Owen persuades EC ministers to pin hopes on Panic

THE European Community yesterday drew back from imposing tough new measures against Serbia, after Lord Owen, the EC peace envoy, said he thought the influence of Milan Panic was growing. Mr Panic, the Prime Minister of the rump Yugoslavia - Serbia and Montenegro - is seen as a moderating influence.

EC foreign ministers, meeting in Brocket Hall in Hertfordshire, brandished the threat of further moves to isolate Serbia. They said that there had been progress since the London conference on Yugoslavia last month, but not enough. They said that they wanted to see an international humanitarian court set up to try those guilty of breaching the Geneva Convention.

Lord Owen briefed the ministers after his trip to Sarajevo, Zagreb and Belgrade. Despite an agreement on co-operation to end ethnic conflict, he told ministers that more needed to be done to push Serbia towards peace. A deadline for putting heavy weapons under UN supervision passed yesterday lunchtime and though early indications were that Bosnian Serb forces around Sarajevo had complied, Lord Owen said that in other areas - including the besieged Muslim town of Gorazde - some heavy weapons had been kept back.

The ministers will push forward with plans for a 'no fly zone' over Bosnia, amidst indications that the Italian aircraft shot down last week may have been mistaken by Croatian forces for a hostile aircraft, flown by Bosnian Serbs. They will draw up a draft UN Security Council resolution. Indications from the US that this might include Western air patrols over Bosnia were played down; British officials said that it was more likely that monitors on the ground would police such action.

But Lord Owen asked the EC not to push ahead with more extreme measures. He told the ministers that Mr Panic was growing in stature, a British official said. The evidence for this was his appointment of a new, more moderate foreign minister, and his good relationship with the armed forces and with Dobrica Cosic, the President of Yugoslavia. The ministers decided to close loopholes in existing sanctions by sending monitors to Romania, Hungary and Bulgaria.

A team of EC ministers has just finished a trip to the three countries, and says that application of sanctions has already been made more effective. Total trade has been cut by between a half and three quarters, and oil imports are down by 80 per cent. The result is that unemployment has more than doubled, to over 1,000,000 - about 35 per cent of the working population. Foreign Office estimates put annual inflation at 7,200 per cent.

There is still concern that some goods may be entering from the Adriatic, but no moves were taken to give Western naval patrols the right to stop and search vessels; at the moment, they can only monitor. Nor did the meeting decide to quash Yugoslavia's membership of the United Nations, currently in abeyance pending a decision on the successor state to the former federation. Instead, they said that the rump Yugoslavia cannot participate in the UN. 'We do not want to pull the rug totally from under Panic,' said an official.