BRUSSELS — European Union (EU) leaders on Friday agreed to open membership talks with Serbia by January at the latest, in recognition of its efforts to improve relations with breakaway Kosovo.

The Friday move is seen as a step of the EU toward embracing once-troubled countries in the Balkans.

Presidents and prime ministers from the 27 EU nations also welcomed Croatia's upcoming accession as the bloc's 28th member on Monday.

Earlier Friday, they overcame British-French divisions and agreed on seven-year, 960 billion euro ($1.3 trillion) budget. After a few hours of sleep, they returned in the morning to wrap up their two-day summit in Brussels.

With the second day of the summit focusing on the Balkans, the EU leaders also announced negotiations for closer ties with Kosovo, a possible step on the way to membership talks.

For both Serbia and Kosovo, the vital breakthrough came April 19, when the neighbors reached a historic agreement to normalize relations and end years of acrimony.

"This is historic," said EU Commission President Jose Manuel Barroso of the decision to open the membership talks with Belgrade.

"There is remarkable progress," an upbeat German Chancellor Angela Merkel said. "Many problems have been overcome."

She said the Council agreed to review progress on the implementation of the agreement between Kosovo and Serbia in December.

The agreement will see Serbia call off parallel security structures in the Serb-run north of Kosovo and encourage northern Kosovo's Serb population to work with the ethnic Albanian leadership in Pristina in exchange for more self-governance.

Kosovo, a former province of Serbia, declared independence in 2008. Over the years, Belgrade has said it would never recognize the sovereignty of Kosovo, which is considered by Serbia's nationalists to be the cradle of the country's medieval statehood and religion.

Kosovo has been recognized by over 90 countries including the United States and 22 of the EU's 27 members.

Merkel would not commit, however, whether a formal recognition of Kosovo would be a prerequisite to Serbia's EU accession, noting that "it will take quite a long" time until that decision is due. She said negotiations with Croatia were opened in 2004 but the accession will only happen on Monday.

Membership negotiations can take that long because any new EU nation has to bring reams of legislation into line with EU standards, from farm policy to human rights and legal issues. But Serbia is looking for the talks to take no more than five years.

After starting out as a largely western European group, the EU has steadily expanded east and into the Balkans to bring in several nations that were once dominated by communist regimes.