* EU takes up Serbian plan for Balkans common market
* Worried by Russia, EU tries to regain leverage
* Kosovo, for one, sees unwanted echoes of the past
* EU enthusiasm for enlargement evaporating
By Matt Robinson and Fatos Bytyci
BELGRADE/PRISTINA, April 7 (Reuters) - Serbian President-elect Aleksandar Vucic likes to use the past to explain the future.
In 1947, as Josip Broz Tito was consolidating Yugoslavia, he built a railway through Bosnia that linked Serbs, Croats and Muslim Bosniaks, friend and foe after World War Two.
"Tito wasn't stupid," Vucic told Reuters. "People had to work together, build together, then travel together, live together. That's what we need – connecting."
Yugoslavia broke up in war 26 years ago, spawning seven states. Now, the European Union has taken up a project put forward by Vucic that would see five of them – plus Albania – joined once more, this time in a common market.
It would abolish all remaining tariff barriers, lift obstacles to the free movement of people, commodities and services and introduce standard regulations across the region.
The EU wants an outline agreed in July, seizing on the idea as a way to re-engage with Balkan states unnerved by the bloc's evaporating enthusiasm for further enlargement and exposed to the growing influence of Russia.
But it has received a mixed reception.
Kosovo, for one, fears being roped back into a Serbian-dominated union of the kind it fought to leave; others worry it will only slow their accession to the EU, or worse still replace it.
The EU has delegated development of the plan to the Regional Cooperation Council. Its head, Goran Svilanovic, told Reuters Balkan leaders were "increasingly realistic" about the reduced appetite in Brussels for EU enlargement. "They see what's up in the EU," he said.
But they will work together on the Balkan market plan and with the EU "when it comes to something they see is ... bringing change to their daily lives."
MARKET OF 20 MILLION
For years, the prospect of EU accession has stabilised relations and driven reform in a turbulent and impoverished region.
But since Croatia followed ex-Yugoslav Slovenia in joining in 2013, the EU has been beset by problems of migration, Brexit and right-wing populism. A year later, European Commission President Jean-Claude Juncker ruled out any further expansion until at least 2020.
Stability and democracy in the Balkans have suffered.
Juncker was stating a fact, a senior EU official told Reuters, but in hindsight he had made "a huge mistake."
"A lot of things that were in progress just stopped," the official said. Another EU diplomat said Brussels had "dropped the ball" and was trying to re-engage.
One of the results is the Western Balkans Common Market, which would build on the Central European Free Trade Area, CEFTA. All six countries are members of CEFTA but the pact has struggled to stimulate trade within the region and some barriers remain.
Backers of the plan say a single economic space with a market of 20 million people would be more attractive to investors than six small states each with their own red tape.
"Investors would be banging down our doors," said Vucic, Serbia's prime minister who was elected president on Sunday.
The EU says it would mark a step towards membership, not an alternative.
But it did not go unnoticed that enlargement had no place in a March document by Juncker that set out the options for the EU after Britain leaves in 2019.
"Create your own common market (because you are not joining ours)," was the headline of an opinion piece last month by Kosovo analyst Besa Shahini on the Pristina Insight website.
Kosovo threw off Belgrade's repressive rule in a 1998-99 war, and is wary of Serbia as the biggest country in the region and a friend of Russia.
"We don't want to see a Serbia that behaves in the style of Russia, trying to politically dominate the region," Kosovo Foreign Minister Enver Hoxhaj said of the initiative on Tuesday.
Prime Minister Isa Mustafa took to Facebook: "We share different experiences of the past," he wrote. "We do not want that past to return, repackaged."
Sokol Havolli, an adviser to Mustafa, told Reuters the project risked slowing the region's EU integration.
Asked if a common market may become a substitute for EU enlargement, Vucic said that "should not and must not" happen but said he had heard, unofficially, of such fears in Montenegro.
The office of Montenegrin Prime Minister Dusko Markovic told Reuters Podgorica had yet to receive a detailed proposal, but that it supported greater regional cooperation.
An Albanian official, who spoke on condition of anonymity, said Tirana was "sceptical".
Kristof Bender, deputy chairman of the European Stability Initiative, a Brussels-based research group, said he would be surprised if creating a club of poor economies would do much to address the region's woes.
Nor could it be a "credible alternative" to the narrative of prosperity and stability inside the EU.
"If this narrative evaporates, Balkan politicians will need to look for other narratives," Bender told Reuters. "Given recent history, this is dangerous."
Today, the railway Tito built speaks less of the future than the folly of the past: as trains cross between Bosnia's two ethnically-based regions, different crews take over, reflecting how power was divided up in order to end the 1992-95 war. Part of the line is no longer used.
Vucic said critics of his idea argued they simply wanted to leave the Balkans behind and join the EU.
So does Serbia, he said. "But does that mean we should lose the next three, four, five years when we know we're not going to become a member?" (Additional reporting by Alastair Macdonald and Gabriela Baczynska in BRUSSELS, Maja Zuvela in SARAJEVO, Benet Koleka in TIRANA and Petar Komnenic in PODGORICA; Writing by Matt Robinson)
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