‘This place is shit.’ I had been talking to Mirad for all of thirty seconds before he felt obliged to preface my stay in Bosnia with this cautious disclaimer. ‘I want to get out of here as fast as possible. There’s nothing but shit for me here.’ After the Adriatic warmth of Croatia the night air was cool and alpine in Mostar, formerly the second biggest tourist destination in Tito’s Yugoslavia, as we walked from the bus station to his parent’s cottage.

Mirad had been working in a bar in Amsterdam over the summer and had returned for a few months to help run his brother’s hostelry, but, he assured me, repeating his pithy assessment, his stay would be temporary. The opinion was hardly startling in itself – it is possible to hear it across what has been dubbed, in an inaccurate epithet, ‘New Europe,’ by bullish young small-towners dreaming of Western social security and minimum wages. But Mirad’s forceful and unprompted candour was startling.

There are, of course, plenty of reasons for disillusionment in this corner of the Balkans. Anyone over the age of thirty is old enough to have fought in the vicious ethnic war that rumbled on through the early nineties to the general ambivalence of the international community. Over 200,000 people died between 1992 and 1995 in the conflict and Bosnia bears more than the outward scars of bullet ridden buildings. Mirad proudly tells me that his elderly father was an officer in Tito’s secret service, but another reality remains unmentioned: almost every adult male left in Mostar under the Croatian siege fought in Bosnia’s ragtag army. Mirad’s overriding memories are taking English lessons in the school basement by candlelight as shells crashed overhead; his father, muted by lack of English, stands outside his house expectantly, puffing cigarette after cigarette.

An astonishing fact is just how little bitterness Bosnians display about a tragedy that would have taken little effort from Washington and Europe to stop. There is a large road intersection in Mostar, shaped by some yellowed grass, called the Spanish Square. A few hundred metres away, over the river, a plaque commemorates the deaths of ten Spanish sourced UN soldiers who were killed by Croat gunfire. But the event is memorialised simply because there were so few UN casualties during their peacekeeping mission from 1992 and none at all after NATO troops were finally deployed in 1995.

The Clinton administration had originally asserted that it was too dangerous for American troops to intervene against the Russian-armed Serbian military and classified Serbian and Croatian aggression against a nascent Bosnian state as ‘civil war.’ In an excruciating example of Western cynicism, policymakers argued that the democratically elected Bosnian government should accept dismemberment in order to not to prolong the bloodshed. UN peacekeepers proved ineffective at curtailing the horrifying excesses of the Serbian, Croatian and Bosnian militias and completely inadequate at stopping the conflict.

Policy was only changed after a Serbian mortar bomb was lobbed into a crowded market in Sarajevo, instantly killing 68 shoppers. The threat of air strikes by NATO commander Sir Michael Rose instantly lifted Radovan Karadzic’s siege on Sarajevo but it was only after the Dayton Agreement and the deployment of NATO forces in 1995 that peace was secured in Bosnia, as it has been ever since.

These days the only things that jog the west’s collective memory about Bosnia are the sanitised environment of The Hague’s international criminal court and the interminable stage show of tribunals against vaguely familiar Serbian war criminals. A year ago Kosovo seceded from Serbia, reopening newswires from Pristina and Belgrade and putting the 46,000 strong NATO mission on alert. There were concerns that this further splintering of the racial mosaic could lead to resumption in violence, but in the short term the presence of KFOR and the election of the pro-European Boris Tadic as president shortly afterwards seemed to suggest that there was optimism for Serbia’s future.

This has been seriously dented after the global financial crisis began to impact economies in the western Balkans. A currency crisis in much of Eastern Europe has left nascent financial institutions vulnerable and homeowners mortgaged with Western banks facing repossession as their national currency depreciates against the Euro. In February Serbia's government sought a new arrangement with the IMF to quadruple its existing loan. It may need even more money from the World and European Banks before the year is out.

But while high growth rates have driven borrowing in countries like Serbia and Hungary, Bosnia does not have a rapidly expanding economy to explain its financial nightmare. There are some cranes in Mostar, but they are wildly outnumbered by ruined buildings. Walking along the final front between Croatian and Bosnian soldiers in 1994, now a busy highway flanked by burnt out office blocks, Mirad explains to me how American and European money to pay for the reconstruction has been siphoned off by politicians or local business elites meaning that repairing Bosnia’s infrastructure is a piecemeal operation. Now Mirad is worrying that the money is drying up as foreign countries see Bosnia as ‘fixed’.

An Australian security and political analyst working with Balkan governments explained the difficulties of business and governmental reform in these countries: ‘regarding helping politicians build a good business environment, there is no difference in dealing with political and business elites.’ The dominance of family networks and local political cadres in Bosnia is startling. Mirad, our highly intelligent and motivated host, had once run the administration of a shopping centre before his job was ‘given’ to the son of the local police chief, apparently a man with no qualifications at all.

Abuses of this kind understandably breed pessimism among young people like Mirad about their country. They also feed into wider anger with politicians that is in danger of exploding as the economic situation deteriorates. As the government attempts to plug a huge hole in its budget deficit and keep spiralling debt under control welfare provision for the growing number of unemployed has been cut back. This has provoked fury among the disabled and out of work, many of whom are veterans of the war. In February demonstrators broke into a session in the parliament, causing it to be abandoned; decommissioned servicemen blocked a major highway in protest at cuts in their benefits. Fuad Kasimovich, the deputy finance minister, has declared the country ‘in crisis… more and more people are losing their jobs, industries cannot get financing and financing has become more expensive.’

Bosnians have a keen sense of irony when it comes to Radovan Karodic

Boban Matovich is the sort of Bosnian who would seem to promise a future for the debilitated country. Born in Republika Srpska, the country’s Serbian enclave, the 20-year-old moved to Sarajevo, trained himself as a chef and was head of the kitchen in a smart Italian restaurant. But his culinary interest was limited only to his desire to finance a degree in psychology. His parents being unable to afford the fees, and the state offering no help, Boban works 29 days of the month in the restaurant for 600 Euros. The financial complaints of undergraduates at Oxford seem tawdry by comparison.

After the economic crash hit Bosnia, Boban lost his job, like many others have and will. But what is more striking is the talent Bosnia has been wasting long before the autumn. There is no shortage of energy and ambition among young people there. In Mostar, Mirad had taken me to the youth centre started by his brother and a few friends. With no government money to help them they improvised an old war bunker for a music venue and built a recording studio and art centre. One night I attend a gig headed by Mostar’s two most celebrated DJs. They played Serbian influenced techno with an innovative Bosnian-folk twist. Around us bohemian types worthy of the Notting Hill arts club leant on deteriorating sandbags.

Whether Bosnia can similarly find out of its misfortunes reasons for optimism will depend largely on the attitude of the European Union and the rest of the international community. It is clear that it will be impossible to go it alone. Bosnia’s tripartite government, split between its Croatian and Bosnian elements and the Republika Srpska, has limited its reformist zeal, mainly because of the obduracy of the latter to allow any centralisation of power in Sarajevo. The incompetence of its leadership led Miroslav Lajcak, the European high representative (EUHR) responsible for the country’s development, to resign. ‘Nobody,’ he said, ‘wants to ride a dead horse.’

While EU membership has been dangled tantalisingly in front of Serbia and economic vulnerability has increased calls for Croatian fast track membership, it is clear that this is still a fantasy for Bosnians. Nevertheless, integration of her two neighbours would vastly enhance Bosnia’s prospects, not least because of the part it would encourage them to play in its development. Bosnia has been a laboratory for institutional experimentation by the EU and since Lajcak’s resignation there have been calls for the office of the EUHR to be integrated into the delegation of the European Commission in Sarajevo, its third largest office outside Europe. This would be one way of streamlining EU influence. The current amalgamation of the EUHR with the Office of the High Representative (OHR), the international body responsible for the maintenance of the Dayton agreement, has manifestly failed.

It would be easy for Western policymakers to display the same amount of cynicism for the development of Bosnia as it did over its tragedy in the nineties. But aside from moral responsibility for a country only a few hundred miles from Rome, they would be missing out on a historic opportunity. After being overrun by the Turks in the 15th century, a Western pope bemoaned the loss of ‘the richest kingdom in Christendom.’ While this might seem anachronistic today, Bosnia’s cultural heritage is as rich as any in Western Europe and its natural beauty drew the 1984 Winter Olympics to Sarajevo. There is every chance that it could enjoy the same tourist boom as Croatia has in recent years. As the financial crisis demands that Bosnia embraces reform, the EU can take a bigger role than ever in using its clout to transform the country.

The alternative – a disintegrating social fabric as the economy collapses and a disintegrating state as an ethnically divided country splits up – would be disastrous. Walking between the starched white stakes of a Muslim cemetery in Mostar, there is a terrifying consistency to the graves. Almost everybody’s dates seem to share a single endpoint: 1993-1994. Suddenly a nearby minaret sounds for midday prayers and the city seems to be crying for its lost generation. Perhaps Mirad and Boban will not be so similarly abandoned.