Macedonia calm shattered by shells

Pardew will work with EU peace envoy Francois Leotard

SKOPJE, Macedonia -- Heavy shelling and machine gun fire has erupted around Macedonia's western town of Tetovo and near a village northwest of the capital Skopje after a weekend of calm.

Eyewitnesses told Reuters that two Mi-24 helicopter gunships flew towards the village of Radusa on Macedonia's western border with Kosovo on Sunday evening.

At least 10 loud explosions came from the area before the helicopters returned, flying over Skopje.

The village, occupied by ethnic Albanian guerrillas, has been a flashpoint in the four-month old conflict between the rebels and the Macedonian army for about two weeks.

IN-DEPTH Macedonia: Hurdles to peace   •  Balkan hotspots   •  Interactive map   •  Macedonia's military   •  News search   •  Audio/video archive   •  In-Depth: Yugoslavia   •  In-Depth: Kosovo   PROFILE Francois Leotard

Eyewitnesses in Tetovo said they heard artillery and automatic gunfire in the area around the hillside villages of Gajre and Sipkovica to the west of the mainly-Albanian town.

Earlier, ethnic Albanian rebels were reported to have moved into four villages close to Tetovo.

The rebels took control of Otunje, Varvara, Setloe and Brezno, on Sunday ordering villagers to leave, reports quoted by the Associated Press said.

The renewed fighting began as newly-arrived U.S. and European Union envoys began talks with Macedonian policitians to try to forge a peace agreement before the conflict slides into civil war.

U.S. special envoy to Macedonia James Pardew will work closely with the EU's Francois Leotard.

VIDEO CNN's Nick Robertson reports on President Trajkovski's struggle to maintain control in Macedonia (June 26) Play video (QuickTime, Real or Windows Media)

"It is important to understand that the responsibility for solving this problem, this conflict, rests with the leaders in Macedonia," Pardew said.

"The international community is here to assist them."

In counseling against the use of force, he said: "This should be resolved through political dialogue and a political negotiated process. Those who seek to resolve this by force are in fact undermining that process."

EU officials have warned Macedonia that aid could be suspended if the country's Slavs and ethnic Albanians fail to bridge their differences.

On Friday, NATO formally approved plans to send a 3,000-strong force to Macedonia to help disarm ethnic Albanian rebels, reflecting growing international involvement in Macedonia.

But the force will only be deployed if a lasting political agreement and cease-fire takes hold to resolve the country's crisis.

On Sunday, Reuters reported German Defence Minister Rudolf Scharping as saying Germany was prepared to send several hundred troops to Macedonia as part of a possible NATO peacekeeping force.

"If a planned force contains around 3,000 men, then our contribution would be two or three companies," Scharping said in article due to appear in Monday's Berliner Zeitung newspaper.

"No country in Europe is in a position to send the same sized force as went into Kosovo. But based on NATO plans up to now, Germany can make an appropriate contribution," he said.

Macedonian and ethnic Albanian political leaders have been discussing ways to improve minority rights to undercut the four-month-old rebellion, but talks have stalled.

The government says the rebels are "terrorists" intent on breaking up the country. The rebels say they are fighting for more rights for ethnic Albanians.

The government announced on Saturday it is to introduce a war tax to cover a widening budget deficit caused by the worsening security situation in the country, the state MIA news agency said.

Macedonian Finance Minister Nikola Gruevski said in an interview on state radio that the government was planning for a budget deficit of $200 million, but warned it could become larger if the conflict spread further.

"Instead of a balanced budget this year we are going to have a $200 million deficit and we will be lucky if that is the only consequence," he said.

MIA said the move, endorsed by parliament, meant that all non-cash transactions by legal entities and individuals would be taxed by 0.5 percent. The amount would be one percent for cash payments.

The tax covers all domestic and foreign legal entities and individuals, as well as non-government organisations.

The tax comes into effect on Sunday and extends to the end of the year. It is expected to add about 2.3 billion denars ($30 million) to the state coffers, MIA said.

Gruevski said Macedonia could also expect a $65 million deficit in its balance of payments and that productivity had slowed.