A man pushes a cart filled with collected cardboard boxes past posters of former Bosnian Serb army commander Ratko Mladic

The European Union has suspended talks on closer ties with Serbia, after Belgrade failed to hand over a key war crimes suspect.  The EU move comes at a critical time for Serbia.

In a statement from Brussels, European Enlargement Commissioner Olli Rehn says it is "disappointing" that Serbia has failed to locate, arrest, and transfer war-crimes suspect Ratko Mladic to the U.N. tribunal in The Hague.

Mladic is wanted for genocide and crimes against humanity.

Serbia failed to meet a Sunday EU deadline to detain Mladic.  As a result, Brussels has suspended talks with Belgrade that may have led to a special agreement and, down the line, possible EU membership.

A key negotiator in the talks, Serbian Deputy Prime Minister Miroljub Labus resigned following the EU announcement. 

Every Balkan country except Bosnia and Serbia has such a special EU agreement that provides closer political and economic ties.

Serbia wants such an agreement as well, says Katinka Barysch, an EU enlargement expert at the Center for European Reform in London. 

"They have a couple of very difficult questions coming up this year, the final status negotiations in Kosovo, and there is a referendum coming up in Montenegro, which might split the current federation of Serbia-Montenegro," she said.  "So the Balkan countries generally believe that in order to overcome all these tricky questions of nationalities and boundaries they need to have a common European destiny."

Barysch believes Europe is right to take a tough line with Serbia.  For one thing, the European Union is only allowed to negotiate agreements with countries that are democratic and uphold human rights, and Serbia's failure to hand over Mladic poses a critical problem.

Barysch says Brussels has been enormously successful at forcing other Eastern European countries to adopt reforms in the past.

"You only have to look at countries that have joined the European Union in 2004," she added.  "They generally have very well functioning democracies.  The objective of EU accession served as a real anchor for the democratization process and also for economic reforms."

Barysch says that when the European Union has been less tough, it has been less successful.  That is the case of EU candidate countries Romania and Bulgaria, which have both been slow to implement economic and political reforms.