* Bosnia Serb leader: "I hope to God" Bosnia dissolves
* Russia says EU envoy's report is "alarmist"
* Germany says EU report is "grim," welcomes progress
By Louis Charbonneau
UNITED NATIONS, Nov 13 (Reuters) - The European Union's top official in Bosnia slammed the leaders of the country's autonomous Serb Republic on Tuesday, saying they were seeking to undermine a peace agreement that has held the war-scarred former Yugoslav republic together since 1995.
The remarks from Valentin Inzko, the EU High Representative for Bosnia and Herzegovina, to the U.N. Security Council elicited an angry response from Russian U.N. Ambassador Vitaly Churkin, who said Bosnian Muslims - Bosniaks - were to blame for an escalation of tensions in the divided Balkan state.
"Republika Srpska authorities continue to pursue a policy that is, as the president of the Republika Srpska has frequently expressed in public, aimed at rolling back previously agreed steps that have been taken to implement the (Dayton) Peace Agreement," Inzko told the 15-nation Security Council.
"The most recent and troubling of these is an initiative sent by the president to the Republika Srpska National Assembly attempting to create conditions that would unilaterally force the dissolution of the Armed Forces of Bosnia and Herzegovina," Inzko said.
Bosnia has been governed along ethnic lines since the 1992-95 war, which killed an estimated 100,000 people and split it into two autonomous regions ruled by a weak central government in accordance with the 1995 Dayton peace deal.
An inconclusive election in 2010 led to more than a year of political paralysis as rival Serb, Croat and Bosniak leaders bickered over how to form a national government.
The impasse was broken at the end of 2011 and a government was elected in February this year, but divisions resurfaced over the budget.
HOPES FOR DISSOLUTION OF BOSNIA
In a 27-page report to the Security Council, Inzko was more specific about his concerns about the Bosnian Serbs. He quoted the president of the autonomous Serb Republic, Milorad Dodik, whom he described as "the most frequent, although certainly not the sole, proponent of (Bosnian) state dissolution."
"Bosnia and Herzegovina is a rotten State that does not deserve to exist," Inzko cited Dodik as saying.
"Bosnia and Herzegovina constantly confirms its inability to exist," Inzko continued. "Bosnia and Herzegovina is definitely falling apart and it will happen sooner or later. As far as I am concerned, I hope to God it dissolves as soon as possible."
Inzko said that Dodik's remarks should not be ignored.
"It would be a mistake to dismiss these words as empty or election-driven rhetoric," Inzko said, adding that the situation was serious enough to warrant "the particular attention" of the Security Council.
Churkin, who was former Russian President Boris Yeltsin's special envoy to Yugoslavia during the war in Bosnia, criticized Inzko's report and defended the Bosnian Serbs.
"Sadly (Inzko's) report to the Security Council is again written in alarmist tones and is critical of the Bosnian Serb leadership," he said.
"To create a more balanced impression of the processes going on, we recommend that he familiarize himself with the eighth report of the (Serb Republic) to the Security Council, in which the dedication of the Bosnian Serbs to international law and the Dayton Accords is clear," Churkin said.
"Russia supports the territorial integrity of Bosnia Herzegovina and is keen (to support) the sustainability and normal functioning of its institutions," he added.
Churkin acknowledged that there has been a deterioration of the situation in Bosnia over the last six months, though he said it was due to a worsening relationship between the two leading Bosniak parties, not the Serbs.
He added that one should not "overdramatize" the situation and called for abolishing the Office of the High Representative and transferring authority to the Bosnians themselves. Churkin also defended Dodik, saying he was seeking compromises.
Russia was the Bosnian Serbs' strongest advocate during the war and has remained a staunch ally of the Republic of Serbia, with its capital in Belgrade, since Yugoslavia's breakup.
German Ambassador Peter Wittig described Inzko's briefing as "a relatively grim analysis of the state of (Bosnian) reforms."
However, Wittig also welcomed "important signs of progress, particularly at the beginning of this year, such as the establishment of a new state-level government, agreement on a national budget and new laws on state aid and a census." (Editing by Gary Hill)