Belgrade, Yugoslavia ? Agreeing to wipe the name Yugoslavia from the map of Europe, the federation’s two remaining republics committed Thursday to forming a loose joint-state with a new name: Serbia and Montenegro.

The radically restructured alliance  mediated by the European Union and approved in a historic accord signed by top Serbian and Montenegrin leaders  aims to ease years of feuding between the republics and help the volatile Balkan region focus on much-needed economic reforms.

It was a major policy victory for the United States and the EU, which feared the discord would lead to a further fragmentation of the region that is returning to peace after more than a decade of war.

However, many Serb and Montenegrin nationalists were unhappy with the accord and could pose a challenge to its ratification.

“We went to bed in one state, and we woke up in another,” said Branko Ruzic, spokesman for the party of former Yugoslav President Slobodan Milosevic.

The two semi-independent states will share a common defense and foreign policy but will maintain separate economies, currencies and customs services  at least for the time being. After three years, both states will be free to organize referendums on independence and secede if they choose.

The political accord also calls for elections for a new parliament in the fall. This legislature will replace the current bicameral parliament with one chamber in which the two entities will be equally represented. The legislatures of both republics, as well as the existing parliament, must endorse the accord by June, when the country’s name will also be formally changed.

Yugoslavia began to unravel along ethnic lines during Milosevic’s reign. Slovenia, Croatia, Macedonia and Bosnia-Herzegovina all declared their independence by 1992, opposing his hard-line nationalist policies.

Serbia and Montenegro stayed together, but their alliance began to crumble in 1997 when Montenegro’s president, Milo Djukanovic, distanced himself from Milosevic and started advocating independence for his republic, which was dominated by Serbia in the federation. Montenegro, a territory just larger than Connecticut, has a population of 650,000, compared to nearly 10 million in Serbia, a republic about the size of Indiana.