Serbian Prime Minister Vojislav Kostunica resigned on Saturday, dissolving a coalition too divided over the loss of Kosovo to carry on governing. Kostunica said he would recommend an election in May, to allow voters to decide the way forward.

Serbia?s fragile economy has already been hit by the political uncertainty. The volatile stock exchange has fallen and the dinar currency has lost 6 % since January. ?A government that has no united policy cannot function, of course, and this is the end of the government.? Kostunica told a news conference. ?That means that we have to give the mandate back to the people.?

His announcement was the climax to a tortuous political struggle over a fundamental question that now faces Serb voters: should they go on working to join the European Union even though the EU has recognised the secession of their cherished province.

Nationalist Kostunica says ?No?. His erstwhile main coalition partner President Boris Tadic says ?Yes?. The strains between them reached breaking point three weeks ago after Kosovo declared independence and Belgrade was hit by anti-Western rioting. ?I have called a government session on March 10 to discuss dissolution of parliament,? he said, adding that he would propose scheduling a general election for May 11.

Kostunica, 63, took the helm of the 10-month old government last May only after protracted coalition talks with Tadic. ?I respect the prime minister?s decision that he is no longer able to lead the government of Serbia and when I get the government?s decision, I will call an election,? said Tadic, the 50-year-old leader of the pro-Western Democratic Party.

?Elections are the democratic way to overcome political crises and the people are the only ones who have right to decide which is the way forward for Serbia.? Kostunica gave no clue on Saturday to whether his small nationalist party would now seek an alliance with the hardline nationalist Radical Party ? Serbia?s biggest ? and the smaller Socialist Party of the late autocrat Slobodan Milosevic.

Such a coalition would be likely to adopt an unyielding position on Kosovo. The parties favour shutting down Serbia?s bid for EU membership and possibly turning to Russia, which has strongly backed Kostunica?s stance on Kosovo.