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BRUSSELS, May 17 (Reuters) - The European Union stands ready to negotiate closer ties and eventual membership with an independent Montenegro if the former Yugoslav state votes on Sunday to break away from a dysfunctional union with Serbia.
Officially the EU, which brokered the ground rules for the referendum, is neutral and wants a negotiated settlement between Podgorica and Belgrade whatever the outcome of the vote.
Privately, EU officials say Brussels has shifted from a mantra of "no new states" in the Balkans and a fear of humiliating Serbia, to a belief that independence is inevitable and best accomplished quickly.
Miroslav Lajcak, the EU's special envoy on Montenegro, says he is confident both sides will accept the referendum result as legitimate following agreements he brokered on the threshold for a "yes" vote and the register of voters.
The key rule is a requirement for 55 percent of votes cast for a "Yes" to independence.
"It's an open race. Both sides believe they can win," Lajcak, a senior Slovakian diplomat, told Reuters.
"That keeps both in the race, focusing on campaigning and not on obstructing."
Montenegro, a mountainous state with a population of 650,000, already uses the euro as its currency and does not have the same lingering problems as Serbia with failure to hand over suspected war criminals holding it back from EU negotiations.
Asked whether the EU would immediately recognise Montenegrin independence if the vote was more than 55 percent in favour, Lajcak said Brussels would await the outcome of talks to which leaders in Podgorica and Belgrade were both committed.
"We want to see coordinated moves," he said.
The European Commission suspended negotiations on closer ties with Serbia and Montenegro this month after Belgrade failed to arrest and hand over genocide suspect Ratko Mladic, the former Bosnian Serb military chief, as promised before May 1.
Enlargement Commissioner Olli Rehn told EU foreign ministers on Monday he would need a new mandate from member states to start negotiating a first-level association agreement with an independent Montenegro, participants said.
But talks could resume immediately where they left off and a deal could be achieved by the end of this year, he said.
That raises the prospect that Montenegro may race ahead of Serbia on the road to EU integration, compounding a sense of isolation and frustration among Serbs, who also face the loss of breakaway province Kosovo in U.N.-brokered negotiations.
EU officials say Prime Minister Milo Djukanovic, leader of the pro-independence camp, has largely cleaned up Montenegro's economy from the smugglers' haven tolerated by the West until 2000 because it resisted Serbian strongman Slobodan Milosevic.
Although the battle over independence has long split Montengrin society and individual families, Lajcak said he did not fear conflict whatever the outcome.
"The atmosphere is different. People are tired. There is no potential for serious incidents ... Everybody wants the issue off the agenda. One way or another, it should be resolved."
Privately, some EU officials say their nightmare is a result fractionally above or just below 55 percent, which the losing side might dispute.
But Lajcak has tried to narrow the scope for objections with about three times the usual ratio of international observers, making it hard to find reasons to contest the outcome.