup, the EU feared, would jeopardize the relative calm the Balkans have enjoyed recently and EU politicians wanted to draw the line on a decade of violence and war in the Balkans.

Brussels feared that if Montenegro became independent, ethnic Albanians in Kosovo and Macedonia and Serbs in Bosnia could feel encouraged to seek separation by violent or other means.

So the EU's foreign policy chief Javier Solana traveled to the region five times in the past four months to promote a deal between Serbia and Montenegro. On Thursday, the political leaders of the two republics finally signed a draft constitutional framework.

It aims at revamping the Yugoslav federation into a union of two semi-independent states. After the signing, Javier Solana said "We have taken an important step forward for the stability of the region and of Europe."

Good-bye Yugoslavia - Hello "Serbia and Montenegro"

The four-page agreement stipulates that the new entity will longer be called Yugoslavia, but "Serbia and Montenegro". The country will have joint foreign and defense policies. The army will be under the command of a three-member supreme defense council instead of a single defense minister.

But both Serbia and Montenegro will preserve some measure of independence. Both will have their own currencies, tax systems and economic policies.

Montenegro's strive for independence

Montenegro's plans for independence haven't been ultimately shelved. In Thursday's agreement, Montenegro's President Milo Djukanovic only agreed to a three-year moratorium on a breakaway referendum.

The desire to form an independent country is still strong among the people of Montenegro. And Djukanovic's minority government depends on the support of a staunchly pro-independence party.

With that in mind, the Montenegrin President assured his independence-minded countrymen that relations with Serbia will be reevaluated.

"The agreement does not jeopardize the basic right of every people to re-examine, after a certain period, their stand on the future of their state," Djukanovic told reporters.

Yugoslav President Vojislav Kostunica, on the other hand, hopes the agreement between Montenegro and Serbia will be permanent. "We got a solution that is acceptable for both Serbia and Montenegro, and for the region and Europe," he said on Thursday.

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European success

Thursday's accord between Serbia and Montenegro shows that the European Union is taking on greater responsibility in the Balkans as the United States tones down its involvement in the region.

"This is good news for Europe and the future of the western Balkans on the road to the European Union," European Commission spokesman Gunnar Wiegand said.

Unanswered questions

But regardless of the enthusiasm on behalf of the Europeans, Thursday's agreement leaves many questions open. The economic systems of the two republics, for instance, developed in very different directions in recent years.

Montenegro strengthened its ties with the European Union and has been receiving economic aid from the West. Serbia, on the other hand, has strong traditional ties with Russia.

In 1999, Montenegro abolished the Yugoslav dinar and introduced the Deutschmark as legal tender. Since the introduction of the euro at the beginning of this year, Montenegrins have also been paying with euro and cent - even though the country isn't part of the European Union.

In Serbia, people have never stopped using the dinar.

Rump-Yugoslavia

Serbia and Montenegro are the only two republics left in the Yugoslav federation. Serbia has about 10 million people. But only some 615,000 live in the small Adriatic republic of Montenegro.

Yugoslavia, which was originally made up of six republics, started to unravel along ethnic lines in the early 1990s. The Balkans became a battlefield as countries like Bosnia, Croatia and Macedonia all broke away from Yugoslavia and gained independence.