A dour former cemetery manager known by the nickname “Gravedigger”, Nikolic beat liberal Boris Tadic in a close-run vote in which less than half the electorate turned out, breaking the almost 12-year hold on power of the reformists who ousted late Serb strongman Slobodan Milosevic in 2000.

“Serbia will not stray from its European path,” Nikolic, 60, told jubilant supporters.

The rightist leader of the opposition, last in power with Milosevic when Serbia was bombed by NATO in 1999, says he now shares the goal of taking the Balkan country of 7.3 million people into the EU.

Challenging his commitment, the European Union said it expected Nikolic to show “statemanship” in continuing the process of reconciliation between Serbia and its ex-Yugoslav neighbours and improving relations with its former Kosovo province.

“Serbia’s European perspective is very concrete and we therefore hope to be able to rely on President Nikolic’s personal dedication to achieve this aim,” European Commission President Jose Manuel Barroso and Council President Herman Van Rompuy said in a joint statement.

Nikolic was in government with Milosevic in 1999 when Serbian forces expelled almost 1 million ethnic Albanians from Kosovo and NATO intervened with air strikes. He once said he wished Serbia were a province of Russia, and still advocates a policy of economic cooperation with East as well as West.

But tracking the Balkan country’s gradual progress from pariah state to EU membership candidate in March, Nikolic has tried to reinvent himself as a pro-European conservative since splitting in 2008 from his firebrand mentor Vojislav Seselj, now on trial for war crimes in The Hague.

TADIC PUNISHED OVER ECONOMY, ELITISM

Contrary to dire warnings from some observers, the vote was “not a referendum for or against the EU”, Nikolic said, adding that he would seek talks with German Chancellor Angela Merkel as Serbia’s “main ally in the EU”.

Timothy Ash, global head of emerging-market research at the Royal Bank of Scotland, said, “Nikolic will, I think, be eager to prove – both to the electorate and the international community – that he and (his party) are now ready to govern, in a moderate manner, looking towards the next parliamentary election.”

It was third time lucky for Nikolic, who had twice lost to Tadic but won on Sunday with 49.5% versus 47.4%. Analysts said he benefited from the low turnout of 46%.

Tadic was abandoned by Serbs fed up with what many saw as a culture of elitism and complacency that had crept in under the reformers in power since 2000.

Nikolic’s man-of-the-people manner appealed to voters tired of the grinding transition from socialism to capitalism and an economic slowdown that has driven unemployment to 24%.

The region reacted with caution, but no drama.

Croatian Prime Minister Zoran Milanovic told state radio: “The Serbian people have chosen and we respect their will. In the European political spectrum, this is a political option that is less close to ours, but that is no reason not to cooperate.”

Sulejman Tihic, the leader of Bosnia’s biggest Muslim party, the SDA, told Reuters: “We respect the will of the Serbian people … and I do not expect a major shift in relations between our two countries.”

Kosovo President Atifete Jahjaga called on Nikolic “to do what his predecessors did not; to find the courage and take the steps to establish good and peaceful relations with Kosovo”.

DINAR WEAKENS, CDS SURGE

The Serbian dinar weakened against the euro on Monday on the post-election uncertainty. By late afternoon the dinar had dropped 0.9% to near an all-time low of around 114.5, dealers and traders said.

Serbian credit default swaps surged 22 basis points from the previous session’s close on doubts over the next government.

Data from Markit showed that the cost of insuring exposure to Serbia rose to 430 bps from Friday’s close of 408 bps. This is the highest level since May 10, as CDS have edged higher since Nikolic’s Progressive Party won a May 6 parliamentary election.

EU foreign policy chief Catherine Ashton congratulated Nikolic, and called for the “rapid formation of a new government committed to reforms and continued European integration.”

As president, Nikolic is expected to hand the mandate to form a new government to the Progressives, which could upset a tentative ruling alliance agreed between Tadic’s Democrats and the Socialists led by Milosevic’s wartime spokesman Ivica Dacic.

Dacic said on Sunday the deal would stand whatever the result of the run-off. But negotiations have yet to begin in earnest, and he was quoted in the Serbian daily Blic as saying: “Of course, everything’s now going to be more complicated.”

Even if the Democrats do form the government, an awkward “cohabitation” with Nikolic as president could slow reforms necessary to revive the flagging economy, rein in the public debt and clinch talks on joining the EU.

“The big questions about ‘whither Serbia’ will be answered as the parties settle who will be in the governing coalition,” said Marko Prelec of the International Crisis Group think-tank. “I don’t see any reason to doubt President Nikolic’s commitment to EU membership and regional peace and stability.” DM

Photo: Then Serbian Progressive Party leader Tomislav Nikolic (now president-elect) speaks during a pre-election rally in Belgrade, May 15, 2012. Nikolic goes head-to-head with incumbent President and Democratic Party leader Boris Tadic in a run-off for the presidency on May 20. REUTERS/Marko Djurica